Stocks Mixed into Final Hour Ahead of Bernanke Speech

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Computer longs, Semi longs and Medical longs. I have not traded today, thus leaving the Portfolio 100% net long. The overall tone of the market is slightly negative today as the advance/decline line is mildly lower, sector performance is mixed and volume is below average. My intraday gauge of investor angst is above-average levels. Growth stocks are once again substantially outperforming value stocks, with many leaders posting strong gains. The MS Tech Index is up 12% year-to-date, as well. There are rumors going around that Microsoft(MSFT) may attempt to buy Research In Motion (RIMM) to compete with Google. I find that prospect highly unlikely. I still think Google will exceed $600 by year-end on better-than-expected earnings and growth stock multiple expansion. The AAII percentage of bulls fell to 40.3% this week from 41.3% the prior week. This reading is below average levels. The AAII percentage of bears rose to 46.3% this week from 43.1% the prior week. This reading is approaching elevated levels. Moreover, the 10-week moving average of the percentage of bears is currently at 38.6%, a high level. The 10-week moving average of the percentage of bears peaked at 43.0% at the major bear-market low during 2002. The 50-week moving average of the percentage of bears is currently 37.0%, an elevated level seen during only two other periods since tracking began in the 1980s. Those periods were October 1990-July 1991 and March 2003-May 2003, both of which were near major stock market bottoms. The extreme readings in the 50-week moving average of the percentage of bears during those periods peaked at 41.6% on Jan. 31, 1991, and 38.1% on April 10, 2003. We are currently very close to eclipsing the peak in bearish sentiment during the 2000-2003 market meltdown, which I still find astonishing, notwithstanding the recent correction. Here are a few other gauges showing significant bearishness despite the S&P 500's 4.2% gain off the recent lows:

1. The VIX is still at the highest level since April 2003.

2. The 10-week total put/call is 1.12, the highest level in history.

3. The 21-day ISE Sentiment Index reading is right near record lows at 103.0.

4. The 10-day Arms Index is a very high 1.27.

5. Domestic stock mutual funds continue to see significant outflows.

6. Money market fund assets are soaring to new record levels.

7. The three-month T-bill yield has plunged 108 basis points over the last four days as investors continue their flight to safety.

8. Both public and professional short interest readings are near record levels.

9. Index futures traders are positioned near historically net short levels.

Finally, insider buying is still near levels last seen right before the bull market took off in 2003. These readings are all indicative of a market that has put in place a meaningful bottom. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering and bargain hunting ahead of Dell’s report and Bernanke’s speech tomorrow.