Stocks Soaring into Final Hour on Short-Covering, Bargain-Hunting, Lower Energy Prices, US Dollar Strength

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Internet longs, Computer longs, Biotech longs, Medical longs and Gaming longs. I covered all my (IWM)/(QQQQ) hedges and some of my (EEM) short this morning, 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 about average. Investor anxiety is about average. Today’s overall market action is very bullish. The VIX is falling 11.6%, but remains above average at 22.6. The ISE Sentiment Index is a depressed 71.0 and the total put/call is about average at .91. Finally, the NYSE Arms has been below average most of the day and is currently a low .55. Considering the mixed performance in Asia overnight and today’s news, action is even more impressive. China’s benchmark Shanghai Composite fell another -4.1% last night and is now down -36.7% so far this year. The DJIA is now down only -4.1% year-to-date after today’s rally. The TED spread is falling another 8 basis points today and has plunged 75 basis points over the last week to the lowest level since late February. The three-month T-bill yield is up another 7 basis points and has surged 100 basis points over the last week. The Bear Stearns High Yield Index is up 1.3% over the last five days. If emerging market stocks and commodities remain relatively weak, we should begin to see significant money flows into US stock funds for the first time in years, which would be a major broad market positive. This would also continue to help boost the US dollar. It is becoming increasingly likely that the lows for the year in US stocks are in place. Nikkei futures indicate an +600 open in Japan and DAX futures indicate an +112 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, lower energy prices, less pessimism, US dollar strength, diminishing credit market angst and bargain-hunting.