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 Software longs, Alternative Energy longs, Biotech longs, Medical longs and Computer longs. I added to my (AMSC) long and my (NUAN) long today and took profits in another trading long, thus leaving the Portfolio 100% net long. The overall tone of the market is very bullish as the advance/decline line is substantially higher, almost every sector is rising and volume is above average. Investor anxiety is about average. Today’s overall market action is very bullish. The VIX is falling 7.9% and remains above average at 21.0. The ISE Sentiment Index is a low 110.0 and the total put/call is about average at .94. Finally, the NYSE Arms has been running about average most of the day and is currently .83. I predicted during Friday’s GE-related low-volume market rout that we would get back most of those losses this week. Moreover, this is the first decent volume day in a few weeks, which makes the gains even more impressive. I am seeing many market leading stocks break out on volume, which leads me to conclude this rally has some legs. The US dollar is falling today on a report this morning that European inflation hit a 16-year high. I think the ECB is falling behind the curve in a big way by focusing too much on inflation and will have to ease its stance later this year, which should boost the buck. Vietnam fell another 1.4% last night and is now down -52.3% from its high, while Shanghai fell another 1.7% and is now down -46.3% from its high. It is amazing how the collapse of China’s main stock exchange, which was hyped incessantly last year at the bubble’s peak and which is one of the biggest financial stories of this year, is barely mentioned in the mainstream financial press. Meanwhile, the DJIA is just 10% off its record high, which is a routine correction, and stories of US economic and stock market armageddon are rampant. The bias in the press against reporting anything positive in this country is stunning and symptomatic of the current “US negativity bubble.” However, this bubble is creating the perfect backdrop for a new strong secular US bull run, in my opinion. Nikkei futures indicate an +300 open in Japan and DAX futures indicate an +84 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, less economic pessimism and bargain hunting.