Stocks Reversing into Final Hour on Falling Energy Prices, Short-Covering, Bargain-Hunting, Lower Long-Term Rates

Broad Market Tone:

• Advance/Decline Line: Higher
  
• Sector Performance: Mixed
  
• Volume: Atound Average
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 21.49 -3.39%
  
• ISE Sentiment Index 99.0 -16.81%
  
• Total Put/Call .99 +4.21%
  
• NYSE Arms 1.43 +36.57%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 86.06 +.88%
  
• European Financial Sector CDS Index 131.66 bps +.83%
  
• Western Europe Sovereign Debt CDS Index 178.33 bps +.47%
  
• Emerging Market CDS Index 231.29 +.09%
  
• 2-Year Swap Spread 18.0 +1 bp
  
• TED Spread 19.0 -1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .12% +1 bp
  
• Yield Curve 271.0 -3 bps
  
• China Import Iron Ore Spot $184.90/Metric Tonne -.43%
  
• Citi US Economic Surprise Index +77.10 -.1 point
  
• 10-Year TIPS Spread 2.43% +2 bps
  

Overseas Futures:

• Nikkei Futures: Indicating -12 open in Japan
• DAX Futures: Indicating +5 open in Germany

Portfolio:

• Higher: On gains in my Technology, Medical, Biotech, Retail longs and emerging market shorts
  
• 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 is reversing higher despite Mideast Unrest, rising eurozone debt angst and US housing concerns. On the positive side, Airline, Road & Rail, Education, Homebuilding, Construction, HMO, Hospital, Wireless, Networking, Disk Drive, Semi, Software, Internet, Steel, Alt Energy and Defense shares are especially strong, rising more than 1.0%. Small-cap shares are outperforming. As well, transport and tech shares are relatively strong. Oil and gold have had significant downside reversals on unconfirmed news. The UBS-Bloomberg Spot Ag Index is also down -.55%. Copper is rising +1.48%. The 10-year yield is falling -3 bps to 3.45%. The US Muni CDS Index is falling -2.23% to 169.25 bps. The AAII % Bulls fell to 36.63 this week, while the % Bears rose to 36.14, which is also a big positive. On the negative side, Oil Service and Oil Tanker shares are under pressure, falling more than 1.0%. Cyclicals are underperforming again and (XLF)/(IYR) are relatively weak. Lumber is declining another -3.15% and has broken down again technically. The Saudi sovereign cds is rising +1.31% to 141.79 bps and the Israeli sovereign cds is rising +2.02% to 176.63 bps. Moreover, the Spain sovereign cds is rising +2.95% to 271.83 bps, the Belgium sovereign cds is climbing +2.92% to 181.80 bps and the Italy sovereign cds is gaining +3.62% to 191.33 bps. Investor complacency regarding the situation in the Mideast still seems too high, however the technical reversal lower in oil after it repeatedly failed to hold $100/bbl. is noteworthy. If oil follows through to the downside tonight and in the morning I would expect to see further equity strength. One of my longs, (SXCI), is surging 6% today on volume after earnings. I still see substantial upside to the shares over the longer-run. I expect US stocks to trade mixed-to-higher into the close from current levels on lower energy prices, short-covering, bargain-hunting and lower long-term rates.