Stocks Reversing Higher into Final Hour on Euro Bounce, Less Financial Sector Pessimism, Short-Covering

Broad Market Tone:

• Advance/Decline Line: Lower
  
• Sector Performance: Most Rising
  
• Volume: Above Average
  
• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• VIX 33.15 -3.88%
  
• ISE Sentiment Index 116.0 +17.17%
  
• Total Put/Call 1.12 +16.67%
  
• NYSE Arms .70 -64.55%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 128.65 bps +1.63%
  
• European Financial Sector CDS Index 186.28 bps +6.25%
  
• Western Europe Sovereign Debt CDS Index 143.50 bps +1.18%
  
• Emerging Market CDS Index 310.36 bps +2.54%
  
• 2-Year Swap Spread 43.0 -3 bps
  
• TED Spread 43.0 unch.
  

Economic Gauges:

• 3-Month T-Bill Yield .10% -1 bp
  
• Yield Curve 243.0 -2 bps
  
• China Import Iron Ore Spot $146.60/Metric Tonne -.61%
  
• Citi US Economic Surprise Index +2.60 -2.3 points
  
• 10-Year TIPS Spread 1.93% -3 bps
  

Overseas Futures:

• Nikkei Futures: Indicating -22 open in Japan
• DAX Futures: Indicating +12 open in Germany

Portfolio:

• Slightly Higher: On gains in my Retail, Medical and Biotech long positions
  
• Disclosed Trades: Covered some of my (IWM)/(QQQQ) hedges and some of my (EEM) short
  
• Market Exposure: Moved to 75% Net Long

BOTTOM LINE: Today's overall market action is mildly bullish as the S&P 500 trades near session highs on a bounce in the euro and rises in (XLF)/(IYR). On the positive side, Food, Restaurant, Insurance, Bank, Telecom, Paper, Utility, Steel, Energy and Coal stocks are especially strong, rising .75%+. Weekly retail sales rose +3.6% this week versus a +2.7% gain the prior week. This is the biggest gain since the week of April 6. On the negative side, HMO, Hospital, Biotech, Disk Drive, Oil Tanker and Alt Energy shares are under pressure, falling more than -1.0%. The tech sector has underperformed throughout the day again and remains a big worry. The California Municipal CDS is rising +4.8% to 293 bps, which is the highest since March 1. The GE Capital CDS is rising 8.0% to 271.64 bps, which is the highest since Sept. of last year. Given the market's oversold state, today's rally could be extended a few days. However, until gauges of credit angst begin to roll over, I would view any meaningful stock rally as suspect. I expect US stocks to trade modestly higher into the close from current levels on short-covering, less financial sector pessimism and bargain-hunting.