Stocks Building on Yesterday's Sharp Gains into Final Hour as Fed Leaves Rates Unch., Emphasizes Economic Strength

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Retail longs, Biotech longs and Internet longs. I have not traded today, thus leaving the Portfolio 100% net long. The overall tone of the market is slightly positive today as the advance/decline line is slightly higher, most sectors are higher and volume is heavy. My intraday gauge of investor angst is still elevated. The ISE Sentiment Index hit an all-time low of 39.0 this morning. It is extraordinary that this gauge of retail option trader sentiment this morning was showing more bearishness than during the major bear market lows during late 2002/early 2003. As well, the CBOE total put/call hit a very high 1.39 again this morning. The 10-day moving average remains near record levels. The VIX is down today but is still near levels last seen in 2003. Stocks are building on yesterday's strong gains. A Luminent Mortgage Capital (LUM) bankruptcy looks likely, and Goldman Sachs (GS) said that its Global Alpha fund is down 16% year-to-date, yet the financials are solidly higher. The financials ignoring new negative news is a significant positive for the broad market and a prime example of how much bad news is already factored into stock prices at current levels. The S&P 500 forward P/E is now 15.5, down from 16.1 at the beginning of the year despite earnings substantially beating estimates once again. Median S&P 500 earnings growth for second quarter is on pace to exceed first quarter's rate and come in at double-digit rates once again. As well, it is interesting to note the very positive comments recently from Harrah's Entertainment (HET) and Wynn Resorts (WYNN) regarding Las Vegas traffic trends. Urban Outfitters (URBN) said that second-quarter sales jumped 22%, with same-store-sales up 5%. Last night, after the close, Citigroup (C) had positive comments regarding the prospects for a better-than-expected back-to-school selling season. Finally, a Rasmussen poll today showed 70% of consumers think economic conditions are fair-to-excellent vs. 28% that view them as poor. This corresponds with the recent cycle high reached in the Conference Board's Confidence Index. These are just more data points that don't indicate the imminent collapse in consumer spending that is partially being factored into stocks at current levels. “Growth” stock leaders are especially strong again today, with many posting 1%-3% gains. I expect US stocks to trade modestly higher into the close from current levels on short-covering, more economic optimism and bargain hunting.