Stocks Higher into Final Hour on Euro Bounce, Global Central Bank Stimulus Hopes, Short-Covering, Bargain-Hunting

Broad Market Tone:

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

Equity Investor Angst:

• VIX 22.79 -3.27%
  
• ISE Sentiment Index 91.0 +2.25%
  
• Total Put/Call 1.16 +23.40%
  
• NYSE Arms .67 -75.48%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 125.02 +.36%
  
• European Financial Sector CDS Index 292.73 +2.15%
  
• Western Europe Sovereign Debt CDS Index 323.62 +.56%
  
• Emerging Market CDS Index 304.47 -2.66%
  
• 2-Year Swap Spread 30.5 +.5 basis point
  
• TED Spread 37.75 -1.5 basis points
  
• 3-Month EUR/USD Cross-Currency Basis Swap -56.0 -3.75 basis points
  

Economic Gauges:

• 3-Month T-Bill Yield .09% +1 basis point
  
• Yield Curve 137.0 +6 basis points
  
• China Import Iron Ore Spot $133.10/Metric Tonne +.60%
  
• Citi US Economic Surprise Index -48.40 +1.0 point
  
• 10-Year TIPS Spread 2.14 +2 basis points
  

Overseas Futures:

• Nikkei Futures: Indicating a +9 open in Japan
• DAX Futures: Indicating +3 open in Germany
  

Portfolio:

• Higher: On gains in my tech, retail, biotech and medical sector longs
  
• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges, covered some of my (EEM) short, added to my (TFM) long, then added some index hedges back
  
• 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, rising energy prices and rising global growth fears. On the positive side, Alt Energy, Oil Tanker, Semi, Disk Drive and Road & Rail shares are especially strong, rising more than +1.25%. Small-cap and cyclical shares are outperforming. The UBS-Bloomberg Ag Spot Index is falling -.78%. The 10Y Yld is bouncing +7 bps to 1.66%. Major European indices were mostly higher, boosted by a +.8% gain in the UK. However, Italy fell another -.7% and is now down -14.0% ytd. The Bloomberg European Bank/Financial Services Index rose +.17%. The Brazil sovereign cds is falling -3.0%. On the negative side, Coal, Utility, Internet, Restaurant and Education shares are lower-to-flat on the day. Lumber is falling -.9%, Oil is rising +2.45% and Gold is gaining +.6%. Major Asian indices were mostly lower, led down by a -1.0% decline in Japan. The Germany sovereign cds is rising +1.2% to 109.67 bps(+6.2% in 5 days to the highest since early Jan.). The France sovereign cds is gaining +1.45% to 216.70 bps, the Spain sovereign cds is rising 2.3% to 608.50 bps, the Italy sovereign cds is gaining +2.2% to 564.65 bps and the Portugal sovereign cds is rising +1.8% to 1,074.15 bps. The Italian/German 10Y Yld Spread is rising +.4% to 474.69 bps. Moreover, the European Investment Grade CDS Index is gaining +2.2% to 183.27 bps. Weekly retail sales rose +2.5% this week versus a +3.1% gain the prior week, despite falling gas prices. 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 early-Sept. levels. Lumber is -5.0% 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 -60.0% from its Oct. 14th high and is now down around -50.0% ytd. China Iron Ore Spot has plunged -26.0% since Sept. 7th of last year. Shanghai Copper Inventories have risen +157.0% ytd. The CRB Commodities Index is now technically in a bear market, having declined -26.4% since May 2nd of last year. Overall, recent credit gauge deterioration remains a big worry as most key sovereign cds remain technically strong. The euro currency continues to trade poorly despite today's mild reversal higher. Oil is bouncing, but also trades poorly given global central bank stimulus hopes and recent stock gains. As well, the 10Y continues to trade too well despite mild weakness today. US stocks are likely rallying today on rising Fed stimulus hopes. I still believe the level of complacency among US investors regarding the rapidly deteriorating situation in Europe is fairly high. While European officials' kick-the-can smoke-n-mirrors short-sighted "solutions" to the debt crisis may temporarily placate investors, economies in the region are likely accelerating their contractions right now. As well, 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. As well, the "US fiscal cliff "will become more and more of a focus for investors as the year progresses. 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 mixed-to-higher into the close from current levels on a bounce in the euro, short-covering, global central bank stimulus hopes, tech/financial sector strength and bargain-hunting.