Stocks Jumping into Final Hour on Less Economic Pessimism, Falling Long-Term Rates, Short-Covering, More Earnings Optimism

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Medical longs, Biotech longs, Defense longs, Technology longs and Financial longs. I have not 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 very high. Today’s overall market action is very bullish. The VIX is falling 1.99% and is very high at 25.10. The ISE Sentiment Index is below average at 106.0 and the total put/call is below average at .71. Finally, the NYSE Arms has been running extraordinarily high most of the day, hitting 2.5 at its intraday peak, and is currently 1.85. The Euro Financial Sector Credit Default Swap Index is plunging another 12.58% today to 71.90 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 3.55% to 111.88 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling .75% to 31 basis points. The TED spread is now down 435 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising 2.07% to 36.94 basis points. The Libor-OIS spread is rising .76% to 28 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 5 basis points to 1.89%, which is down 75 basis points since July 7th. The 3-month T-Bill is yielding .18%, which is unch. today. The MS Cyclical Index is soaring 4.3% today. Gaming, REIT, Bank, Steel and Alt Energy shares are all jumping 3.5%+. (IYR) is seeing heavy retail put activity, despite recent gains, which bodes well for further advances in the key real estate ETF. As well, it is noteworthy that the NYSE Arms has been extraordinarily high today, given broad market gains, which is also a positive. The euro financial sector credit default swap index is continuing its recent collapse, falling today to its lowest level since June 18^th, 2008. Despite more economic optimism and huge bond supply, the 10-year yield is falling 3 basis points today, which is a large positive. The AAII % Bulls jumped to 47.67% this week, while the % Bears fell to 31.40%. Even if tomorrow’s 2 GDP report disappoints investors(which I don’t expect), I suspect any equity weakness will be relatively mild and short-lived in nature as investors are more focused on this quarter’s data. Nikkei futures indicate an +275 open in Japan and DAX futures indicate an +9 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, investment manager performance anxiety, less economic fear, lower long-term rates and more earnings optimism.