Stocks Higher into Final Hour on Less Economic Pessimism

BOTTOM LINE: The Portfolio is mixed into the final hour as gains in my Computer longs, Retail longs and Commodity shorts offset losses in my Internet longs and Medical longs. I added (IWM)/(QQQQ) hedges, added (ISRG) puts and added to my (EEM) short today, thus leaving the Portfolio 75% net long. The overall tone of the market is positive as the advance/decline line is higher, most sectors are rising and volume is about average. Investor anxiety is above average again. Today’s overall market action is bullish. Cyclicals, specifically transports, are especially strong. The heavily shorted and beaten-up financials, retailers and homebuilders are also strong again today. These groups have become very extended and short-term traders will likely take profits on tomorrow’s economic data and FOMC announcement. I wouldn't be surprised to see 4Q GDP and ADP Employment, which are released before the open tomorrow, surprise on the upside. This could also lead to weakness in the broad market, as traders cut expectations for a 50 basis point cut in the afternoon. I still sense there are a very large number of investors still on the sidelines who believe a complete retest or new lows are a certainty. This should keep pullbacks in the major averages relatively mild and short-term in nature. The VIX is falling 3.0% today, but remains high at 27.0. Weekly retail sales rose .7% this week, which is sluggish, but not recessionary. GM’s CFO said this afternoon that he does not see the US economy sliding into recession, as well. Fed fund futures now imply a 74% chance of a 50 basis point rate cut and a 26% chance for a 25 basis point cut tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering and bargain-hunting.