Stocks Higher into Final Hour on Less Economic Fear, Short-Covering, Less Financial Sector Pessimism

Broad Market Tone:

• Advance/Decline Line: About Even
  
• Sector Performance: Most Sectors Rising
  
• Volume: Below Average
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 22.95 -1.29%
  
• ISE Sentiment Index 119.0 -22.73%
  
• Total Put/Call 1.04 +11.38%
  
• NYSE Arms .71 -14.11%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 103.50 bps -2.04%
  
• European Financial Sector CDS Index 117.50 bps -2.76%
  
• Western Europe Sovereign Debt CDS Index 153.0 bps -.87%
  
• Emerging Market CDS Index 253.63 bps -.69%
  
• 2-Year Swap Spread 20.0 +1 bp
  
• TED Spread 16.0 -1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .13% +1 bp
  
• Yield Curve 220.0 +6 bps
  
• China Import Iron Ore Spot $140.0/Metric Tonne -1.27%
  
• Citi US Economic Surprise Index -17.30 +13.0 points
  
• 10-Year TIPS Spread 1.75% +8 bps
  

Overseas Futures:

• Nikkei Futures: Indicating +37 open in Japan
• DAX Futures: Indicating -35 open in Germany

Portfolio:

• Higher: On gains in my Tech, Biotech and Medical long positions
  
• Disclosed Trades: Added (IWM)/(QQQQ) hedges and added to my (EEM) short
  
• Market Exposure: Moved to 75% Net Long

BOTTOM LINE: Today's overall market action is mildly bullish as the S&P 500 is trading modestly higher despite eurozone bank worries and a -1.44% decline in Shanghai overnight. On the positive side, Education, HMO, Hospital, Drug, I-Banking, Bank, Telecom and Internet shares are especially strong, rising 1.0%+. (XLF) is outperforming. The S&P GSCI Ag Spot Index is rising another +1.85%. Lumber is jumping another +4.57% today. Moreover, the 10-year yield is rising +10 bps to 2.76%. The European Investment Grade CDS Index is dropping -4.16% to 98.33 bps and the UK sovereign cds is dropping -4.42% to 73.15 bps. On the negative side, Restaurant, Airline, REIT, Gold, Defense and Coal shares are under pressure, falling more than .75%. Small-caps and cyclicals are underperforming. (IYR) has been heavy throughout the day. Copper is falling -1.64%. The Portugal sovereign cds is rising +1.66% to 327.16 bps and the Ireland sovereign cds is rising +1.03% to 373.05 bps. The AAII % Bulls surged to 43.87 this week, while the % Bears dropped to 31.61, which is also a negative. The Citi Asia Pacific Economic Surprise Index has fallen from +68 on July 1 to a new 52-week low of -5.3 today. Shanghai copper inventories have risen +23.79% over the last five days. The Shanghai Composite is having trouble getting through meaningful technical resistance. Breadth is poor today and volume very light. I suspect we could see some mild weakness in stocks tomorrow ahead of the weekend. I expect US stocks to trade mixed-to-lower into the close from current levels on profit-taking, technical selling, eurozone bank worries and increasing terrorism fears ahead of 9/11.