Stocks Soaring into Final Hour on Short-Covering, Lower Energy Prices, Less Financial Sector Pessimism, Diminishing Credit Market Angst

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Technology longs, Medical longs, Retail longs and Biotech longs. I covered all of 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 positive as the advance/decline line is substantially higher, almost every sector is rising and volume is above average. Investor anxiety is about average. Today’s overall market action is very bullish. The VIX is falling 10.06% and is very high at 44.68. The ISE Sentiment Index is slightly below average at 134.0 and the total put/call is below average at .74. Finally, the NYSE Arms has been running low most of the day, hitting .25 at its intraday trough, and is currently .53. The Euro Financial Sector Credit Default Swap Index is falling 5.20% today to 194.33 basis points. This index is down from its record high, set this morning, of 208.75. The North American Investment Grade Credit Default Swap Index is falling 3.84% to 247.34 basis points. This index is still below its Dec. 5^th record high of 285.99. The TED spread is falling 1.05% to 110 basis points. The TED spread is now down 353 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is falling 5.23% to 77.0 basis points. The Libor-OIS spread is rising 1.06% to 107.0 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 3 basis points to .88%, which is down 176 basis points since July 7th. The 10-year TIPS spread bottomed at .65% in October 1998 during the Asian financial crisis and at 1.24% in October 2001 during the technology bubble-bursting meltdown. The 3-month T-Bill is yielding .23%, which is up 3 basis points today. Comments from Citigroup, hope for a relaxation of the mark-to-market rule and the possibility of bringing back the “uptick” rule are boosting stocks substantially today. While I am happy to hear talk of bringing back the uptick rule, its positive impact on stocks will likely be minimal as long as credit default swap manipulation persists and ultrashort etfs exist. If mark-to-market is relaxed, the uptick rule returns, credit default swap manipulation ends and ultrashort etfs are banned, I would expect to see an incredibly explosive and sustained rally in US stocks. Nikkei futures indicate an +320 open in Japan and DAX futures indicate a -6 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, lower energy prices, declining credit market angst, technical buying, bargain-hunting and less financial sector pessimism.