Stocks Rising into Final Hour on Euro Bounce, Short-Covering, Better US Economic Data, Bargain-Hunting

Broad Market Tone:

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

Equity Investor Angst:

• VIX 33.21 -8.13%
  
• ISE Sentiment Index 92.0 +22.67%
  
• Total Put/Call 1.20 -9.77%
  
• NYSE Arms 1.03 -86.60%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 128.90 +2.49%
  
• European Financial Sector CDS Index 269.90 +9.17%
  
• Western Europe Sovereign Debt CDS Index 346.33 +.65%
  
• Emerging Market CDS Index 303.63 -2.33%
  
• 2-Year Swap Spread 45.0 +3 bps
  
• TED Spread 45.0 +1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .00% unch.
  
• Yield Curve 181.0 +7 bps
  
• China Import Iron Ore Spot $134.80/Metric Tonne +.30%
  
• Citi US Economic Surprise Index 31.80 +7.5 points
  
• 10-Year TIPS Spread 2.09 +6 bps
  

Overseas Futures:

• Nikkei Futures: Indicating +28 open in Japan
• DAX Futures: Indicating +19 open in Germany

Portfolio:

• Slightly Lower: On losses in my Tech and Biotech sector longs
  
• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges, then added them back
  
• Market Exposure: 50% Net Long

BOTTOM LINE: Today's overall market action is mildly bullish, as the S&P 500 recoups some of yesterday's losses despite rising Eurozone debt angst, rising global growth worries and rising energy prices. On the positive side, Oil Tanker, Energy, Oil Service, Networking, Homebuilding and Road & Rail shares are especially strong, rising more than 1.5%. Gold is falling -.38% and the UBS-Bloomberg Ag Spot Index is down -.95%. The 10-year yield is rising +8 bps to 2.05%. The Italian/German 10-Year Yield spread is falling -41.75 bps to 510.82 bps. On the negative side, Coal, Alt Energy, Ag, Biotech, Gaming and Airline shares are lower on the day. Oil is rising +1.95%, copper is falling -2.3% and Lumber is falling -2.33%. Major Asian equity indices fell 2-5% overnight. Hong Kong plunged -5.25% and is now down -17.67% ytd. Major European equity indices were mixed today despite the euro bounce and yesterday's large losses. The France sovereign cds is rising +3.31% to 202.83 bps, the China sovereign cds is soaring +13.7% to 150.41 bps, the Italy sovereign cds is only -.65% lower to 566.67 bps, the Brazil sovereign cds is surging +2.22% to 157.41 bps and the Israel sovereign cds is up +3.23% to 186.25 bps. Moreover, the European Investment Grade CDS Index is rising +3.65% to 174.71 bps. Rice is still close to its multi-year high, rising +23.0% in about 4 months. The TED spread continues to trend higher and is at the highest since June 2010. The 2-Year Swap spread is soaring to the highest since June 2010 today. The Libor-OIS spread is now at the widest since July 2009. The 3-Month Euro Basis Swap is dropping -7.18 bps to -114.18, which would be the lowest close since Dec. 2008. The 2-Year Euro Swap spread is making another new cycle high today, which is also noteworthy considering the recent strong equity advance. China Iron Ore Spot has plunged -29.76% since February 16th and -25.52% since Sept. 7th. AAII % Bulls rose to 44.74, while the % Bears fell to 24.56, which is a large negative considering the macro headwinds. The divergence of oil from copper and the euro is noteworthy and likely reflects intensifying fears over an attack on Iran rather than rising global growth optimism. Imminent attack fears are overblown, in my opinion. Oil should begin to top out soon, however a convincing surge above $105/bbl. would be another huge negative for the fragile global economy. Select market-leading stocks are substantially underperforming today, which is always a red flag. The upcoming passage of Italian austerity measures may temporarily boost stocks again, however these same measures will worsen Italy's debt problems over the intermediate-term, in my opinion. I expect US stocks to trade mixed-to-lower into the close from current levels on rising Eurozone debt angst, greater financial sector pessimism, rising global growth worries, profit-taking and more shorting.