Stocks Higher into Final Hour on Short-Covering, Less Economic Fear, Lower Energy Prices

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Technology longs and Biotech longs. I added (IWM)/(QQQQ) hedges this morning and then covered them, thus leaving the Portfolio 100% net long. The tone of the market is mildly positive as the advance/decline line is higher, sector performance is mixed and volume is above average. Investor anxiety is above average. Today’s overall market action is neutral. The VIX is rising .89% and is very high at 43.36. The ISE Sentiment Index is below average at 121.0 and the total put/call is around average at .81. Finally, the NYSE Arms has been running high most of the day, hitting 2.77 at its intraday peak, and is currently 1.69. The Euro Financial Sector Credit Default Swap Index is rising .73% today to 162.50 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 falling 3.18% to 181.39 basis points. This index is still below its Dec. 5^th record high of 285.99. The TED spread is rising 2.41% to 104 basis points. The TED spread is now down 359 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is falling 3.28% to 59.0 basis points. The Libor-OIS spread is falling 1.28% to 98 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 4 basis points to 1.40%, which is down 124 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 .18%, which is down 3 basis points today. The Bears were unable to gain meaningful traction, despite severe weakness in (IYR) mid-day. (IYR) finished 1.4% higher on a high volume reversal into the close. The 2-year swap spread is continuing to trend lower, which is a large positive. I suspect US stocks will build on today’s late afternoon surge before week’s end. Nikkei futures indicate a -9 open in Japan and DAX futures indicate a -32 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on short-covering, diminishing credit market angst, lower energy prices and declining economic fear.