Stocks Rising into Final Hour on Less Economic Pessimism, Diminishing Credit Market Angst, Short-Covering and Bargain-Hunting

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Computer longs and Medical longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is mildly bullish as the advance/decline line is higher, most sectors are gaining and volume is extremely light. Investor anxiety is above average. Today’s overall market action is mildly bullish. The VIX is falling 2.48% and is elevated at 43.69. The ISE Sentiment Index is about average at 141.0 and the total put/call is slightly below average at .79. Finally, the NYSE Arms has been running high most of the day, hitting 1.49 at its intraday peak, and is currently 1.23. The Euro Financial Sector Credit Default Swap Index is unch. today at 109.91 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 1.41% to 204.47 basis points. The TED spread is unch. at 148 basis points. The TED spread is now down 318 basis points in just over ten weeks. The 2-year swap spread is down another 1.86% to 66.0 basis points. The Libor-OIS spread is dropping .64% to 124 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is unch. at .10%, which is down 251 basis points in just under six months and at the lowest level since Bloomberg record-keeping began in August 1998. The 10-year TIPS spread bottomed at .65% in October 1998 during the Asian financial crisis and at 1.24% in October 2001 during the technology bubble-bursting meltdown. The 3-month T-Bill is yielding -.01%, which is unch. today. The Libor-OIS spread, Greenspan’s favorite gauge of credit market health, continues to trend lower, which is a big positive. It has declined 240 basis points since October 10. As well, the 30-day asset-backed commercial paper yield is plunging 44 basis points today to .61%. It has declined 401 basis points since its Oct. 13th high. Econoimcally-sensitive shares, especially commodity stocks, are today’s top-performers. I suspect these stocks will continue to rally through year-end as many are very oversold and the US dollar will likely remain range-bound before another surge higher again during 1Q. Healthcare-related stocks, my favorite group for next year, are also strong again today with many posting 2-3% gains. Nikkei futures indicate an +61 open in Japan and DAX futures indicate an +37 open in Germany on Monday. I expect US stocks to trade modestly higher into the close from current levels on diminishing credit market angst, bargain-hunting, seasonal strength, less forced selling and short-covering.