Stocks Soaring into Final Hour on Financial/Tech Sector Optimism, Less Economic Fear, Short-Covering, Lower Credit Market Angst

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Medical longs, Financial longs, Retail longs and Technology longs. I added to my (ISRG) long this morning and took profits in another long, 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 gaining and volume is about average. Investor anxiety is high. Today’s overall market action is very bullish. The VIX is falling 4.25% and is very high at 37.19. The ISE Sentiment Index is slightly below average at 132.0 and the total put/call is about average at .85. Finally, the NYSE Arms has been running low most of the day, hitting .33 at its intraday trough, and is currently .66. The Euro Financial Sector Credit Default Swap Index is falling 2.55% today to 155.02 basis points. This index is down from its record March 10th high of 208.75. The North American Investment Grade Credit Default Swap Index is falling 3.34% to 182.35 basis points. This index is still below its Dec. 5^th record high of 285.99. The TED spread is falling .78% to 96 basis points. The TED spread is now down 367 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is down .44% to 56.75 basis points. The Libor-OIS spread is falling .93% to 93 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is up 2 basis points to 1.35%, which is down 129 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 .18%, which unch. today. The AAII % Bulls fell to 35.71%, while the % Bears jumped to 44.29% this week, which is a positive. The VIX is breaking down technically and the US sovereign debt credit default swap is dropping another 10.5% today, which are also big positives. Given hedge funds’ poor performance in March and the fact that many managers are out of the office today, I suspect we will see further significant short-covering next week. (WFC), which is soaring almost 30% today, had 156M shares of its stock sold short as of yesterday. With the (XLF) gapping higher, many shorts are likely feeling trapped in these shares and are hoping for some negative catalyst to materialize to save them. This should put a bid under these stocks for awhile. I also believe we are about to see a more meaningful improvement in consumer spending than almost anyone is forecasting over the next few months. Nikkei futures indicate an +235 open in Japan and DAX futures indicate an +15 open in Germany on Monday. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, declining credit market angst, tech/financial sector optimism, deal speculation and less economic fear.