Stocks Slightly Higher into Final Hour on Falling Sovereign Debt Angst, Less Energy Sector Pessimism

Broad Market Tone:

• Advance/Decline Line: Slightly Lower
  
• Sector Performance: Most Sectors Declining
  
• Volume: Below Average
  
• Market Leading Stocks: Outperforming
  

Equity Investor Angst:

• VIX 23.91 -4.55%
  
• ISE Sentiment Index 108.0 +2.88%
  
• Total Put/Call .87 -2.25%
  
• NYSE Arms 1.52 -1.42%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 110.10 bps -4.75%
  
• European Financial Sector CDS Index 133.83 bps -6.07%
  
• Western Europe Sovereign Debt CDS Index 125.17 bps -12.47%
  
• Emerging Market CDS Index 252.94 bps -3.0%
  
• 2-Year Swap Spread 35.0 -1 bp
  
• TED Spread 44.0 -1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .09% unch.
  
• Yield Curve 251.0 +3 bps
  
• China Import Iron Ore Spot $144.10/Metric Tonne +.70%
  
• Citi US Economic Surprise Index -15.80 +.1 point
  
• 10-Year TIPS Spread 2.02% +1 bp
  

Overseas Futures:

• Nikkei Futures: Indicating +50 open in Japan
• DAX Futures: Indicating -3 open in Germany

Portfolio:

• Slightly Higher: On gains in my Technology, Retail and Medical long positions
  
• Disclosed Trades: None
  
• Market Exposure: 75% Net Long

BOTTOM LINE: Today's overall market action is mildly bearish as the S&P 500 trades flat despite a large decline in sovereign debt angst and less energy sector pessimism. On the positive side, Coal, Oil Tanker, Oil Service, Energy, Gold, Paper, Networking and Bank stocks are rising .5%+ on the day. The Spain sovereign debt cds is plunging -12.7% to 211.6 bps and the Portugal sovereign cds is dropping -5.2% to 285.3 bps. (XLF) has outperformed modestly throughout the day. On the negative side, Homebuilding, Hospital, Airline, Gaming, REIT and Drug shares are weak, falling .75%+. The Illinois municipal cds is rising another +2.3% to a record 312 bps and the California municipal cds is rising +1.2% to 300 bps. It is also a big negative to see Greece sovereign debt angst remain stubbornly high. The Greece 10-year/Bund spread is slightly higher today to 667 bps. The Shanghai Composite continues to trade poorly despite recent global equity gains, falling another -1.84% last night. The large declines in the eurozone financial sector cds and western europe sovereign debt cds indices are large positives. I will closely monitor the market's action early next week before further shifting market exposure. I expect US stocks to trade modestly higher into the close from current levels on short-covering, falling sovereign debt angst, declining energy sector pessimism and technical buying.