Stocks Higher into Final Hour on Short-Covering, Bargain-Hunting, Commodity Sector Strength

Broad Market Tone:

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

Equity Investor Angst:

• VIX 17.14 -3.82%
  
• ISE Sentiment Index 125.0 +73.61%
  
• Total Put/Call .71 -10.13%
  
• NYSE Arms 1.18 +51.91%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 91.0 +.23%
  
• European Financial Sector CDS Index 123.08 +11.65%
  
• Western Europe Sovereign Debt CDS Index 196.83 -1.50%
  
• Emerging Market CDS Index 213.29 +.56%
  
• 2-Year Swap Spread 18.0 -3 bps
  
• TED Spread 21.0 +1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .05% unch.
  
• Yield Curve 259.0 -2 bps
  
• China Import Iron Ore Spot $173.0/Metric Tonne -.57%
  
• Citi US Economic Surprise Index -48.90 -.9 point
  
• 10-Year TIPS Spread 2.32% +1 bp
  

Overseas Futures:

• Nikkei Futures: Indicating +88 open in Japan
• DAX Futures: Indicating +22 open in Germany

Portfolio:

• Higher: On gains in my Tech, Medical and Biotech sector longs
  
• Disclosed Trades: Covered all of my (IWM)/(QQQ) hedges and then added them back
  
• Market Exposure: 75% Net Long

BOTTOM LINE: Today's overall market action is bullish as the S&P 500 trades back to its 50-day moving average despite weakness in Asian equities, eurozone debt angst, higher food/energy prices, more weak economic data and emerging market inflation fears. On the positive side, Coal, Oil Service, Construction and Road & Rail shares are especially strong, rising more than +1.5%. Small-cap and cyclical shares are outperforming. Lumber is gaining +3.93% and copper is rising +2.42%. The Greece sovereign cds is falling -3.27% to 1,431.70 bps, the Saudi sovereign cds is falling -4.76% to 100.53 bps and the US Muni CDS Index is falling -3.68% to 123.77 bps. On the negative side, Airline, Retail, Telecom, Education and Oil Tanker shares are under mild pressure, falling more than -.5%. Oil is rising +1.83% and the UBS-Bloomberg Ag Spot Index is rising +1.6%. The US price for a gallon of gas is falling -.02/gallon today to $3.81/gallon. It is up .67/gallon in 98 days. The Asia Pacific Sovereign CDS Index is jumping +4.22% to 114.99 bps, the Brazil sovereign cds is gaining 1.8% to 105.0 bps and the China sovereign cds is rising +1.04% to 73.26 bps. The +36% rise in the Eurozone Financial Sector CDS Index over the last 8 days is also a large negative. The Vietnam Stock Index dropped another -4.0% last night and has plunged about -21% in less than 3 weeks. Moreover, the Shanghai Composite continues to trade poorly and has declined about -11% in 5 weeks. The recent strength in commodities is a short-term equity market positive and and much larger long-term negative as emerging market inflation pressures increase to very worrisome levels. The major US averages remain resilient in the face of mounting headwinds. Today's rebound does not appear to me to be the beginning of another sustainable move higher, however further near-term strength is possible. I expect US stocks to trade mixed-to-lower into the close from current levels on eurozone debt worries, technical selling, more shorting, rising food/energy prices and emerging markets inflation fears.