Stocks Rising into Final Hour on Short-Covering, Euro Bounce, Options Expiration, Tech Sector Optimism

Broad Market Tone:

• Advance/Decline Line: Lower
  
• Sector Performance: Most Sectors Declining
  
• Volume: Below Average
  
• Market Leading Stocks: Outperforming
  

Equity Investor Angst:

• VIX 26.14 +.89%
  
• ISE Sentiment Index 115.0 +74.24%
  
• Total Put/Call .85 -10.53%
  
• NYSE Arms 1.89 +51.70%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 115.59 bps -2.69%
  
• European Financial Sector CDS Index 142.83 bps -6.43%
  
• Western Europe Sovereign Debt CDS Index 143.0 bps +.35%
  
• Emerging Market CDS Index 261.74 bps -3.63%
  
• 2-Year Swap Spread 36.0 +1 bp
  
• TED Spread 45.0 unch.
  

Economic Gauges:

• 3-Month T-Bill Yield .09% unch.
  
• Yield Curve 248.0 -6 bps
  
• China Import Iron Ore Spot $143.10/Metric Tonne unch.
  
• Citi US Economic Surprise Index -15.90 -5.1 points
  
• 10-Year TIPS Spread 2.01% unch.
  

Overseas Futures:

• Nikkei Futures: Indicating -21 open in Japan
• DAX Futures: Indicating -13 open in Germany

Portfolio:

• Slightly Higher: On gains in my Technology, Biotech and Medical long positions
  
• Disclosed Trades: None
  
• Market Exposure: 75% Net Long

BOTTOM LINE: Today's overall market action is mildly bullish as the S&P 500 moves to session highs on another bounce in the euro and tech sector strength. On the positive side, Gold, Computer, HMO and Road/Rail stocks are rising on the day. Market leading tech stocks continue to outperform. On the negative side, Homebuilding, I-Banking, Bank, Steel, Oil Tanker and Coal shares are especially weak, falling 1%+. Cyclical shares are underperforming. (XLF) has underperformed throughout the day. Recent comments from (FDX), (BBY) and (TOL) are worrisome. The rise in the Illinois municipal cds to a record is also a large negative. As well, despite gains in European stocks and declines in some eurozone cds, the Western Europe Sovereign CDS Index is rising slightly. Copper appears to be rolling over again, falling -3%. AAII % Bulls rose to 42.5 this week, while the % Bears fell to 30.7, which is a negative. The Shanghai Composite, after being closed for a few days during the recent global equity rally, re-opened last night and fell -.4%. Today's broad market action is a bit worse than the major averages suggest. (AAPL) and stocks that benefit from its success continue to strongly support the Naz. The market continues to remain resilient in the face of mounting headwinds. The euro appears to be strengthening on short-covering and a deterioration in US economic activity, rather than on improving eurzone prospects. The bounce in the euro, low market exposure by hedge funds, (AAPL) optimism and options expiration are likely the main reasons for today's stock resilience in the face of more bad news. Action over the next couple of days should give a better picture on whether or not the recent rally is sustainable. I expect US stocks to trade modestly lower into the close from current levels on more shorting, rising financial sector pessimism, profit-taking and rising economic fear.