Stocks Slightly Higher into Final Hour on Falling Long-Term Rates, Short-Covering, Less Financial Sector Pessimism

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Technology longs and Defense longs. I have not traded today, thus leaving the Portfolio 75% net long. The tone of the market is mildly negative as the advance/decline line is lower, sector performance is mixed and volume is about average. Investor anxiety is high. Today’s overall market action is mildly bearish. The VIX is falling 1.99% and is very high at 30.55. The ISE Sentiment Index is low at 103.0 and the total put/call is above average at .97. Finally, the NYSE Arms has been running around average most of the day, hitting 1.15 at its intraday peak, and is currently .62. The Euro Financial Sector Credit Default Swap Index is rising 3.15% today to 120.0 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 rising .77% to 146.81 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling 2.72% 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 .82% to 45.94 basis points. The Libor-OIS spread is falling 1.2% to 37 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 2 basis points to 1.83%, which is down 81 basis points since July 7th. The 3-month T-Bill is yielding .19%, which is unch. today. Despite the slight gain in the S&P 500, breadth is relatively weak today. Small-caps are especially weak. The Euro Financial Sector Credit Default Swap Index is up again today and has risen 9 out of the last 10 days, which is a big negative. Moreover, weekly retail sales declined for the fifth consecutive week last week. On the positive side, long-term interest rates are down for the third consecutive day and inflation expectations are down again despite the jump in commodity prices today. Nikkei futures indicate an +56 open in Japan and DAX futures indicate an +13 open in Germany tomorrow. I expect US stocks to trade mixed-to-lower into the close from current levels on more shorting, healthcare reform worries and rising energy prices.