Stocks Higher into Final Hour on M&A Speculation, Diminishing Credit Fears

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Computer longs, Medical longs, Internet longs and Retail longs. I added to my (BRCM) long and took profits in another long 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, almost every sector is rising and volume is about average. My intraday gauge of investor angst is still above average. Extreme credit market fears are subsiding. Housing-related credit default swaps are falling again. The homebuilding index is 1.8% higher despite Toll Brothers (TOL,+5.2%) reporting an 85% drop in profits and not giving forward guidance, which goes back to the significant improvement in psychology that has occurred since the Fed discount rate cut. The I-banking index is also rising 1%, which is also a positive. The average 30-year jumbo mortgage is falling 7 basis points today, which is the first decline since the first week of July. Gasoline supplies fell substantially more than estimates as refiners cut back production once again, however, oil supplies exceeded estimates. Oil is falling another $0.25 on the report. While it is getting oversold short term and the peak in hurricane season is three weeks away, I continue to believe that oil has made a major double-top. I think the commodity can test the $49.90-per-barrel it hit last January over the next six months. This has very positive implications for the broad stock market and inflation. The yen is weaker today vs. the dollar, the 10-year yield is rising 5 basis points, the VIX is falling 8%, and gold is breaking to a five-day high, which implies less fear. The CBOE total put/call hit a very high 1.71 this morning, however, and the ISE Sentiment Index is plunging 33%, to a depressed 90.0, which implies high anxiety among retail options traders, which bodes well for further gains. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, diminishing credit fears, lower energy prices and bargain hunting.