Stocks Higher into Final Hour on Falling Euro Sovereign Debt Angst, Short-Covering, Less Economic Fear

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Biotech longs, Medical longs and Retail longs. I added to my (ASEI) long and took profits in another long today, thus leaving the Portfolio 100% net long. The tone of the market is slightly positive as the advance/decline line is about even, most sectors are rising and volume is about average. Investor anxiety is very high. Today’s overall market action is bullish. The VIX is falling -1.66% and is above average at 21.88. The ISE Sentiment Index is below average at 106.0 and the total put/call is above average at .93. Finally, the NYSE Arms has been running above average most of the day, hitting 1.11 at its intraday peak, and is currently .93. The Euro Financial Sector Credit Default Swap Index is falling -4.36% to 94.91 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 -4.02% to 96.15 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 -5.49% to 28.06 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 2.29%, which is down -36 basis points since July 7^th, 2008. The 3-month T-Bill is yielding .09%, which is unch. today. Commodity and Transport shares are relatively weak. Market leading stocks are mixed. The Euro is giving back all of yesterday’s gains as the currency continues to trade very heavy. Commodities are mostly ignoring the strong US dollar today, however a Euro break below 1.35 will likely lead to another move lower in most commodities. On the positive side, Education, HMO, Biotech, Medical, Disk Drive, Steel, Ag and Defense shares are especially strong, rising 1.0%+. (IYR) has traded well throughout the day. The Western Europe Sovereign Debt CDS is dropping -3.05%, with the Spain CDS falling -9.1%, which is a large positive. The decline in the Euro today looks more related to euro region growth concerns rather than rising sovereign debt fears. One of my longs, (DISCA), is jumping +9.6% on heavy volume with the news of its impending inclusion in the S&P 500 Index. I would still be a buyer of the shares on any market-related pullback from current levels. Notwithstanding some morning weakness, the bears appear to lack conviction. Another meaningful move lower in CDS could spur another round of short-covering. However, over the coming weeks I suspect the Euro region sovereign debt issues will resurface as a market headwind. Nikkei futures indicate an +54 open in Japan and DAX futures indicate an +5 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, declining Euro region sovereign debt angst and technical buying.