Stocks Surging into Final Hour on Short-Covering, Diminishing Credit Market Angst

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Medical longs, Software longs and Retail longs. I covered all my (IWM)/(QQQQ) hedges and some of my (EEM) short today, thus leaving the Portfolio 100% net long. The tone of the market is bullish as the advance/decline line is higher, almost every sector is rising and volume is about average. Investor anxiety is slightly below average. Today’s overall market action is bullish. The VIX is falling 5.4%, but remains above average at 16.7. The ISE Sentiment Index is below average at 102.0 and the total put/call is below average at .77. Finally, the NYSE Arms has been running below average most of the day and is currently .69. Given this morning’s mostly disappointing economic data, yesterday’s afternoon swoon and oil is still near record levels, today’s market performance is especially impressive. Market leading stocks are very strong. Tech stocks trade exceptionally well and the Morgan Stanley High-Tech Index is breaking convincingly above its 200-day moving average today. The DJIA is only 1.4% lower for the year now, despite the overwhelming belief by the herd that we are in a bad bear market and recession. I suspect we will see another strong surge higher in the major averages, pushing them into positive territory over the coming weeks, as investment manager performance anxiety comes back into play. The European Financial Sector Credit Default Swap Index is falling another 2.72 basis points to 58.38 basis points. The only real negatives I see today are that breadth isn’t as strong as I would like to see and the 9 basis point decline in the 10-year yield could bring economic weakness worries to the fore again. Nikkei futures indicate a +89 open in Japan and DAX futures indicate a +55 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering and diminishing credit market angst.