Stocks Rising into Final Hour on Less Eurozone Debt Angst, Short-Covering, More US Economic Optimism, Investor Performance Angst

Broad Market Tone:

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

Equity Investor Angst:

• VIX 15.38 -.77%
  
• ISE Sentiment Index 89.0 -8.25%
  
• Total Put/Call .79 -18.56%
  
• NYSE Arms .54 -19.80%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 90.02 -1.44%
  
• European Financial Sector CDS Index 218.07 -.98%
  
• Western Europe Sovereign Debt CDS Index 266.15 -1.09%
  
• Emerging Market CDS Index 242.09 -1.08%
  
• 2-Year Swap Spread 25.50 +.5 basis point
  
• TED Spread 40.75 +.5 basis point
  
• 3-Month EUR/USD Cross-Currency Basis Swap -50.0 +.5 basis point
  

Economic Gauges:

• 3-Month T-Bill Yield .06% -1 basis point
  
• Yield Curve 187.0 -1 basis point
  
• China Import Iron Ore Spot $147.60/Metric Tonne unch.
  
• Citi US Economic Surprise Index 15.0 -3.9 points
  
• 10-Year TIPS Spread 2.37 +3 basis points
  

Overseas Futures:

• Nikkei Futures: Indicating a +46 open in Japan
• DAX Futures: Indicating a +41 open in Germany

Portfolio:

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

BOTTOM LINE: Today's overall market action is bullish, as the S&P 500 trades near session highs and at a multi-year high despite mixed US economic data, recent strong equity gains, euro weakness and global growth fears. On the positive side, Steel, Coal, Energy, Oil Service, Ag, Hospital, Construction, Education and Road & Rail shares are especially strong, rising more than +1.5%. The Transports have traded well throughout the day. Copper is gaining +2.44% and Lumber is gaining +.54%. Major Asian indices were mixed overnight as a +.76% gain in South Korea was offset by a -.88% loss in Taiwan. Major European indices were mostly higher today, led by a +1.85% gain in the UK. Italian shares did not participate, falling -.2% on the day. The Bloomberg European Financial Services/Bank Index rose +.4% today and is down -3.3% ytd versus a +22.9% gain in (XLF) ytd. The Germany sovereign cds is down -2.26% to 72.0 bps, the Spain sovereign cds is down -1.26% to 431.16 bps, the Italy sovereign cds is down -2.48% to 386.93 bps and the Ireland sovereign cds is down -2.0% to 560.0 bps. On the negative side, Homebuilding, Alt Energy and Oil Tanker shares are under pressure, falling more than -.75%. Gold is rising +.5%, the UBS-Bloomberg Ag Spot Index is rising +.67% and oil is gaining +2.1%. The 10Y Yld is falling -1 bp to 2.19% despite today's equity rally and more economic optimism. The Philly Fed ADS Real-Time Business Conditions Index continues to trend lower from its late-December peak despite investor perceptions that the US economy is accelerating. Moreover, the Citi US Economic Surprise Index has fallen back to early-Nov. levels. Lumber is -8.5% since its Dec. 29th high despite the better US economic data, dovish Fed commentary, improving sentiment towards homebuilders, equity rally and decline in eurozone debt angst. Moreover, the weekly MBA Home Purchase Applications Index has been around the same level since May 2010. The Baltic Dry Index has plunged around -60.0% from its Oct. 14th high and is now down around -45.0% ytd. China Iron Ore Spot has plunged -18.5% since Sept. 7th of last year. Shanghai Copper Inventories are right near a new record and have risen +741.0% ytd. Despite mixed economic data in the US and overseas today, investors continue to ignore almost all negatives as the major averages still trade very well into the new quarter. Homebuilders are not participating in today’s rally, which is a red flag for the broad equity market. The biggest underperforming sectors over the last few weeks are leading today. For the recent equity advance to maintain traction, I would 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 short-covering, less eurozone debt angst, more US economic optimism and investor performance angst.