Stocks Surging into Final Hour on Less Economic Fear, Diminishing Financial Sector Pessimism, Bargain-Hunting

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Technology longs, Biotech longs, Retail longs and Financial longs. I covered all my (IWM)/(QQQQ) hedges, added to my (DISCA) long and covered some of my (EEM) short 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 about average. Investor anxiety is very high. Today’s overall market action is bullish. The VIX is falling -11.29% and is high at 24.76. The ISE Sentiment Index is below average at 115.0 and the total put/call is slightly above average at .87. Finally, the NYSE Arms has been running below average most of the day, hitting .45 at its intraday trough, and is currently .57. The Euro Financial Sector Credit Default Swap Index is falling -1.23% today to 65.0 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 -1.84% to 104.52 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is rising +1 basis point to 23 basis points. The TED spread is now down 441 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising +4.68% to 33.44 basis points. The Libor-OIS spread is unch. at 13 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is up +7 basis points to 2.04%, which is down 61 basis points since July 7th. The 3-month T-Bill is yielding .05%, which is down -1 basis point today. Cyclical shares are rebounding, with the MS Cyclical Index jumping 3.73%. (XLF)/(IYR) have traded very well throughout the day, as well. The bond market’s reaction to positive economic data, more supply and an end to Treasury purchases is rather muted, which is a big positive. REIT, Homebuilding, Construction, Insurance, HMO, Hospital, Bank, Paper, Steel, Gold, Oil Tanker, Alt Energy and Coal stocks are especially strong, surging 4%+ on the day. The AAII % Bulls fell to 33.65% this week, while the % Bears rose to 42.31%. I continue to believe overall investor sentiment remains subdued-to-bearish, which is a big positive. Asian shares should follow US stocks higher tonight and economic data tomorrow should be ok, which may lead to further stock gains on the last day of the 3^rd quarter. Nikkei futures indicate an +200 open in Japan and DAX futures indicate an +25 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, bargain-hunting, less economic fear, diminishing financial sector pessimism and investment manager performance anxiety.