Stocks Reversing Higher into Final Hour on Short-Covering, Less Real Estate Sector Pessimism, Bargain-Hunting and Technical Buying

Broad Market Tone:

• Advance/Decline Line: Higher
  
• Sector Performance: Most Rising
  
• Volume: Slightly Below Average
  
• Market Leading Stocks: Outperforming
  

Equity Investor Angst:

• VIX 26.82 -2.29%
  
• ISE Sentiment Index 146.0 +37.74%
  
• Total Put/Call 1.06 +11.58%
  
• NYSE Arms 1.09 -50.71%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 114.06 bps +1.78%
  
• European Financial Sector CDS Index 128.02 bps +3.61%
  
• Western Europe Sovereign Debt CDS Index 150.33 bps +3.83%
  
• Emerging Market CDS Index 241.90 bps +1.05%
  
• 2-Year Swap Spread 19.0 +1 bp
  
• TED Spread 15.0 -1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .15% unch.
  
• Yield Curve 200.0 -2 bps
  
• China Import Iron Ore Spot $147.40/Metric Tonne -1.29%
  
• Citi US Economic Surprise Index -64.30 -6.5 points
  
• 10-Year TIPS Spread 1.55% +4 bps
  

Overseas Futures:

• Nikkei Futures: Indicating +45 open in Japan
• DAX Futures: Indicating +23 open in Germany

Portfolio:

• Higher: On gains in my Medical, Biotech, Retail and Tech long positions
  
• Disclosed Trades: Covered all of my (IWM)/(QQQQ) hedges and some of my (EEM) short
  
• Market Exposure: Moved to 100% Net Long

BOTTOM LINE: Today's overall market action is bullish as the S&P 500 reverses higher to session highs despite very poor economic data, meaningful weakness in overseas equities, euro weakness and sovereign debt worries. On the positive side, Education, REIT, Homebuilding, HMO, Hospital and Gold stocks are especially strong, rising 2%+. Small-caps are outperforming. A number of market leaders made key technical reversals today. Given recent housing data, the moves higher in (XHB) and (IYR) are noteworthy once again. (BAC), (WFC) and (C), which have been a focus of the bears, are trying to reverse into positive territory. Moreover, despite today's data the 10-year yield has reversed +11 bps higher to 2.54%. Equity investor angst is still pretty high with the total put/call ratio opening at 1.36 this morning. The TED and Libor-OIS spreads continue to drop significantly. On the negative side, Airline, Coal, Oil Service and Ag shares are weak, falling more than 1.0%. The European Investment Grade CDS Index is rising +3.38% to 110.42 bps. The Spain sovereign cds is rising +4.22% to 241.02 bps, the Ireland sovereign cds is gaining +7.77% to 320.91 bps and the Russia sovereign cds is rising +4.83% to 180.22 bps. Given recent stock declines and higher levels of investor angst, I suspect a poor jobless claims report tomorrow and weak revised 2Q GDP report on Friday won't surprise investors. However, overseas shares need to stabilize and key cds indices should begin to roll over again before any sustained US stock rally can occur, in my opinion. I expect US stocks to trade modestly higher into the close from current levels on short-covering, bargain-hunting, technical buying, less real estate sector pessimism and buyout speculation.