Stocks Higher into Final Hour on Bargain-Hunting, Short-Covering

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Software longs, Internet longs and Medical longs. I covered my (IWM)/(QQQQ) hedges and added to a few of my lagging longs, including (BRCM) today, thus leaving the Portfolio 100% net long. The overall tone of the market is slightly positive today as the advance/decline line is neutral, most sectors are rising and volume is around average. The U.S.-based three-month Libor rate is falling another 2 basis points and has plunged 77 basis points from its September highs. It is also the lowest since March 2006. The Semiconductor Industry Association said global chip sales rose 5.9% in September as demand for PCs and cell phones increased. It also said NAND flash revenue rose 58.5% in September from year ago levels. Analyst downgrades are again today running around 2-1 over upgrades. Optimism in the Wall Street research community continues to fade as it has for the last seven years. According to Zacks, the median year-over-year growth rate for S&P 500 third-quarter reported earnings has climbed to 10.6% over the last few days. Like last week, I expect most earnings reports over the next couple of weeks to be more of a positive market catalyst. Fed fund futures now imply a 98% chance for a 25-basis-point fed funds rate cut on Wednesday. This is up from 86% last Friday and 92% one week ago. The odds for no change in rates are 2%, up from 0% last Friday and down from 14% one week ago. I expect the Fed to cut its benchmark interest rate by 25 basis points. S&P 500 futures traders are still positioned near historically net short levels, and there are still many indicators registering extraordinary bearishness given the S&P 500 is just 1.9% off its record high set less than three weeks ago. There remains massive bull firepower on the sidelines. The Philadelphia Stock Exchange Semiconductor Sector Index (SOX) is very oversold technically. I also see the recent decline as excessive given my view of improving fundamentals for the group over the intermediate term. A bounce in the semis could spur further gains in the broad tech sector and help left the entire market. Advance third-quarter GDP, which is released on Wednesday, is expected to come in at 3.1%. Considering how many pundits and analysts said we were plunging into recession in August, a number around 3% should give a psychological boost to investors. I still expect U.S. GDP growth to come in modestly below trend, around 2.0% to 2.5%, over the intermediate term as the significant drag from U.S. housing is mostly offset by booming global growth. I expect US stocks to trade mixed-to-higher into the close from current levels on bargain-hunting and short-covering.