Stocks Sharply Higher into Final Hour on Options Expiration, Short-Covering, Less Energy Sector Pessimism, Technical Buying

Broad Market Tone:

• Advance/Decline Line: Substantially Higher
  
• Sector Performance: Every Sector Rising
  
• Volume: Below Average
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 25.99 -9.13%
  
• ISE Sentiment Index 109.0 +32.93%
  
• Total Put/Call .83 -23.15%
  
• NYSE Arms .28 -80.42%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 122.06 bps +1.17%
  
• European Financial Sector CDS Index 153.60 bps +1.68%
  
• Western Europe Sovereign Debt CDS Index 139.0 bps +.36%
  
• Emerging Market CDS Index 272.40 bps -1.74%
  
• 2-Year Swap Spread 32.0 -2 bps
  
• TED Spread 47.0 -2 bps
  

Economic Gauges:

• 3-Month T-Bill Yield .07% +2 bps
  
• Yield Curve 254.0 +1 bp
  
• China Import Iron Ore Spot $143.10/Metric Tonne unch.
  
• Citi US Economic Surprise Index -12.10 +1.5 points
  
• 10-Year TIPS Spread 2.02% +2 bps
  

Overseas Futures:

• Nikkei Futures: Indicating +178 open in Japan
• DAX Futures: Indicating +25 open in Germany

Portfolio:

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

BOTTOM LINE: Today's overall market action is bullish as the S&P 500 trades substantially higher, near session highs, despite quite a bit of negative news. On the positive side, Airline, Networking, Semi, Oil Service, Alt Energy and Coal stocks are especially strong, rising 3.0%+. Cyclical shares are outperforming again. Tech trades very well. Copper is rising another +.9% today. Weekly retail sales rose +3.1% this week versus a +3.6% gain the prior week, but up from a +2.4% gain the first week of May. On the negative side, Retail, Hospital, HMO, Medial, I-Banking, Computer Service and Telecom shares are underperforming. The Greece sovereign cds is rising +10.6%% to 858.63 bps today. It has only been higher on 4 other days since the crisis began. Moreover, the Spain sovereign cds is rising +10.2% to 246.72 bps and the California municipal cds is rising +3.2% to 295 bps, which is the highest its been since February. Lumber is dropping another -1.2% today to another new 52-week low. Lumber has plunged -37.5% since April 21st. The much-larger-than-expected decline in the NAHB Index today also bodes poorly for a continutation of the US housing recovery. Most credit default swaps are not confirming the recent move higher in global equities, which is also a large red flag. The S&P 500 is rising just above its 200-day moving average today on below average volume. So far, this is not a convincing breakout. As well, I suspect much of today's move is related to options expiration on Friday and the ongoing short-covering bounce in the euro. I expect US stocks to trade modestly lower into the close from current levels on rising sovereign debt angst, more shorting and profit-taking.