Stocks Rising into Final Hour on Less Eurozone Debt Angst, Diminishing Financial Sector Pessimism, Short-Covering, Bargain-Hunting

Broad Market Tone:

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

Equity Investor Angst:

• VIX 33.49 -3.68%
  
• ISE Sentiment Index 138.0 +105.97%
  
• Total Put/Call 1.17 -13.33%
  
• NYSE Arms .56 -77.58%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 124.66 -3.48%
  
• European Financial Sector CDS Index 238.28 -2.22%
  
• Western Europe Sovereign Debt CDS Index 336.24 -2.15%
  
• Emerging Market CDS Index 293.51 -2.78%
  
• 2-Year Swap Spread 34.0 unch.
  
• TED Spread 43.0 -2 bps
  

Economic Gauges:

• 3-Month T-Bill Yield .00% unch.
  
• Yield Curve 177.0 -2 bps
  
• China Import Iron Ore Spot $120.40/Metric Tonne +.92%
  
• Citi US Economic Surprise Index 14.0 -.5 point
  
• 10-Year TIPS Spread 2.10 +5 bps
  

Overseas Futures:

• Nikkei Futures: Indicating +42 open in Japan
• DAX Futures: Indicating -17 open in Germany

Portfolio:

• Slightly Higher: On gains in my Tech, Retail 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 trades near session highs despite Eurozone debt angst, rising global growth worries, less dovish-than-expected FOMC commentary and rising energy prices. On the positive side, Bank, Coal, Energy, Oil Service, I-Bank, Hospital and HMO shares are especially strong, rising more than +2.25%. Small-caps are substantially outperforming. (XLF) has traded well throughout the day. The UBS-Bloomberg Ag Spot Index is down -.34% and copper is gaining +2.24%. Major European equity indices rose 1-2% today. The Germany sovereign cds is falling -7.67% to 88.33 bps, the France sovereign cds is falling -4.57% to 184.33 bps, the Ireland sovereign cds is falling -5.2% to 728.33 bps and the Belgium sovereign cds is falling -5.35% to 285.83 bps. On the negative side, Education, Airline, Biotech, Paper, Oil Tanker and Restaurant shares are lower-to-just slightly higher on the day. Tech shares have underperformed throughout the day. Gold is rising +.9%, lumber is falling -1.52% and oil is jumping +1.45%. The 10-year yield is flat at 2.00% despite sharp equity gains. The Nikkei substantially underperformed the rest of Asia overnight, falling -2.2%, and is down -15.5% ytd. The Japan sovereign cds is rising +3.69% to 118.31 bps, the Hungary sovereign cds is gaining +2.67% to 517.48 bps and the Israel sovereign cds is gaining +2.47% to 162.04 bps. Moreover, the Asia Pacific Sovereign CDS Index is rising +3.9% to 155.27 bps and the Emerging Markets Sovereign CDS Index is gaining +3.8% to 268.50 bps. Rice is still close to its multi-year high, rising +28.0% in about 4 months. Despite European equity gains today, the Italian 10-year yield was flat at 6.19%. The TED spread continues to trend higher and is near the highest since June 2010. The Libor-OIS spread is still very near the widest since July 2010. 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 -37.25% since February 16th and -33.48% since Sept. 7th. Investors are ignoring negative news today, which is a large positive. However, it appears to me the market is becoming ever more intensely focused on the short-term direction of the euro currency as a guide to developments in the region, which I find suspect. Investors also seem to be developing a level of numbness with respect to market volatility, which is also a negative development. Volume is poor today and few stocks are posting substantial gains on volume given the major averages' sharp gains. The fact that bond yields are at session lows and flat on the day are also a red flags. I expect US stocks to trade mixed-to-lower into the close from current levels on European debt angst, global growth fears, rising energy prices, profit-taking, more shorting and technical selling.