Stocks Mostly Higher into Final Hour on Bargain-Hunting

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Biotech longs, Healthcare longs, Education longs and Computer longs. I covered some of my (IWM)/(QQQQ) hedges and some of my (EEM) short today, thus leaving the Portfolio 75% net long. The tone of the market is mildly positive as the advance/decline line is modestly higher, sector performance is mixed and volume is below average. Investor anxiety is above average. Today’s overall market action is mildly bullish. The VIX is falling rising 1.0% and is very high at 45.31. The ISE Sentiment Index is below average at 115.0 and the total put/call is below average at .80. Finally, the NYSE Arms has been running high most of the day, hitting 1.68 at its intraday peak, and is currently 1.0. The Euro Financial Sector Credit Default Swap Index is rising 1.56% today to 119.17 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 rising 4.16% to 205.32 basis points. The TED spread is rising 2.44% to 98 basis points. The TED spread is now down 368 basis points in under four months. The 2-year swap spread is rising 17.0% to 72.25 basis points. The Libor-OIS spread is rising 4.46% to 96 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 4 basis points to 1.07%, which is down 163 basis points in over six months. 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 .24%, which is up one basis point today. Small-caps are displaying meaningful relative strength today. Education and healthcare stocks are particularly strong. As well, there are an unusual number of stocks rising on volume given the major averages’ performances. It is noteworthy that the 10-year yield is at session lows, despite the rebound in stock and better-than-expected ISM report. Nikkei futures indicate an +67 open in Japan and DAX futures indicate an +24 open in Germany tomorrow. I expect US stocks to trade mixed into the close from current levels as more shorting and rising credit angst offset bargain-hunting.