Stocks Soaring into Final Hour on Plunge in Oil, Short-Covering, Bargain-Hunting

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Software longs, Internet longs, Alternative Energy longs, Medical longs and Commodity shorts. I covered all of my (IWM)/(QQQQ) hedges and some of my (EEM) short this morning, thus leaving the Portfolio 100% net long. The tone of the market is very positive as the advance/decline line is substantially higher, most sectors are rising and volume is heavy. Investor anxiety remains high. Today’s overall market action is very bullish. The VIX is falling 10.0% and is still high at 25.65. The ISE Sentiment Index is low at 97.0 and the total put/call is above-average at .98. Finally, the NYSE Arms has been running below average most of the day and is currently .81. The Euro Financial Sector Credit Default Swap Index is falling 2.71% today to 89.83 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 declining 2.6% today to 139.81. The TED spread is falling 2.4% to 142.0. Yesterday, I said I believed the market had made a tradable low that morning. Today’s action makes me more confident of further upside, after some backing and filling. Bear complacency had become higher than at any time I have ever seen as evidenced by the parabolic rise in short interest, notwithstanding recent sharp broad market losses. Shorting the financials was viewed as free money. Today, at the very least, 15%+ moves in stocks such as FNM, FRE, LEH, WFC, WM and ZION will at least give the many bears pause. The US Dollar Index is trading at session highs and the weekly energy inventory data was very bearish for the price of crude. If the oil bubble is finally bursting, I suspect recent market lows will hold and stocks will see far greater upside through year-end. Nikkei futures indicate an +185 open in Japan and DAX futures indicate an +90 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on short-covering, falling energy prices, diminishing credit market angst, less financial sector pessimism and bargain-hunting.