Stocks Higher into Final Hour on Short-Covering, Less Economic Pessimism

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Alternative Energy longs, Computer longs, Software longs and Retail longs. I added to my (AKAM) long this morning and took some profits in a trading long, thus leaving the Portfolio 100% net long. The tone of the market is slightly bullish as the advance/decline line is mildly higher, most sectors are rising and volume is about average. Investor anxiety is about average. Today’s overall market action is very bullish. The VIX is falling 3.4%, but remains above average at 18.3. The ISE Sentiment Index is very low at 94.0 and the total put/call is below average at .80. Finally, the NYSE Arms has been running slightly below average most of the day and is currently .83. Given recent stock gains, more negative financial sector news, a jump in oil to another record and technical selling, today’s action is even more impressive. The (XLF) has completely reversed morning losses and is trading near session highs, up .84%. This should be extremely worrisome to the many US stock bears. The Bear Stearns High Yield Composite Index continues to rally, rising another 1.03% over the last five days. This index is now only 1.13% from its all-time high hit on May 31, 2007. Moreover, many market-leading growth stocks are substantially outperforming the broad market again today. The TED spread is falling another 4 basis points to 113.0 basis points, which is the lowest since February 26^th and down from 204.0 on March 19^th, which is also a significant positive. Cisco Systems(CSCO) reports after the close today. There has been much talk in the financial media about the strong likelihood that the company will give disappointing guidance. There are currently 62.9 million shares of the stock sold short, which is right near record levels. As well, according to shaeffersresearch.com, the open interest put/call for CSCO is currently .99, which is the highest in at least 2 years. I am not currently long the stock, however I suspect that any initial negative investor reaction to their report may give way to buying by tomorrow afternoon. Nikkei futures indicate an +160 open in Japan and DAX futures indicate an +86 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering and less economic pessimism.