Stocks Rising into Final Hour on Euro Bounce, More Financial Sector Optimism, Short-Covering, Investor Performance Angst

Broad Market Tone:

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

Equity Investor Angst:

• VIX 19.12 -8.03%
  
• ISE Sentiment Index 63.0 +3.28%
  
• Total Put/Call .87 -19.44%
  
• NYSE Arms .93 -26.76%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 97.55 -.54%
  
• European Financial Sector CDS Index 181.47 +.50%
  
• Western Europe Sovereign Debt CDS Index 331.90 -.12%
  
• Emerging Market CDS Index 258.0 -2.69%
  
• 2-Year Swap Spread 29.5 +1.5 bps
  
• TED Spread 40.50 -2.0 bps
  
• 3-Month EUR/USD Cross-Currency Basis Swap -68.25 +4.5 bps
  

Economic Gauges:

• 3-Month T-Bill Yield .10% +2 bps
  
• Yield Curve 171.0 +2 bps
  
• China Import Iron Ore Spot $142.20/Metric Tonne -.35%
• Citi US Economic Surprise Index 68.50 -4.8 points
  
• 10-Year TIPS Spread 2.24 +2 bps
  

Overseas Futures:

• Nikkei Futures: Indicating +24 open in Japan
• DAX Futures: Indicating +15 open in Germany

Portfolio:

• Higher: On gains in my Biotech, Tech, Medical and Retail 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 bullish, as the S&P 500 trades near session highs and tests July 2011 highs, despite Eurozone debt angst, rising global growth fears, profit-taking and technical selling. On the positive side, Paper, Biotech, HMO, Homebuilding and Airline shares are especially strong, rising more than 2.0%. Small-caps have outperformed throughout the day. (XLF) is also outperforming. Major Asian indices rose around +.5% overnight, led by a +1.5% gain in Indonesian shares. Major European indices also gained around +.5%, led by a +.9% gain in the UK. Lumber is gaining +1.85%. Oil continues to trade poorly, despite today's bounce, given the stock rally, euro rally, rising interest from speculators, falling euro debt angst, subsiding emerging market hard-landing fears, improving US data and rising Mid-east tensions over the last few weeks. On the negative side, Utility, Coal, Oil Tanker, Gaming, Alt Energy, Oil Service, Steel, Computer, Semi, Networking, Computer Service, Retail and Restaurant shares are lower-to-just slightly higher on the day. Tech shares are underperforming today. Copper is falling -.63%, Oil is rising +1.8% and the UBS-Bloomberg Ag Spot Index is rising +1.04%. The Germany sovereign cds is gaining +.59% to 85.67 bps, the Spain sovereign cds is gaining +1.22% to 367.57 bps, the France sovereign cds is gaining +1.9% to 180.67 bps, the Italy sovereign cds is rising +.76% to 396.33 bps and the Japan sovereign cds is gaining +.6% to 126.68 bps. Lumber is just slightly higher since its Dec. 29th high despite the better US economic data, more dovish Fed commentary, improving sentiment towards homebuilders, equity rally and decline in eurozone debt angst. Moreover, the weekly MBA Purchase Applications Index has been around the same level since May 2010. The Baltic Dry Index has plunged over -60.0% from its Oct. 14th high and is now down over -50.0% ytd. The 10Y T-Note Yield is flat at 1.99% today, which remains a concern considering the recent stock rally, falling Eurozone debt angst and improvement in US economic data. The Philly Fed’s ADS Real-Time Business Conditions Index has stalled over the last month after showing meaningful improvement from mid-Nov. through year-end. The Western Europe Sovereign CDS Index is still fairly close to its Jan. 9th all-time high. The TED spread, 2Y Euro Swap Spread, 3M Euribor-OIS spread and Libor-OIS spread have improved, but are still at stressed levels. China Iron Ore Spot has plunged -20.0% since Sept. 7th of last year. Shanghai Copper Inventories are up +572.0% ytd to the highest level since March of last year and are very close to their April 2010 record. As expected, Greece succumbed to Troika demands, however I still view it as highly unlikely they will meet those demands over the intermediate-term. I still see little evidence to suggest that Europe's debt crisis won't flare up again in an even more intense fashion down the road. Volume is poor again today. Stocks weakened a bit after this morning's open, however the usual morning dip buyers quickly emerged. Investor sentiment remains too complacent, however performance angst is likely already a factor in some circles, which is a positive. For an intermediate-term equity advance from current levels, I would still expect to see further European credit gauge improvement, subsiding hard-landing fears in key emerging markets, a rising 10-year yield, better volume, stable-to-lower energy prices and higher-quality stock market leadership. One of my longs, (AAPL), is crossing the $500 market today. The stock is very extended technically and sentiment is frothy, but I still see further outperformance over the intermediate-term after a pause. I expect US stocks to trade mixed-to-lower into the close from current levels on Eurozone debt angst, rising global growth fears, less tech sector optimism, technical selling, profit-taking and more shorting.