Stocks Soaring into Final Hour on Short-Covering, Less Economic Fear, Diminishing Financial Sector Pessimism and Technical Buying

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Technology longs, Retail longs, Financial longs, Medical longs and Defense 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 slightly below average. Investor anxiety is very high. Today’s overall market action is very bullish. The VIX is falling -3.39% and is high at 23.38. The ISE Sentiment Index is below average at 116.0 and the total put/call is slightly above average at .86. Finally, the NYSE Arms has been running very low most of the day, hitting .27 at its intraday trough, and is currently .32. The Euro Financial Sector Credit Default Swap Index is rising +.73% today to 67.42 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 -4.13% to 98.70 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is unch. at 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 down -2.35% to 33.81 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 2.23%, which is down 42 basis points since July 7th. The 3-month T-Bill is yielding .04%, which is unch. today. Cyclical shares are outperforming today, with the MS Cyclical Index jumping +3.3%. REIT, Gold, Coal, Gaming, Paper, Construction, Bank, Disk Drive, Steel and Oil Service shares are especially strong, surging 3%+ today. (XLF)/(IYR) have been very strong throughout the day. Today’s action has that melt-up feel to it that usually occurs when too many large funds are leaning the wrong way and start to panic. Moreover, the Rydex funds switching from bullish to bearish leaning mutual funds, has quickly moved to its lowest level in 2 years. That means there are more market timers leaning bearish than there were in October 2008 and March of this year, right near meaningful market lows. I suspect the S&P 500 will consolidate gains around the 1,100 level before surging again into the holidays. Nikkei futures indicate an +200 open in Japan and DAX futures indicate an +31 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, earnings optimism, investment manager performance anxiety, technical buying, less economic pessimism, buyout speculation, diminishing financial sector fear and lower long-term rates.