Stocks Slightly Higher into Final Hour on Earnings Optimism, Short-Covering, Bargain-Hunting

Broad Market Tone:

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

Equity Investor Angst:

• VIX 21.54 -4.56%
  
• ISE Sentiment Index 103.0 -23.13%
  
• Total Put/Call .88 -6.38%
  
• NYSE Arms 1.30 -40.56%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 92.39 bps -3.54%
  
• European Financial Sector CDS Index 101.67 bps -4.87%
  
• Western Europe Sovereign Debt CDS Index 164.17 bps +.92%
  
• Emerging Market CDS Index 223.41 bps -.09%
  
• 2-Year Swap Spread 18.0 -2 bps
  
• TED Spread 15.0 unch.
  

Economic Gauges:

• 3-Month T-Bill Yield .14% +1 bp
  
• Yield Curve 238.0 +4 bps
  
• China Import Iron Ore Spot $163.20/Metric Tonne +.06%
  
• Citi US Economic Surprise Index +24.10 -5.1 points
  
• 10-Year TIPS Spread 2.08% +5 bps
  

Overseas Futures:

• Nikkei Futures: Indicating +39 open in Japan
• DAX Futures: Indicating +10 open in Germany

Portfolio:

• Slightly Higher: On gains in my Medical, Retail and Biotech 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 trades slightly higher despite losses in Asia overnight, poor US housing data, rising US municipal debt fears and ongoing euro sovereign debt concerns. On the positive side, Restaurant, Oil Service and Coal shares are especially strong, rising more than 1.0%. Cyclical and small-cap shares are outperforming. (IYR) has traded well throughout the day. The Portugal sovereign cds is dropping -3.15% to 417.76 bps. Lumber is rising +.93%. Oil is falling -2% despite a rise in the euro and "bullish" US inventory data. The decline in the euro financial sector cds index is also a positive. On the negative side, Bank, Disk Drive, Computer and Alt Energy shares are under pressure, falling more than -1.0%. (XLF) has been heavy throughout the day. Moreover, the Shanghai Composite has declined -9% over the last 5 days and is very close to testing its 200-day. The Illinois and California municipal cds are up another +.67% and +.40%, respectively. The Greece sovereign cds is jumping +2.67% to 978.04 bps. The UK sovereign cds is soaring +11.8% today to 61.17 bps on talk of their help with the Ireland bailout. (NTAP) lowered 3Q guidance over the last hour, which is beginning to pressure the tech sector. The recent rise in mortgage rates, despite QE2, is a large negative. Right now, the market still believes that the tax cuts will be extended for everyone, however if we get well into December without a clear resolution, a significant adverse reaction by the markets should be expected. I expect US stocks to trade modestly lower into the close from current levels on rising US municipal debt angst, tax hike worries, profit-taking, more shorting, eurozone debt concerns and China hard-landing fears.