Stocks Higher into Final Hour on Less Economic Fear, Short-Covering, Diminishing Financial Sector Pessimism

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Technology longs, Medical longs, Retail longs and Biotech longs. I covered all my (IWM)/(QQQQ) hedges this morning, thus leaving the Portfolio 100% net long. The tone of the market is very positive as the advance/decline line is substantially higher, almost every sector is rising and volume is below average. Investor anxiety is about average. Today’s overall market action is very bullish. The VIX is falling 5.62% and is very high at 41.34. The ISE Sentiment Index is around average at 153.0 and the total put/call is around average at .82. Finally, the NYSE Arms has been running low most of the day, hitting .23 at its intraday trough, and is currently .71. The Euro Financial Sector Credit Default Swap Index is falling 1.36% today to 180.33 basis points. This index is down from its record March 10th high of 208.75. The North American Investment Grade Credit Default Swap Index is rising 4.17% to 239.50 basis points. This index is still below its Dec. 5^th record high of 285.99. The TED spread is falling 1.52% to 107 basis points. The TED spread is now down 356 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is unch. at 68.75 basis points. The Libor-OIS spread is falling 1.41% to 106.0 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 4 basis points to 1.16%, which is down 148 basis points since July 7th. 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 .22%, which is down 1 basis point today. Market leading stocks have substantially outperformed the market throughout the day. REITs(IYR), which had recently been lagging the financials, are jumping 6.2% today. Retailers are also outperforming today, rising almost 4%. The weekly retail sales index fell 1.2% this week, which was up from a 1.4% decline the prior week and up from a low reading of a 2.3% decline the week of Feb. 3^rd. This could become a large positive if the improvement persists into the Spring. I would expect to see further gains in Asia tonight. Nikkei futures indicate an +66 open in Japan and DAX futures indicate an +26 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, less economic fear and diminishing financial sector pessimism.