Stocks Higher into Final Hour on Less Credit Market Angst and Financial Sector Pessimism

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Computer longs, Biotech longs, Software longs and Retail longs. I haven’t traded today, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is higher, almost every sector is rising and volume is about average. Investor anxiety is above average. Today’s overall market action is bullish. The VIX is falling 7.62% and is very high at 32.51. The ISE Sentiment Index is below average at 118.0 and the total put/call is above average at 1.01. Finally, the NYSE Arms has been running around average most of the day and is currently .96. The Euro Financial Sector Credit Default Swap Index is falling 7.36% today to 115.67 basis points. This index is up from a low of 52.66 on May 5^th, but down from 157.81 on Sept. 16^th. The North American Investment Grade Credit Default Swap Index is falling 2.96% to 162.0 basis points. The TED spread is rising .96% to 3.05 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is up 4 basis points to 1.79%, which is down 83 basis points in about 10 weeks and at the lowest level since July 2003, when deflation was the concern. Some gauges of credit angst are subsiding today, which is a large positive. As well, the US dollar remains steady despite worries over the costs of the rescue package and weaker economic data. On the negative side, breadth isn’t nearly as positive as it should be given the move in the major averages and volume is just around average. Moreover, while the rescue package should definitely help the economy over the intermediate-term, recent events will likely lead to weakening economic data over the short-run. Nikkei futures indicate a +270 open in Japan and DAX futures indicate an +65 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, diminishing financial sector pessimism, lower credit market angst and bargain-hunting.