Stocks Sharply High into Final Hour on Less Economic Pessimism, Short-Covering, Stabilizing US Dollar

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Technology longs, Financial longs, Retail longs and Medical longs. I covered all my (IWM)/(QQQQ) hedges this morning, 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 slightly below average. Investor anxiety is above average. Today’s overall market action is very bullish. The VIX is falling 5.24% and is very high at 30.92. The ISE Sentiment Index is slightly above average at 155.0 and the total put/call is slightly below average at .73. Finally, the NYSE Arms has been running above average most of the day, hitting 1.55 at its intraday peak, and is currently 1.04. The Euro Financial Sector Credit Default Swap Index is falling .09% today to 116.67 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 1.76% to 143.82 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is rising 2.44% to 50 basis points. The TED spread is now down 413 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising 11.32% to 44.25 basis points. The Libor-OIS spread is falling .50% to 45 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 4 basis points to 1.82%, which is down 82 basis points since July 7th. The 3-month T-Bill is yielding .17%, which is down 3 basis points today. Market-leading stocks are substantially outperforming the broad market today. Small-caps are also especially strong with the Russell 2000 jumping 4.11%. Most gauges of credit market angst have imploded over the last 6 weeks, which is a major positive. I suspect stocks will build on today’s gains later this week after a brief period of consolidating action. Nikkei futures indicate an +175 open in Japan and DAX futures indicate an +21 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, diminishing credit market angst, investment manager performance anxiety, a stabilizing US dollar, less economic fear and bargain-hunting.