Stocks Mixed into Final Hour as More Buyouts and Economic Optimism is Offsetting Higher Long-term Rates

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Retail longs, Internet longs, Semi longs, Medical longs and Computer longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is neutral today as the advance/decline line is slightly lower, most sectors are gaining and volume is below average. I have heard numerous market bears say that the parabolic rise in short interest doesn't matter because of the proliferation of hedge funds. I couldn't disagree more. Look no further than Under Armour's (UA) stock action today. It is soaring 13% to an all-time high on no news. Maybe there is some big news coming for the company. However, does anyone think this stock would be up so much today if 43.4% of the float weren't sold short? Just last month, short interest in the shares surged 22.7%. I remain long UA. This is just one of many examples of heavily shorted stocks soaring on little new news. In fact, I have never seen so much reckless shorting in my career. It isn't just hedging as the many bears would have you believe. Just because a stock is up or has an above-market valuation doesn't make it a good short. There usually needs to be a downside catalyst. I believe many hedge fund managers that cut their teeth during the bubble and ensuing bursting have indiscriminately shorted growth stocks and had much success over the last seven years due to the huge relative underperformance growth has displayed vs. value. I think those days are over as growth is now outperforming value. It is important to remember that growth stocks are the cheapest relative to value stocks in at least 30 years. The saying "don't confuse brains with a bull market" can also apply to shorting. "Don't confuse brains with a bear market." Greenwich Associates recently said hedge funds managers were the most bearish since 2004. Moreover, Investors Intelligence reported today that more financial advisors are expecting a correction than at any time in the last 10 years. I suspect these investors are positioned accordingly. I still think better-than-expected second-quarter earnings, lower long-term rates, subsiding sub-prime fears and more major buyouts will propel the averages higher over the coming weeks. Moreover, I continue to believe overall sentiment regarding U.S. stocks has never been worse in history with most of the major averages near highs. I still believe the eventual bursting of the current U.S. negativity bubble will lead to the "mother of all short-covering rallies." I expect US stocks to trade mixed-to-higher into the close from current levels on more economic optimism, bargain-hunting and short-covering.