Stocks Surging Again into Final Hour on Earnings Optimism and Lower Long-term Rates

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Internet longs, Computer longs and Biotech longs. I have not traded today, thus leaving the Portfolio 100% net long. The overall tone of the market is positive today as the advance/decline line is higher, sector performance is mostly positive and volume is heavy. AMG Data reported the largest total for weekly inflows in at least three years as a result of the massive flows into the (SPY). As well, it's a positive to see inflows into taxable bond funds and the (XLF). Once again, domestic funds ex-ETFs saw outflows, while non-domestic funds saw inflows, which has been the case for most of the last five years. The 10-year yield is falling 7 basis points after yesterday's spike higher, and the dollar is up slightly as the yen weakens. The dollar is very oversold and sentiment is extraordinarily negative regarding the currency, which could lead to a reversal at anytime. Moreover, the 10-year yield was up 33 basis points in nine days. While we could potentially get one more thrust higher in rates, I suspect the majority of the move is done. I still think the drag from credit and housing will mute economic activity to modestly below trend rates over the intermediate term, notwithstanding fed funds rate cuts. The dollar-based three-month Libor rate is falling another basis point today and is down 23 basis points in 10 days. As well, the speculative grade credit default swap index is down 20% over the last five days, which is a big positive. Google (GOOG) is making a new all-time high today and is up 21.3% for the year. I still don't think it is too late to board the Google train, and it remains my largest equity long position. The company will grow at a relatively high rate for much longer than investors expect, and shares remain cheap relative to its Internet peers and the market. Moreover, it is the exact type of stock investors will seek given the current macro backdrop, which should lead to multiple expansion. It is also noteworthy that Masco (MAS) lowered its guidance on a lower housing start forecast, and the stock is surging 2.6%. The Rasmussen daily consumer confidence index continues to rebound. It came in at 110.7 today. This is now above the level seen for the entire month of June, before the credit turmoil began. Scott Moritz, of the TheStreet.com, is reporting that people familiar with Apple (AAPL) are expecting the company to sell 2.35 million iMacs and MacBooks this quarter, which would be 400,000 more units than analysts had expected. I have been writing for quite some time that I believed the "halo effect" was intensifying at a much more rapid rate as a result of the iPhone and that computers would propel Apple's earnings above even the most optimistic estimates. I still think the stock will exceed $180 before year-end, and it remains my second-largest long position behind Google (GOOG). Also noteworthy, Engadget.com is reporting that Apple is readying a new line of slimmer aluminum laptops. The fact that Apple's high-priced products are flying off the shelves is also damaging to the imminent consumer collapse thesis. The iShares FTSE/Xinhua China 25 Index (FXI) has soared 40.4% in just over a month. It is up 110.2% over the last 12 months. I am seeing numerous small-cap low-priced Chinese ADRs rocketing higher recently on little news and abnormal volume. Take a look at China Eastern Airlines (CEA), and it is one of the less speculative examples. This type of extreme speculative activity usually indicates, at the very least, a correction in the group is approaching. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, lower long-term rates, less economic pessimism and investment manager performance anxiety.