Stocks Surging into Final Hour on Buyout Activity/Speculation and Short-Covering

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Internet longs, Retail longs, Medical longs and Computer longs. I covered some of my (EEM) short, all of my (IWM)/(QQQQ) hedges, added (AMSC) long and added to a few shorts this morning, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is higher, most sectors are higher and volume is light. Dow Jones is reporting that the April Comscore data shows that Google (GOOG) has 49.7% share of the search engine market vs. 48.3% in March. As well, Yahoo!'s (YHOO) share fell to 26.8% vs. 27.5% in March. Microsoft's (MSFT) share fell to 10.3% from 10.9% in March. In my opinion, it is beyond comprehension why investors are willing to pay 50x forward earnings estimates for YHOO and only 32x conservative forward estimates for GOOG. I continue to believe that investors dramatically underestimate how long GOOG can grow at relatively high rates. I still expect the stock to rise substantially from current levels as it exceeds conservative long-term estimates and the P/E multiple expands significantly. Google remains my largest long position, just ahead of Apple Inc.(AAPL). Yesterday after the close, the Nasdaq reported that short interest on the exchange surged another 5.1% to 8,400,000,000 shares, from mid April through mid May, hitting another all-time high. Moreover, like the NYSE, the last three months have see Nasdaq short interest soar 22%, the largest three-month percentage increase since at least 1991, according to Bloomberg data. The bullish implications of such a large surge in short interest are severely underestimated, in my opinion.

Here are the 20 Nasdaq stocks with the largest percentage increase in their short interest relative to their float from mid-April through mid-May:

1. USNA +32.6%
2. INWK +21.1%
3. CPLP +21.1%
4. CCRT +16.6%
5. IDMI +13.2%
6. OUTD +10.8%
7. MOVI +10.2%
8. IDSA +9.9%
9. SCRX +8.9%
10. MNTA +8.6%
11. MDTL +8.5%
12. NRMX +7.7%
13. DNDN +7.7%
14. UTHR +7.6%
15. MDII +7.5%
16. AVTR +7.4%
17. HERO +7.4%
18. PPCO +7.3%
19. ILMN +7.2%
20. TZIX +7.0%

The S&P 500 also reported data. Here are the five industries in the S&P 500 with the largest percentage increase in their short interest from mid April through mid May:

1. Telcom Services +25.6%
2. Consumer Services +23.2%
3. Food & Staples Retailing +23.0%
4. Insurance +21.8%
5. Real Estate +20.1%

Here are the 20 S&P 500 stocks with the largest percentage increase in their short interest relative to their float from mid April through mid May:

1. STZ + 6.9%
2. VLO +6.7%
3. AMD +5.1%
4. BOL +4.1%
5. WFMI +3.2%
6. FDO +3.1%
7. CVS +3.0%
8. JDSU +2.6%
9. BIG +2.6%
10. ABK +2.6%
11. VMC +2.5%
12. RF +2.5%
13. HCR +2.4%
14. JNS +2.3%
15. CMCSA +2.3%
16. MMC +2.3%
17. RDC +2.2%
18. NVLS +2.2%
19. BTU +2.1%
20. AMZN +2.0%

I expect US stocks to trade modestly higher into the close from current levels on buyout speculation, short-covering and more economic optimism ahead of the three-day weekend.