Stocks Higher into Final Hour on Oil Plunge, Diminishing Credit Angst, Less Financial Sector Pessimism

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Computer longs, Retail longs, Gaming longs, Software longs and Commodity shorts. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is higher, sector performance is mostly positive and volume is heavy. Investor anxiety is slightly above average. Today’s overall market action is bullish. The VIX is rising 2.50% and is still above-average at 21.72. The ISE Sentiment Index is below average at 119.0 and the total put/call is slightly below average at .82. Finally, the NYSE Arms has been running about average most of the day and is currently .83. The Euro Financial Sector Credit Default Swap Index is falling 4.44% today to 79.83 basis points. This index is up from a low of 52.66 on May 5^th, but down from 129.46 basis points on March 20^th. The North American Investment Grade Credit Default Swap Index is -2.0% today to 131.76 basis points. The TED spread is falling another 2.94% to 1.22. The 10-year TIPS spread, a good gauge of inflation expectations, has dropped 30 basis points in 12 days to 2.34% on the fall in commodities. This is a large positive. By talking hawkish, the Fed is in a win-win situation, in my opinion. This should continue to boost the US dollar and pressure commodities, which should in turn boost stocks, lower inflation readings and help the economy. Then, later down the road, with a stronger economy and lower inflation readings, the Fed can actually raise rates to ensure that the commodity bubble doesn’t re-inflate and that inflation remains contained. I expect the prices paid gauges and headline inflation numbers to show considerable deceleration beginning in August. The CRB Index, the main source of inflation concerns, has declined 13% in three weeks. In my opinion, the many commodity bulls remain extraordinarily complacent, given recent losses, which bodes well for further declines over the intermediate-term. Considering recent gains, the .8% gain in the (XLF) today is somewhat stunning. The (XLF) is up 32% in 8 days. Two of my longs, (ISRG) and (ILMN), are substantially higher today after stellar earnings reports. After a consolidation period, I expect both to trade meaningfully higher from current levels by year-end and over the long-run. Growth stock leaders are substantially outperforming the broad market today. These types of stocks should help propel the market higher as the financials consolidate recent gains. Given many hedge funds’ love affair with commodity stocks and hatred for the financial sector, recent action could result in another wave of hedge fund trouble rumors. Nikkei futures indicate an +188 open in Japan and DAX futures indicate an +40 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on short-covering, diminishing credit market angst, falling commodity prices, bargain-hunting and less financial sector pessimism.