Stocks Slightly Higher into Final Hour on Less Economic Fear, Short-Covering, Earnings, Tax Policy/Election Optimism

Broad Market Tone:

• Advance/Decline Line: Substantially Lower
  
• Sector Performance: Most Declining
  
• Volume: Around Average
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 19.98 +.96%
  
• ISE Sentiment Index 96.0 -28.89%
  
• Total Put/Call .96 -5.88%
  
• NYSE Arms 1.18 +12.0%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 96.21 bps -2.75%
  
• European Financial Sector CDS Index 96.25 bps -1.16%
  
• Western Europe Sovereign Debt CDS Index 137.75 bps -.36%
  
• Emerging Market CDS Index 211.27 bps -.07%
  
• 2-Year Swap Spread 18.0 +2bps
  
• TED Spread 17.0 +2 bps
  

Economic Gauges:

• 3-Month T-Bill Yield .12% -1 bp
  
• Yield Curve 213.0 +1 bp
  
• China Import Iron Ore Spot $151.80/Metric Tonne +.53%
  
• Citi US Economic Surprise Index -4.90 -.1 point
  
• 10-Year TIPS Spread 2.11% +5 bps
  

Overseas Futures:

• Nikkei Futures: Indicating +9 open in Japan
• DAX Futures: Indicating -24 open in Germany

Portfolio:

• Higher: On gains in my Tech, Ag and Retail long positions
  
• Disclosed Trades: Added (IWM)/(QQQQ) hedges, added to 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 slightly higher despite another sharp mid-day reversal lower in the major averages and commodity weakness. On the positive side, Retail, Medical Equipment, Defense, Paper and Internet shares are especially strong, rising 1.0%+. The Hungary sovereign cds is dropping -2.53% to 272.56 and the Eurozone Investment Grade CDS Index is falling -2.4% to 81.89 bps. Gold is falling -1.4%. The 10-year yield is rising +6 bps to 2.54%. On the negative side, Gold, Steel, Education, Road & Rail, Gaming, I-Banking, Oil Service, Alt Energy and Coal shares are under pressure, falling more than 1.0%. Small-caps are underperforming. Commodity weakness is noteworthy considering just a mild pullback in the euro and better US economic data. (XLF)/(IYR) are also relatively weak. Negative action in (BAC) shares is a broad market concern. The Greece sovereign cds is rising +1.48% to 687.51 bps and the Russia sovereign cds is rising +1.74% to 139.75 bps. Moreover, the California municipal cds is rising +3.07% to 280.0 bps. The AAII % Bulls rose to 49.62 this week, while the % Bears fell to 25.19, which is a negative. The Philadelphia Fed’s index of prices paid jumped to 31.5, the highest level since May, from 9.8. This is a huge jump. I continue to believe that any QE2 action by the Fed is a big mistake and will eventually be a large negative for the US economy and stocks if undertaken. The bears were once again unable to gain traction today despite another large negative reversal in stocks, however overall action is a bit concerning. I expect US stocks to trade mixed-to-higher into the close from current levels on tax policy/election optimism, short-covering, buyout speculation and earnings optimism.