Stocks Jumping into Final Hour on Diminishing Credit Market Angst, Less Economic Pessimism, Financial Sector Strength, Falling Oil

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Gaming longs, Retail longs, Medical longs, Software longs and Commodity shorts. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is very positive as the advance/decline line is substantially higher, almost every sector is rising and volume is light. Investor anxiety is about average. Today’s overall market action is bullish. The VIX is falling 1.5% and is still above-average at 19.46. The ISE Sentiment Index is slightly above average at 170.0 and the total put/call is slightly below average at .84. Finally, the NYSE Arms has been running above average most of the day and is currently .97. The Euro Financial Sector Credit Default Swap Index is falling 3.9% today to 90.33 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 -1.2% to 143.1 basis points. The TED spread is declining 5.4% to 1.08 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 2 basis points to 2.17%, which is down 46 basis points in about six weeks. The Citi eurozone economic surprise index is now -164.70 versus a reading of +62.50 for the US economic surprise index. The (XLF) is surging 3.2% today to session highs. MBIA Inc.(MBI) is soaring another 31.2% today, breaking above its 200-day moving-average, on massive volume. MBIA Inc. had been one of the largest short targets of the hedge fund community. Since June 30^th of this year, MBIA is +262.87% higher. The AAII % Bulls fell to 30.7% this week and the % Bears jumped to 45.5%. Numerous analysts and pundits have said on CNBC over the last few days that the only reason the market is rising this week is that sellers aren’t around and that after Labor Day we will see declines in stock prices. Given recent positive developments in the financial sector, very bearish US stock market sentiment, oil’s poor trading action, much better-than-expected economic data and declining political fears, I think it is more likely that stocks will break higher next week on better volume. Nikkei futures indicate an +230 open in Japan and DAX futures indicate an +32 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on short-covering, falling commodity prices, less economic pessimism, diminishing credit market angst, less financial sector pessimism and bargain-hunting.