Stocks Higher into Final Hour on Less Severe Economic Pessimism, Falling Credit Market Angst, Bargain-Hunting

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Retail longs, Technology longs and Medical longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is mildly positive as the advance/decline line is higher, 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 falling 4.21% and is elevated at 45.23. The ISE Sentiment Index is below average at 112.0 and the total put/call is below average at .76. Finally, the NYSE Arms has been running high most of the day, hitting 1.96 at its intraday peak, and is currently 1.19. The Euro Financial Sector Credit Default Swap Index is falling 5.86% today to 112.67 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 4.27% to 204.09 basis points. The TED spread is rising .87% to 108 basis points. The TED spread is now down 358 basis points in over three months. The 2-year swap spread is rising 1.13% to 67.0 basis points. The Libor-OIS spread is rising 3.10% to 94 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is up 5 basis points to .77%, which is down 193 basis points in over six months and near 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 .10%, which is unch. today. Considering the news today, I am surprised the major averages aren’t up more, which is a negative. (AFL) and (USB) are weighing on the (XLF), however the bears have been unable to gain downside traction. Considering recent OPEC comments, the rise in the euro and today’s better economic data, oil is trading poorly. The decline in home inventories, reported today, is a large positive. The Citi US economic surprise index is now up to -68.50, while the eurozone index is now -126.80. It is also a large positive to see the various credit default swap indices begin to roll over. Nikkei futures indicate an +248 open in Japan and DAX futures indicate a -16 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, diminishing economic pessimism, bargain-hunting and declining credit market angst.