Stocks Sharply Higher into Final Hour on Diminishing Credit Fears, Bargain-Hunting, Short-Covering

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Computer longs, Internet longs, Biotech 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 very positive today as the advance/decline line is substantially higher, almost every sector is rising and volume is below average. My intraday gauge of investor angst is slightly above-average levels, despite today’s gains. The 3-month t-bill yield is up 74 basis points from last Thursday's lows in a sign that investor flight to safety is subsiding. The CEO of Deutsche Bank said today that there are signs the credit crisis is easing, and the Broker/Dealer Index is 3.1% higher and at session highs. I still believe this index just has to remain stable for the major averages to push higher. Growth stocks are once again outperforming value stocks and growth tech is especially strong. Kulicke & Soffa (KLIC) boosted 4Q guidance by 6.6%, citing additional orders for wire bonding products. Bank of America boosted its price target on Intel(INTC) to $31 after the SIA said chip sales rose 3.2% from June. As well, Piper upped their 12-month price target on Apple Inc. to $211, which I view as very reasonable. The analyst said iPhones and iMacs are exceeding his sales estimates. I still think Apple will exceed $180 before year-end and the stock remains my second-largest long position behind Google Inc.(GOOG). As I said a few months ago, I still believe tech will continue to outperform the major averages over the intermediate term. According to TrimTabs, hedge funds saw $32 billion in outflows during the month of July, the most since 2000, and August is likely to see even more. Moreover, funds of fund saw 5% of their total assets leave the door. I continue to believe that the record explosion in short interest over the last year had mainly been a result of the massive infusion of capital into low/negative correlation U.S. stock strategies, such as market-neutral funds, that had marketed themselves as a safe alternative to other strategies and the market. However, market-neutral funds, as a whole, have performed poorly (in both up and down markets) for several years. Considering what has transpired over the last couple of months, I expect a significant portion of the capital fleeing these types of funds to find its way back into more positively correlated U.S. stock strategies over the coming months. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, diminishing credit fears, strength in the tech sector and bargain hunting.