Stocks Reversing Higher into Final Hour on Euro Bounce, Short-Covering, Bargain-Hunting, Less Financial/Tech Sector Pessimism

Broad Market Tone:

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

Equity Investor Angst:

• VIX 44.28 -2.57%
  
• ISE Sentiment Index 80.0 +1.1%
  
• Total Put/Call 1.18 -5.60%
  
• NYSE Arms 1.03 -69.09%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 151.79 +4.48%
  
• European Financial Sector CDS Index 276.76 +4.45%
  
• Western Europe Sovereign Debt CDS Index 355.83 +2.89%
  
• Emerging Market CDS Index 396.44 +1.80%
  
• 2-Year Swap Spread 39.0 +3 bps
  
• TED Spread 39.0 +2 bps
  

Economic Gauges:

• 3-Month T-Bill Yield .00% -1 bp
  
• Yield Curve 154.0 -1 bp
  
• China Import Iron Ore Spot $171.30/Metric Tonne unch.
  
• Citi US Economic Surprise Index -21.90 +1.4 points
  
• 10-Year TIPS Spread 1.76 +2 basis points
  

Overseas Futures:

• Nikkei Futures: Indicating +50 open in Japan
• DAX Futures: Indicating +60 open in Germany

Portfolio:

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

BOTTOM LINE: Today's overall market action is bullish, as the S&P 500 reverses higher off significant technical support with volume despite rising global debt angst and global growth worries. On the positive side, Coal, Alt Energy, Semi, Disk Drive, Networking, Construction, Gaming, Road & Rail and Airline shares are especially strong, rising more than +3.0%. The UBS-Bloomberg Ag Spot Index is dropping -.91%, lumber is rising +1.88%, gold is dropping -2.69% and oil is falling -1.0%. Small-caps and cyclicals are outperforming. Tech shares have also traded well throughout the day. Weekly retail sales rose +4.4% versus a +4.4% gain the prior week. On the negative side, Food, HMO, Hospital, Telecom, Paper, Steel, Ag and Utility shares are under pressure, falling more than -1.0%. Copper is dropping -2.4%. Rice is still close to its multi-year high, rising +25.0% in about 12 weeks. The Germany sovereign cds is gaining +1.1% to 119.17 bps, the France sovereign cds is rising +4.6% to 200.33 bps, the Portugal sovereign cds is gaining +4.3% to 1,156.0 bps, the Ireland sovereign cds is rising +4.9% to 727.33 bps, the Japan sovereign cds is rising +4.1% to 154.25 bps, the Russia sovereign cds is jumping +5.7% to 336.83 bps, the Belgium sovereign cds is soaring +12.58% to 307.17 bps, the UK sovereign cds is gaining +5.93% to 103.17 bps and the Brazil sovereign cds is rising +8.8% to 225.75 bps. The Eurozone Investment Grade CDS Index is jumping +2.5% to 202.01 bps, which is a new record high. The Western Europe Sovereign CDS Index and the European Financial Sector CDS Index are still near their records. The Asia-Pacific Sovereign CDS Index is rising another +3.16% today to a new record 198.68 bps. The China sovereign cds is still very near the highest level since March 2009. The China Development Bank Corp cds is soaring +11.4% to 379.10 bps, which is the highest since March 2009. As well, the China Blended Corporate Spread Index, which has been moving higher in a parabolic fashion, is making another new multi-year high, rising +57.0 bps to 1,035.0 bps. The Hang Seng, which continues to trade very poorly, plunged another -3.4% overnight, leaving it down -29.5% ytd at the lowest level since May 2009. Major European stock indices fell another 2-3% today. German equities are now down -24.6% ytd. As well, Ukraine shares plunged another -4.2% and are now down -45.2% ytd. Various global credit gauges continue to deteriorate rapidly, telegraphing intense global recession fears, notwithstanding today's sharp equity reversal higher. Stocks were technically very oversold again and today's late surge higher has likely left many funds again leaning the wrong way, which could lead to further stock gains in the short-term. However, I still believe that until Europe/Asia stabilize, investors are likely to increasingly anticipate another downturn in US economic activity over the intermediate-term. I expect US stocks to trade modestly higher into the close from current levels on a bounce in the euro, short-covering, bargain-hunting, technical buying and less financial/tech sector pessimism.