Stocks Higher into Final Hour on Falling Credit Market Angst, Short-Covering, Less Financial Sector Pessimism

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Medical longs, Financial longs, Defense longs and Biotech longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is mixed as the advance/decline line is about even, most sectors are rising and volume is about average. Investor anxiety is high. Today’s overall market action is neutral. The VIX is falling 1.5% and is high at 25.53. The ISE Sentiment Index is slightly below average at 139.0 and the total put/call is slightly below average at .77. Finally, the NYSE Arms has been running around average most of the day, hitting 1.25 at its intraday peak, and is currently .75. The Euro Financial Sector Credit Default Swap Index is falling 2.92% today to 111.0 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 3.87% to 135.73 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling .86% to 42 basis points. The TED spread is now down 422 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising 7.9% to 38.57 basis points. The Libor-OIS spread is falling 2.89% to 37 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 1 basis point to 1.70%, which is down 94 basis points since July 7th. The 3-month T-Bill is yielding .18%, which is up two basis points today. The US sovereign debt credit default swap index is falling another 4.76% today to 40.0 basis points, which is the lowest since May 21^st. (XLF) has traded well throughout the day and is at session highs, rising 1.3%. This financial sector ETF is right at its 200-day moving average and should break above it by week’s end. The Healthcare IT stocks(QSII, CERN, MDRX, ECLP, CPSI, etc) remain on fire after positive comments from Raymond James this morning. I continue to favor these shares. One of my longs, (ASEI), is breaking higher today after two weeks of consolidation. I still believe it is attractive at current levels. The main negative I see today is the relative weakness in large-cap tech leaders. This is likely a function of quarter-end profit-taking by traders rather than an indication of impending weakness for the sector. (MSFT) is an exception and continues to trade very well. Nikkei futures indicate an +207 open in Japan and DAX futures indicate a -5 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on lower long-term rates, short-covering, diminishing financial sector pessimism, declining credit market angst, quarter-end window dressing and investment manager performance anxiety.