Stocks Mixed into Final Hour as "Growth" Stock Surge Offsets Weakness in Financials

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Internet longs, Medical longs and Biotech 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 about average. Google (GOOG) is rising another $9 today as Merrill upped its target to $740. As well, antitrust experts say the DoubleClick deal will go through. Moreover, ComScore is saying today that Google had 37.1 billion searches worldwide in August vs. 8.5 billion for Yahoo! (YHOO) and 3.2 billion for Baidu (BIDU). Google remains my largest equity long position, and I still see substantial upside from current levels. It is interesting to note that investment research downgrades have been running ahead of upgrades by about a 4-to-1 margin over the last week, yet stocks are higher. As well, despite yesterday's dovish Fed commentary, fed fund futures now imply a 34% chance for a 25-basis-point cut at the upcoming meeting, down from 70% one week ago and stocks are still mostly rising. The underlying tone of the market remains very positive. I still think too many bulls are underinvested and many bears are too short. While I do pay attention to the Investors Intelligence survey, I do not view it as a good contrary indicator. According to Investors Intelligence, optimism on U.S. stocks rose to the highest this week since December 2005. Many are insinuating that this reading points to an imminent drop in stocks. Over the ensuing five months, however, from January 2006-May 2006, the S&P 500 rose 7%. Just look at the Investors Intelligence chart carefully, and you can see that bullish sentiment has been around current levels many other times since the bear market lows of 2002. The S&P 500 is up 115% since then. On the other hand, according to Greenwich Alternative Investments, hedge fund managers that are bullish on U.S. stocks are at a historical low this month. Only 8% are bullish, while 92% are either neutral or bearish. This also corresponds with the gigantic rise in short interest this year and S&P 500 futures traders that remain positioned near historically net short levels. As well, an overwhelming majority of those surveyed believe the dollar will continue to decline and that the 10-year will fall in price. Here is a summary of Greenwich's October survey:

U.S. Equities (S&P 500)
Expectation	August	September	October
Bullish	36%	25%	8%
Neutral	28%	17%	50%
Bearish	36%	58%	42%
U.S. Dollar
Bullish	43%	33%	25%
Neutral	14%	25%	17%
Bearish	43%	42%	58%
U.S. Treasury 10-year Note (price)
Bullish	21%	33%	25%
Neutral	29%	17%	25%
Bearish	50%	50%	50%
Source: Greenwich Alternative Investments

I expect all three of these consensus beliefs to be proven wrong over the intermediate-term. These findings provide more evidence of the current U.S. "negativity bubble," in my opinion. I expect US stocks to trade modestly higher into the close from current levels on investment manager performance anxiety, strong “growth” stock outperformance and short-covering.