Stocks Surging into Final Hour on Less Financial Sector Pessimism, Short-Covering, Falling Energy Prices, Bargain-Hunting

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Technology longs, Defense longs, Medical longs and Biotech longs. I covered all my (IWM)(QQQQ) hedges and some of my (EEM) short this morning, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is higher, almost every sector is rising and volume is below average. Investor anxiety is high. Today’s overall market action is bullish. The VIX is falling 8.86% and is high at 26.45. The ISE Sentiment Index is below average at 117.0 and the total put/call is about average at .85. Finally, the NYSE Arms has been running below average most of the day, hitting .56 at its intraday trough, and is currently .73. The Euro Financial Sector Credit Default Swap Index is rising 1.25% today to 112.35 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 .41% to 144.40 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is rising .4% to 34 basis points. The TED spread is now down 432 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising 10.89% to 42.63 basis points. The Libor-OIS spread is rising 1.09% to 31 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 2 basis points to 1.53%, which is down 111 basis points since July 7th. The 3-month T-Bill is yielding .17%, which is unch. today. (XLF) is leading the way today, jumping 5.3% to session highs on above-average volume. (XLF) is now slightly above its 200-day moving average. Today’s action is even more impressive considering the (CIT) news. Oil is unable to even bounce, despite today’s equity rally, lower US dollar and recent weakness in the commodity. Natural gas is making another new low. Bonds trade pretty well today given stock market gains, which is a big positive. With the odds of draconian healthcare/cap and trade measures diminishing, energy prices falling, likely better-than-expected earnings reports imminent, long-term rates remaining subdued, short interest increasing and bearish US stock sentiment high, further US stock gains are likely in the near-term. Nikkei futures indicate an +275 open in Japan and DAX futures indicate an +19 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on bargain-hunting, lower energy prices, short-covering and less financial sector pessimism.