Stocks Higher into Final Hour on Less Economic Fear, Short-Covering, Technical Buying

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Technology longs and Retail longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is mildly positive as the advance/decline line is slightly higher, most sectors are rising and volume is slightly below average. Investor anxiety is high. Today’s overall market action is bullish. The VIX is falling -4.37% and is above average at 20.73. The ISE Sentiment Index is low at 94.0 and the total put/call is below average at .77. Finally, the NYSE Arms has been running around average most of the day, hitting 1.71 at its intraday peak, and is currently .79. The Euro Financial Sector Credit Default Swap Index is falling -1.66% to 92.08 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 -1.27% to 94.93 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is unch. at 16 basis points. The TED spread is now down 447 basis points since its all-time high of 463 basis points on October 10^th, 2008. The 2-year swap spread is falling -.59% to 28.70 basis points. The Libor-OIS spread is unch. at 10 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is up +4 bps to 2.33%, which is down -33 basis points since July 7^th, 2008. The 3-month T-Bill is yielding .09%, which is unch. today. Transport shares are relatively weak again today. As well, gaming, homebuilding, biotech and hmo shares are down -.5%+. The Euro continues to trade heavy. Commodities are mostly ignoring the stronger US dollar again today. Natural gas, however, is notably weak, falling almost 4%, and is at the lower end of its recent trading range. On the positive side, education, construction and steel shares are especially strong, rising 1.5%+. (IYR) has traded well throughout the day. The Spain sovereign CDS falling another -3.3% and the US sovereign CDS is dropping -6.25% to 45.0 bps. The market continues to ignore bad news, which is also a large positive. As well, the bears lack conviction. Earnings continue to provide bullish support. This week’s action has a summer vacation feel. I suspect next week’s trading will provide a better indication of the sustainability of the rally. Nikkei futures indicate an +95 open in Japan and DAX futures indicate an +22 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 technical buying.