Stocks Mixed into Final Hour as Global Growth Worries Offset Short-Covering and Bargain-Hunting

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Internet longs, Gaming longs, Medical longs and Commodity/Emerging Market shorts. I covered all my (IWM)/(QQQQ) hedges and some of my (EEM) short this afternoon, thus leaving the Portfolio 100% net long. The tone of the market is neutral as the advance/decline line is mildly lower, most sectors are rising and volume is about average. Investor anxiety is above average. Today’s overall market action is mildly bullish. The VIX is rising .59% and is very high at 34.05. The ISE Sentiment Index is low at 105.0 and the total put/call is above average at 1.08. Finally, the NYSE Arms has been running around average most of the day and is currently .79. The Euro Financial Sector Credit Default Swap Index is rising +9.89% today to 108.67 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 -2.02% to 153.94 basis points. The TED spread is rising 1.44% to 2.40 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is down 11 basis point to 1.86%, which is down 76 basis points in just over eight weeks and at the lowest level since July 2003, when deflation was the concern. The rise in the US dollar is a large positive, given recent worries over the bailout plan and rising expectations for a Fed rate cut in October. Fed fund futures now imply a 60.0% chance for a 25 basis point cut on Oct. 29, up from 34.0% yesterday. I suspect the currency has made another tradable low. Oil may see another surge on tomorrow’s inventory data, but is likely very near another tradable top. Given today’s jump in several gauges of credit market angst, stable action in the (XLF) is a positive. Weekly retail sales rose +1.5% this week versus a +1.6% gain last week. While this is below average levels, sales are still substantially higher than February’s average of a .6% rise. Nikkei futures indicate a -230 open in Japan and DAX futures indicate an +50 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, lower commodity prices and bargain-hunting.