Stocks Rising Into Final Hour on Short-Covering, Bargain-Hunting, Less Financial Sector Pessimism, Falling Energy Prices

Broad Market Tone:

• Advance/Decline Line: Lower
  
• Sector Performance: Most Sectors Declining
  
• Volume: Heavy
  
• Market Leading Stocks: Outperforming
  

Equity Investor Angst:

• VIX 42.80 -10.83%
  
• ISE Sentiment Index 167.0 +80.43%
  
• Total Put/Call 1.32 -2.94%
  
• NYSE Arms 1.35 -6.65%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 112.68 +3.45%
  
• European Financial Sector CDS Index 198.45 +9.44%
  
• Western Europe Sovereign Debt CDS Index 290.83 -.34%
  
• Emerging Market CDS Index 297.60 +2.54%
  
• 2-Year Swap Spread 25.0 -4 bps
  
• TED Spread 24.0 -1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .04% +2 bps
  
• Yield Curve 208.0 -2 bps
  
• China Import Iron Ore Spot $177.80/Metric Tonne -.17%
  
• Citi US Economic Surprise Index -71.50 +1.0 point
  
• 10-Year TIPS Spread 2.18% unch.
  

Overseas Futures:

• Nikkei Futures: Indicating +40 open in Japan
• DAX Futures: Indicating -42 open in Germany

Portfolio:

• Higher: On gains in my Retail, Medical, Biotech and Tech sector longs
  
• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges and some of 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 near session highs despite rising eurozone debt angst, US tax hike concerns, some FOMC statement disappointment, more homebuilder pessimism, emerging market inflation fears and global growth worries. On the positive side, Coal, Alt Energy, Networking, Biotech, HMO, Insurance, Construction, REIT, Restaurant and Airline shares are especially strong, rising more than +1.0%. Cyclicals are outperforming. Oil is dropping another -3.2%. The US sovereign cds is falling -4.37% to 53.77 bps. Weekly retail sales rose +4.8% versus a +4.3% gain the prior week. On the negative side, Homebuilding, Utility, Computer, Computer Service, Gaming, Education and Food shares are lower on the day. (XHB) has traded poorly throughout the day. Gold is +3.0% and Copper is down -.98%. Rice is surging +3.07% and is near a multi-year high, soaring about +27.0% in about 6 weeks. The US price for a gallon of gas is falling -.01/gallon today to $3.65/gallon. It is up .51/gallon in about 6 months. The 10-year yield is falling too rapidly again, plunging -27 bps to 2.05%. The Brazil sovereign cds is soaring +13.28% to 157.28 bps, the Russia sovereign cds is rising +9.07% to 197.67 bps, the UK sovereign cds is rising +4.88% to 82.73 bps, the Japan sovereign cds is climbing +6.7% to 101.06 bps, the France sovereign cds is rising +1.54% to 161.65 bps and the Germany sovereign cds is rising +4.67% to 82.86 bps. The Brazil sovereign cds is very close to a multi-year high. The France sovereign cds is making a new record high again today and has risen +70.0 bps in 13 days. The German sovereign cds is hitting another multi-year high and is only 10.0 bps from its Feb. 09 high of 93.0 bps. The Eurozone Financial Sector CDS Index is now only 9.0 bps from its March 09 record high. The 3-Month Euribor-OIS spread is jumping another +8 bps to a multi-year high of 62.0 bps. Despite some key Asian indices holding up well overnight, Hong Kong fell another -5.66% and is now down -16.1% ytd, while South Korea fell another -3.64% and is down -12.2% ytd. Germany and Spain were unable to rally today with the rest of Europe, despite US strength. Russia(-1.6%) and the Ukraine(-5.42%) also had poor performances today despite strong bounces in other markets. The surge in many key emerging markets cds remains a big negative. As well, a number of key European cds rose again today as the pressure on the financial sector mounts. As well, the euro currency couldn't rally meaningfully today despite the recent US debt downgrade, the equity rally, more dovish FOMC comments and the ECB's recent actions. The cds and equity markets continue to telegraph rising worries among investors over the implications to Germany and France of recent ECB actions. It is a big positive that US equities were able to bounce strongly over the last hour despite the Fed disappointing most investors and the massive decline in the 10-year yield. If overseas market cooperate overnight I would expect to see this rally extend itself in the near-term. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, falling energy prices, a bounce in the euro, less financial sector pessimism and bargain-hunting.