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

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Medical longs, Software longs, Alternative Energy longs, Gaming longs and Biotech longs. I added to my (GOOG) long and took some profits in another long today, thus leaving the Portfolio 100% net long. The overall tone of the market is very positive as the advance/decline line is substantially higher, almost every sector is rising and volume is above average. Investor anxiety is slightly above average, despite gains in the major averages. Today’s overall market action is very bullish. The VIX is falling 4.7% today, but remains relatively high at 22.0. The ISE Sentiment Index is a low 95.0 and the total put/call is an above-average 1.03 today. Finally, the NYSE Arms has been running below-average and is currently .80. Today’s broad market action is even more impressive considering today’s economic data, the rise in oil and decline in tech leader (GOOG). While the major averages are getting extended short-term, the recent parabolic rise in short interest, high cash levels at most funds, historically bearish sentiment readings and technical breakout in the S&P 500 should keep pullbacks relatively mild and short-lived. Hitwise said today that it is actually seeing an increase in traffic from Google to retail sites, which indicates GOOG’s paid search deceleration is not due to the economy. Pacific Crest said that its channel checks contradict the data from comScore and CSFB said that the January decline in paid clicks was intentional in an attempt to eliminate the zero value click. I still believe recent significant improvements to GOOG’s algorithms will result in further substantial market share gains over the intermediate-term. I suspect the shares are in the process of bottoming for the year right now and will finish the year substantially higher than current levels. Nikkei futures indicate an +206 open in Japan and DAX futures indicate an +45 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on short covering, diminishing bond insurer angst and bargain hunting.