Stocks Soaring into Final Hour on Less Economic Pessimism, Short-Covering, Bargain-Hunting

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Retail longs, Computer longs, Internet longs, Software 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 heavy. Investor anxiety is slightly below average. Today’s overall market action is very bullish. The rise in the ten-year yield is mostly a function of waning recession fears after the strongest consumer spending report in more than two years. The TED spread is falling another 8 basis points today to 186 basis points, which is down 35 basis points in 8 days. It is also down 54 basis points from its August high. Also, the 30-day asset backed commercial paper yield is down another 10 basis points to 5.55%, which is down 61 basis points in 9 days and down 78 basis points from September highs. Moreover, the VIX is breaking below its 200-day moving average today and is trading below 20 for the first time in awhile. Economically sensitive small-caps are today’s best performers as the Russell 2000 is gaining over 2%. As well, the Morgan Stanley Cyclical Index is jumping 2.0%. It appears to me that all the economic fear mongering that continues unabated by the many permabears is starting to lose its effectiveness. I still see further upside in stocks from current levels into year-end. I expect US stocks to trade mixed-to-higher into the close from current levels on diminishing credit market angst, less economic pessimism, seasonal strength, bargain-hunting and short-covering.