Stocks Rising into Final Hour on China Stimulus Hopes, Short-Covering, Bargain-Hunting

Broad Market Tone:

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

Equity Investor Angst:

• VIX 21.74 -.09%
  
• ISE Sentiment Index 102.0 unch.
  
• Total Put/Call 1.04 -4.59%
  
• NYSE Arms .59 -34.02%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 116.84 -.17%
  
• European Financial Sector CDS Index 289.95 -1.4%
  
• Western Europe Sovereign Debt CDS Index 314.0 -.49%
  
• Emerging Market CDS Index 321.65 +.40%
  
• 2-Year Swap Spread 34.25 +1.0 basis point
  
• TED Spread 39.0 +.5 basis point
  
• 3-Month EUR/USD Cross-Currency Basis Swap -47.25 -2.75 basis points
  

Economic Gauges:

• 3-Month T-Bill Yield .08% unch.
  
• Yield Curve 145.0 unch.
  
• China Import Iron Ore Spot $132.50/Metric Tonne +1.38%
  
• Citi US Economic Surprise Index -30.20 -4.6 points
  
• 10-Year TIPS Spread 2.12 -2 basis points
  

Overseas Futures:

• Nikkei Futures: Indicating a -31 open in Japan
• DAX Futures: Indicating -3 open in Germany
  

Portfolio:

• Higher: On gains in my Retail and Tech sector longs
  
• Disclosed Trades: Added to my (IWM), (QQQ) hedges, added to my (EEM) short
  
• Market Exposure: Moved to 50% Net Long

BOTTOM LINE: Today's overall market action is bullish as the S&P 500 trades higher despite rising Eurozone debt angst, less US economic optimism, the ongoing decline in (FB) shares and rising global growth fears. On the positive side, Coal, Oil Service, Alt Energy, Steel, Semi, Networking, I-Banking and Construction shares are especially strong, rising more than +1.25%. Cyclical shares have traded well throughout the day. Copper is rising +.4%, Lumber is gaining +.76% and Gold is down -1.24%. Major Asian indices rose around +1.25% overnight, led by a +1.4% gain in South Korea. The France sovereign cds is down -2.0% to 202.32 bps, the Portugal sovereign cds is down -2.1% to 1,163.81 bps and the Saudi sovereign cds is down -1.9% to 131.42 bps. On the negative side, Computer Hardware, Medical, Biotech, Drug, HMO and Road&Rail shares are lower-to-slightly higher on the day. Major European indices are mixed, as a +1.1% gain in Germany is being offset by a -2.35% decline in Spain. Spain is now down -6.2% in 5 days and down -27.0% ytd, which remains a huge red flag. The Bloomberg European Bank/Financial Services Index is down -.35%. This index is down -3.3% in 5 days and down -24.1% since March 19th. The Italian/German 10Y Yld Spread is rising +.69% to 440.70 bps(+7.2% in 5 days). US Rail Traffic continues to soften. The Philly Fed ADS Real-Time Business Conditions Index continues to trend lower from its late-December peak. Moreover, the Citi US Economic Surprise Index has fallen back to late-Sept. levels. Lumber is -1.0% since its Dec. 29th high despite improving sentiment towards homebuilders and the broad equity rally ytd. Moreover, the weekly MBA Home Purchase Applications Index has been around the same level since May 2010 despite expectations for a strong spring home selling season. The Baltic Dry Index has plunged around -55.0% from its Oct. 14th high and is now down around -40.0% ytd. China Iron Ore Spot has plunged -26.8% since Sept. 7th of last year. Shanghai Copper Inventories have risen +239.0% ytd. The CRB Commodities Index is now technically in a bear market, having declined -24.0% since May 2nd of last year. Overall, recent credit gauge deterioration remains a big worry as most key sovereign cds remain technically strong despite today's mixed performance. I still believe the level of complacency among US investors regarding the rapidly deteriorating situation in Europe is fairly high. US stocks are continuing to rebound after early-month losses, however the quality of the rally is lacking so far. There are few big-volume/gainers and the devastated commodity-related stocks are leading. The 10Y T-Note isn’t selling off at all, copper isn't participating in the equity advance and the euro can’t sustain even a bounce. While stocks were very oversold and may bounce further in the short-term, I still believe there is still too much uncertainty on the horizon to conclude a durable low is in place. Spain is rapidly approaching full-blown crisis. I still don’t hear any viable “solutions” to the European debt crisis and it is really beginning to bite emerging market economies now, which will further pressure exports from the region and further raise the odds of more sovereign/bank downgrades. I do not believe China will be able to provide the large stimulus package investors seem to crave given the extent of their real inflation/local govt debt issues. As well, the "US fiscal cliff "will become more and more of a focus for investors as the year progresses. For this year's equity advance to regain traction, I would expect to see a resumption in European credit gauge improvement, a subsiding of hard-landing fears in key emerging markets, a rising 10-year yield, better volume, stable-to-lower energy prices, a US "fiscal cliff" solution and higher-quality stock market leadership. I expect US stocks to trade mixed-to-lower into the close from current levels on rising Eurozone debt angst, rising global growth fears, less US economic optimism and more shorting.