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

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Computer longs, Medical longs, Internet longs, Alternative Energy longs and Retail longs. I covered my (IWM)/(QQQQ) hedges and some of my (EEM) short today, thus leaving the Portfolio 100% net long. The tone of the market is very bullish as the advance/decline line is substantially higher, every sector is rising and volume is above average. Investor anxiety is slightly above average. Today’s overall market action is very bullish. The Morgan Stanley Tech Index is very close to a breakout from range it has been trapped in since early May. The VIX is falling 8.9% and remains above average at 18.93. The ISE Sentiment Index is below average at 126.0 and the total put/call is around average at .86. Finally, the NYSE Arms has been running around average most of the day and is currently .82. Despite news that S&P finally cut the ratings of (ABK)/(MBI), the (XLF) is trading at session highs, rising 1.8%. The European Financial Sector Credit Default Swap Index is falling 2.8% today to 73.09 basis points. A number of emerging markets remained under pressure overnight. The Vietnam Index is now down 65% from its high and down 58% just this year. The Citi US Economic Surprise Index is now up to -.9 from -100.0 in March, while the Eurozone Index has declined to -43.10 from 78.0 in March. The dollar’s weakness today seems more like profit-taking after recent gains rather than related to Trichet’s comments that the ECB may raise rates soon. I doubt the ECB will hike anytime soon and with eurozone data continuing to deteriorate, an eventual drop in rates is more likely, in my opinion. One of my longs, (AMSC), is close to hitting another new high today, which is very impressive considering the pullbacks many other alternative energy stocks have experience of late. Nikkei futures indicate an +200 open in Japan and DAX futures indicate an +47 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on less economic pessimism, diminishing credit market angst and short-covering.