Stocks Surging into Final Hour on IBM Earnings Report, Short-Covering, Bargain-Hunting

BOTTOM LINE: The Portfolio is higher into the final hour on Gains in my Medical longs, Computer longs, Semi longs, Retail longs and Internet longs. I covered all of my IWM/QQQQ hedges and some of my (EEM) short 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 above average. Investor anxiety is about average. Today’s overall market action is bullish. Economically sensitive and "growth" shares are especially strong today. The TED spread, a meaningful gauge of credit market angst, is plunging another 26 basis points today to 90 basis points. The TED spread is down 134 basis points in just over one month and is at its lowest level since August of last year. As well, the 30-day asset backed commercial paper yield is plunging another 26 basis points to 4.10%. This is down 223 basis points since September of last year and is now at the lowest level since November 2005. I continue to believe bear complacency remains extraordinarily high given how much bad news is already factored into stock prices at current levels and the real potential for significant positive near-term catalysts. I am finally seeing signs that size buyers are stepping in at current levels. Last week, I said a significant confidence-boosting near-term catalyst needed to materialize soon to prevent the major averages from taking out recent lows. It looks like the (IBM) report was that catalyst. As well, (SAP) is rising 4.1% on its report. These reports should quell global economic slowdown concerns and investor reaction to them should greatly worry the many bears, specifically the tech bears. Today’s action makes me more confident that a durable bottom is now in place, especially given the “off-the-charts pessimism” in the investment community, media and the general public. I want to see a follow-through rally on good breadth and volume materialize over the coming days and more stocks ignore bad news before getting more aggressive on the long side. Better economic data, more buyouts/capital infusions, constructive Fed commentary or earnings reports could provide further upside catalysts in the near-term. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, bargain hunting, diminishing credit angst and less economic pessimism.