Stocks Sharply Higher into Final Hour on Plunge in Oil, Less Financial Sector Pessimism, Short-Covering

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Gaming longs, Retail longs, Computer longs, Internet longs, Medical longs and Commodity/Emerging Markets shorts. I added a small (QSII) long and took profits in another long today, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is substantially higher, sector performance is mostly positive and volume is light. Investor anxiety is slightly above average. Today’s overall market action is bullish. The VIX is falling 4.44% and is still above-average at 18.94. The ISE Sentiment Index is about average at 162.0 and the total put/call is about average at .89. Finally, the NYSE Arms has been running high most of the day, hitting 1.33 at its peak, and is currently 1.10. The Euro Financial Sector Credit Default Swap Index is falling 3.82% today to 86.98 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 falling 1.56% today to 142.54 basis points. The TED spread is rising 1.8% to 1.12 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 5 basis points to 2.18%, which is down 45 basis points in about six weeks. Oil is trading today as though yesterday’s sharp gain was just a bear market rally. The Oil volatility index(OVX) is actually falling 4% today to 43.42, which is down from 54.19 on July 21. The many oil bulls that likely piled in on yesterday’s move higher are probably feeling trapped right now, which should further pressure the commodity next week. As well, we saw more negative economic data from Europe today. I still think commodity bulls are underestimating the magnitude of the current global demand slowdown, the impact of a rising US dollar and future supply increases. The Citi eurozone economic surprise index is still -146 versus +45.80 for the US economic surprise index. Google(GOOG) has had VERY good news come out over the last week, which has been mostly ignored during the market’s low-volume consolidation. I believe Google’s new speech-to-text technology will give them an even larger competitive advantage than they already have. Investors are overly concerned about GOOG’s exposure to the global slowdown, in my opinion. I expect the stock to stage another substantial move higher over the coming months on better-than-expected results and significant p/e multiple expansion. I suspect today's rally has some legs and stocks will build on gains next week. Nikkei futures indicate a +204 open in Japan and DAX futures indicate an +9 open in Germany on Monday. I expect US stocks to trade modestly higher into the close from current levels on short-covering, less financial sector pessimism, diminishing credit market angst, lower commodity prices, a stronger US dollar and bargain-hunting.