Stocks Soaring into Final Hour on Declining Economic Fear, Less Credit Market Angst, Diminishing Financial Sector Pessimism, Short-Covering

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Retail longs, Technology longs, Financial longs and Medical longs. I haven’t 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 above average. Investor anxiety is high. Today’s overall market action is very bullish. The VIX is falling 1.10% and is very high at 36.78. The ISE Sentiment Index is slightly below average at 131.0 and the total put/call is about average at .84. Finally, the NYSE Arms has been running high most of the day, hitting 1.52 at its intraday peak, and is currently .99. The Euro Financial Sector Credit Default Swap Index is falling .43% today to 152.30 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 3.03% to 177.44 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling 1.74% to 98 basis points. The TED spread is now down 365 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is falling 1.59% to 61.75 basis points. The Libor-OIS spread is falling 1.78% to 88 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is up 5 basis points to 1.50%, which is down 114 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 .09%, which is unch. today. Market-leading stocks are outperforming the major averages substantially again today. Economically sensitive shares are also big winners. A number of sectors are posting huge gains today. Networking, software, reit, homebuilding, education, gaming, hospital, construction and oil service shares are surging 4%+. One of my longs, (ISRG), is soaring another 11% today on a short squeeze. The latest data show a short interest ratio of 5.2, near a record, and short interest at 8.9 million shares, which is a record high. The stock is extended short-term, but after a consolidation period I expect the shares to trade still higher before year-end. I expect US stocks to build on today’s gains over the next couple of weeks as the final results of the bank stress tests trickle out. Nikkei futures indicate an +243 open in Japan and DAX futures indicate an +10 open in Germany on Monday. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, diminishing economic fear, less financial sector pessimism and falling credit market angst.