Stocks Rising into Final Hour on Lower Energy Prices, Tech Sector Optimism, Less Eurozone Debt Angst, Short-Covering

Broad Market Tone:

• Advance/Decline Line: Lower
  
• Sector Performance: Mixed
  
• Volume: Below Average
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 18.22 +.16%
  
• ISE Sentiment Index 124.0 +2.48%
  
• Total Put/Call .80 -10.11%
  
• NYSE Arms .83 +2.88%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 93.96 -1.77%
  
• European Financial Sector CDS Index 168.61 -5.48%
  
• Western Europe Sovereign Debt CDS Index 345.56 -1.32%
  
• Emerging Market CDS Index 249.96 -.94%
  
• 2-Year Swap Spread 28.50 -2.0 bps
  
• TED Spread 39.0 +.25 bp
  
• 3-Month EUR/USD Cross-Currency Basis Swap -66.50 +1.5 bps
  

Economic Gauges:

• 3-Month T-Bill Yield .10% unch.
  
• Yield Curve 165.0 +2 bps
  
• China Import Iron Ore Spot $143.0/Metric Tonne +1.78%
• Citi US Economic Surprise Index 47.60 -.2 point
  
• 10-Year TIPS Spread 2.27 +1 bp
  

Overseas Futures:

• Nikkei Futures: Indicating +73 open in Japan
• DAX Futures: Indicating -11 open in Germany

Portfolio:

• Higher: On gains in my Biotech, Retail and Tech sector longs
  
• Disclosed Trades: Added to my (IWM)/(QQQ) hedges, then covered some of them
  
• Market Exposure: 75% Net Long

BOTTOM LINE: Today's overall market action is mildly bullish, as the S&P 500 trades near session highs despite Eurozone debt angst, high energy prices, global growth fears and recent equity gains. On the positive side, Steel, Internet, Semi, Retail and Airline shares are especially strong, rising more than +1.0%. Oil is falling -.87% and Copper is rising +.66%. Tech shares are outperforming. Asian shares were about +1.0% higher overnight, led by a +1.85%
gain in Hong Kong shares. The Germany sovereign cds is falling -2.3% to 80.17 bps, the France sovereign cds is down -3.0% to 178.67 bps and the Russia sovereign cds is down -2.9% to 188.0 bps. On the negative side, Oil Tanker, Networking, Construction, Homebuilding, REIT, Education and Road & Rail shares are under meaningful pressure, falling more than -.75%. The Transports are underperforming despite the pullback in oil today. The UBS-Bloomberg Ag Spot Index is rising +.83% and Gold is gaining +1.11%. Weekly retail sales rose +2.9% this week versus a +2.7% gain the prior week. This remains a subpar rate for a recovery. Lumber is -2.3% 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 at 1.94%, remains a concern considering the recent stock rally, falling Eurozone debt angst and improvement in US economic data. Despite the recent positive US economic data, the Philly Fed/ADS Real-Time Business Conditions Index has declined -6.04% over the last 5 days and continues to trend lower from its peak in mid-December. The Western Europe Sovereign CDS Index is still fairly close to its Jan. 9th all-time high. Overall, credit gauge improvement has stalled over the last few weeks and these gauges are still at stressed levels. China Iron Ore Spot has plunged -21.0% since Sept. 7th of last year. Shanghai Copper Inventories are up +690.0% ytd and are still very near their recent all-time high. I still think this is more of a red flag for falling demand rather than the intentional hoarding, which many suggest. US stocks remain extremely resilient to all negative news. However, the Transports remain a concern. Breadth is poor today and there are an unusual number of stocks falling meaningfully on volume for an up day, which is another short-term red flag. US stocks are still technically extended short-term and are still right near intermediate-term resistance, which likely means more sideways action near-term. For an intermediate-term equity advance from current levels, I would still expect to see further European credit gauge improvement, a further subsiding of 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. I expect US stocks to trade mixed-to-higher into the close from current levels on lower energy prices, more tech sector optimism, short-covering, less Eurozone debt angst and investor performance angst.