Stocks Surging into Final Hour on Less Economic Fear, Short-Covering

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Technology longs, Financial longs, Biotech longs and Medical longs. I covered all my (IWM)/(QQQQ) hedges and some of my (EEM) short today, 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 positive and volume is below average. Investor anxiety is very high. Today’s overall market action is bullish. The VIX is falling 7.12% and is very high at 25.17. The ISE Sentiment Index is low at 95.0 and the total put/call is above average at .91. Finally, the NYSE Arms has been running low most of the day, hitting .35 at its intraday trough, and is currently .64. The Euro Financial Sector Credit Default Swap Index is rising 1.28% today to 89.0 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 1.24% to 122.01 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling 5.27% to 19 basis points. The TED spread is now down 447 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is down 2.07% to 35.44 basis points. The Libor-OIS spread is falling 7.78% to 14 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 10 basis points to 1.77%, which is down 89 basis points since July 7th. The 3-month T-Bill is yielding .12%, which is unch. today. Given the mixed jobs report, the market’s reaction to it is quite favorable. Cyclicals are especially strong. Defense, Coal, Oil Tanker, Computer, Semi, Disk Drive, Hospital, Homebuilding, Road/Rail and Airline shares are all jumping 2%+ on the day. It is noteworthy that oil is unable to rally despite the reversal lower in the US dollar, bond weakness and equity strength. I am not convinced we are done with the recent pullback, however I am not ruling it out. It is a big positive that the trend of the market falling on good news has ended, but volume is too light to draw any conclusions as of yet. Nikkei futures indicate an +143 open in Japan and DAX futures indicate an +38 open in Germany on Monday. I expect US stocks to trade mixed-to-higher into the close from current levels on diminishing economic fear, short-covering and investment manager performance anxiety.