Stocks Rising into Final Hour on Less Financial Sector Pessimism, Short-Covering, Falling Long-Term Rates, Seasonal Strength

Broad Market Tone:

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

Equity Investor Angst:

• VIX 17.46 -1.58%
  
• ISE Sentiment Index 206.0 +108.08%
  
• Total Put/Call .67 -8.22%
  
• NYSE Arms .50 +18.40%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 88.52 bps -1.64%
  
• European Financial Sector CDS Index 139.61 bps +5.01%
  
• Western Europe Sovereign Debt CDS Index 179.50 bps +.75%
  
• Emerging Market CDS Index 214.88 bps +1.33%
  
• 2-Year Swap Spread 19.0 -1 bp
  
• TED Spread 17.0 unch.
  

Economic Gauges:

• 3-Month T-Bill Yield .13% -1 bp
  
• Yield Curve 259.0 -4 bps
  
• China Import Iron Ore Spot $165.40/Metric Tonne +.24%
  
• Citi US Economic Surprise Index -14.0 +.1 point
  
• 10-Year TIPS Spread 2.15% -5 bps
  

Overseas Futures:

• Nikkei Futures: Indicating -10 open in Japan
• DAX Futures: Indicating +16 open in Germany

Portfolio:

• Slightly Higher: On gains in my Biotech and Medical 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 mildly bullish as the S&P 500 trades slightly higher despite recent equity gains, rising eurozone debt angst, China inflation worries, US tax policy uncertainty and US municipal debt concerns. On the positive side, Road & Rail, Bank, Telecom, Networking and Coal shares are especially strong, rising more than 1.0%. Cyclicals and small-caps are outperforming. (XLF) has traded very well throughout the day. Lumber is jumping +3.65% and is breaking above its 50-day moving average convincingly. The 10-year yield is falling -6 bps to 3.21%.On the negative side, Education, Restaurant and Homebuilding shares are under pressure, falling more than 1.0%. (IYR) has been heavy throughout the day and tech stocks are underperforming. The Greece sovereign cds is jumping +3.48% to 956.47 bps, the Spain sovereign cds is surging +6.45% to 324.19 bps, the Italy sovereign cds is climbing +6.56% to 206.17 bps, the Portugal sovereign cds is rising +4.2% to 450.03 bps and the Belgium sovereign cds is gaining +3.24% to 201.66 bps. The European Financial Sector CDS Index continues to trend higher and the US Muni CDS Index is rising another +4.01% to 207.50 bps. Some key investor sentiment gauges remain a bit too bullish. The AAII % Bulls rose to 53.05 this week, while the % Bears fell to 22.56. Despite a number of potential negative equity catalysts, the bears remain unable to gain any traction and stocks continue to consolidate recent gains in a healthy fashion. I expect US stocks to trade mixed-to-higher into the close from current levels on falling long-term rates, short-covering, less financial sector pessimism and seasonal strength.