Stocks Bouncing into Final Hour on Quarter-End Window Dressing, Euro Bounce, Short-Covering, Bargain-Hunting

Broad Market Tone:

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

Equity Investor Angst:

• VIX 19.50 -4.32%
  
• ISE Sentiment Index 88.0 +15.79%
  
• Total Put/Call .97 -15.65%
  
• NYSE Arms .92 -62.12%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 119.22 -.25%
  
• European Financial Sector CDS Index 291.52 +.32%
  
• Western Europe Sovereign Debt CDS Index 299.33 +.53%
  
• Emerging Market CDS Index 297.97 -.81%
  
• 2-Year Swap Spread 23.25 -.25 basis point
  
• TED Spread 37.50 -1 basis point
  
• 3-Month EUR/USD Cross-Currency Basis Swap -58.0 unch.
  

Economic Gauges:

• 3-Month T-Bill Yield .09% +1 basis point
  
• Yield Curve 133.0 +2 basis points
  
• China Import Iron Ore Spot $135.40/Metric Tonne -1.24%
  
• Citi US Economic Surprise Index -62.20 -.6 point
  
• 10-Year TIPS Spread 2.08 +1 basis point
  

Overseas Futures:

• Nikkei Futures: Indicating +33 open in Japan
• DAX Futures: Indicating +34 open in Germany
  

Portfolio:

• Slightly Higher: On gains in my tech, retail and biotech sector longs
  
• Disclosed Trades: Added to my (IWM)/(QQQ) hedges, then covered some of them
  
• Market Exposure: 50% Net Long

BOTTOM LINE: Today's overall market action is bullish as the S&P 500 trades near session highs despite rising Eurozone debt angst, diminished global central bank stimulus hopes and rising global growth fears. On the positive side, Education, Homebuilding, Ag, Retail and Steel shares are especially strong, rising more than +1.25%. Cyclical shares are mildly outperforming. Gold is falling -.8%. The Saudi sovereign cds is down -2.4% to 128.96 bps. On the negative side, Defense, Coal, Alt Energy, Computer Service, Gaming, Medical, Networking and Disk Drive shares are lower-to-flat on the day. The UBS-Bloomberg Ag Spot Index is rising another +1.2%. Major Asian indices were mostly lower, led down by a -.81% decline in Japan. Major European indices were lower, led down by a -1.4% decline in Spain. Spanish stocks are now down -2.5% in 5 days and down -23.8% ytd. The Bloomberg European Bank/Financial Services Index fell -1.0%. The Germany sovereign cds rose +.43% to 101.25 bps, the France sovereign cds gained +1.3% to 200.66 bps, the Spain sovereign cds rose +2.3% to 595.01 bps and the Italy sovereign cds is up +3.0% to 545.01 bps. The Spain 10Y Yld rose +3.5% to 6.87% and the Italian/German 10Y Yld Spread gained +2.9% to 467.69 bps. Weekly retail sales have decelerated to a sluggish rate at +2.3%, which is the slowest since the week of April 5th of last year. US Rail/Trucking 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-Aug. levels. Lumber is -12.0% since its March 1st 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 -45.0% ytd. China Iron Ore Spot has plunged -25.0% since Sept. 7th of last year. Shanghai Copper Inventories have risen +130.0% ytd. The CRB Commodities Index is now technically in a bear market, having declined -25.9% since May 2nd of last year. Overall, credit gauge deterioration remains a big worry as most key sovereign cds remain technically strong. The euro currency, oil, lumber and copper all continue to trade very poorly given global central bank stimulus hopes, eurozone debt crisis "solution" hopes and this year's equity rally. As well, the 10Y continues to trade too well as the yield is rising just +3 bps today to 1.63%. I still believe the level of complacency among US investors regarding the rapidly deteriorating situation in Europe is fairly high. The Citi Eurozone Economic Surprise Index is plunging another -18.80 points today to -94.6 points, which is the lowest since early-Sept. of last year. The “solutions” for the European debt crisis I still hear being bandied about are only bigger kick-the-cans that will eventually lead to an even bigger catastrophe as Germany is engulfed, in my opinion. Moreover, investors are ignoring today's comments from Merkel, which seem to be very damaging for the hopes of another big kick-the-can. Some key economies in the region are likely accelerating their contractions right now based on recent data. The European debt crisis is really beginning to bite emerging market economies now, which will also further pressure exports from the region and further raise the odds of more sovereign/bank downgrades. The "US fiscal cliff "will likely become more and more of a focus for investors as the year progresses. Finally, the upcoming earnings season could prove more challenging than usual for big multi-nationals given US dollar strength and the precipitous declines in some key parts of the global economy during the quarter. I still believe there is too much uncertainty on the horizon to conclude a durable stock market low is in place. 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 modestly lower into the close from current levels on rising eurozone debt angst, diminished global central bank stimulus hopes, rising global growth fears and more shorting.