Stocks Soaring into Final Hour as Fed Cuts Discount Rate

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Computer longs, Medical longs, Semi longs and Retail longs. I covered the remainder of my (IWM)/(QQQQ) hedges, added to my (PWR) long and took some more profits in my (EEM) short today, thus leaving the Portfolio 100% net long. The overall tone of the market is very positive today as the advance/decline line is sharply higher, every sector is rising and volume is heavy. My intraday gauge of investor angst is still elevated. The AAII percentage of bulls fell to 42.22% this week from 45.76% the prior week. This reading is slightly below average levels. The AAII percentage of bears rose to 45.56% this week from 38.98% the prior week. This reading is now approaching elevated levels. Moreover, the 10-week moving average of the percentage of bears is currently at 37.4%, 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 36.5%, 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 still 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 extreme bearishness:

1) The VIX hit the highest level since 2002 yesterday.

2) According to Hays Advisory, the NYSE Overbought/Oversold Ratio is the second-highest in 42 years.

3) The 10-day total put/call recently hit the second-highest reading in history.

4) The 10-day ISE Sentiment Index reading recently hit the second lowest on record.

5) The 21-day Arms Index is at the highest level since around the March lows.

6) The Rydex Nova/Ursa Ratio Sentiment Indicator is at levels last seen in 2002.

7) Domestic stock mutual funds continue to see significant outflows.

8) Money market fund assets soared this week and are at record levels.

9) At yesterday’s lows, the 2-year note yield had plunged 71 basis points in 6 days as investors sought safety.

10) Both public and professional short interest readings are at record levels.

11) Index futures traders are positioned at historically net short levels.

Finally, insider buying is at levels last seen right before the bull market took off in 2003. These reading are all indicative of a market that is at a meaningful bottom. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, less pessimism, subsiding credit fears, overseas gains and bargain hunting.