Stocks Higher into Final Hour, Led by High Volume Surge in Tech Shares

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Retail longs, Biotech longs, Semi longs and Internet longs. I have not traded today, thus leaving the Portfolio 100% net long. The overall tone of the market is very positive today as the advance/decline line is substantially higher, most sectors are higher and volume is very heavy. My intraday gauge of investor angst is still high. The financials surging higher in the face of ongoing negative news and a strong breadth breakout today leads me to conclude that the bottom for this pullback was seen on Monday, as I speculated that morning. It is also positive that today's rally is still being met with skepticism. The ISE Sentiment Index, after hitting a record low yesterday, is still a low 100.0. The CBOE total put/call hit a high 1.17 this morning, and its 10-day moving average remains near record levels. The VIX is jumping 6% today and remains near levels last seen in 2003. S&P is saying that it expects i-bank ratings to remain stable despite the fact that third-quarter results will be negatively impacted by recent issues, according to Reuters. The i-banking index remains 1.7% higher on the day. On Monday, the S&P 500 surged +2.4%. However, the average market-neutral fund fell -.67% that day, according to Dow Jones. It is also interesting to note that the long/short strategy, which has the ability to be more opportunistic, was flat on Monday. I think the extreme popularity of the market-neutral strategy since the bubble burst in 2000 has helped to pump air into the current "U.S. negativity bubble" and has played a significant role in the recent parabolic rise in short interest. I think it's very poor risk-adjusted return of 2.8% annualized over the last three years may indicate that these funds are being run in a more net short manner than market-neutral. I continue to believe this strategy will begin to see substantial redemptions very soon and that some of this money will find its way into more positively correlated U.S. stock strategies, which could lead to the "mother of all short-covering rallies." I expect US stocks to trade modestly higher into the close from current levels on short-covering, less economic pessimism and bargain hunting.