Stocks Surging into Final Hour on Short-Covering, Less Financial Sector Pessimism, Diminishing Economic Fear, Lower Energy Prices

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Financial longs, Biotech longs, Medical longs and Technology longs. I covered all my (IWM)/(QQQQ) hedges, some of my (EEM) short and added to my (GOOG) long this morning, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is higher, almost ever sector is rising and volume is above average. Investor anxiety is high. Today’s overall market action is very bullish. The VIX is falling -2.58% and is around average at 17.79. The ISE Sentiment Index is below average at 125.0 and the total put/call is around average at .81. Finally, the NYSE Arms has been running above average most of the day, hitting 1.68 at its intraday peak, and is currently .77. The Euro Financial Sector Credit Default Swap Index is rising +3.71% to 59.74 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 rising +3.37% to 80.58 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is unhc. at 21 basis points. The TED spread is now down 442 basis points since its all-time high of 463 basis points on October 10^th, 2008. The 2-year swap spread is falling -.97% to 26.55 basis points. The Libor-OIS spread is unch. at 11 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is down -10 basis points to 2.37%, which is down -28 basis points since July 7^th, 2008. The 3-month T-Bill is yielding .04%, which is unch. today. Small-cap shares are outperforming today. A number of market leaders are outperforming, as well. Airline, REIT, hospital, bank, networking, disk drive and computer shares are especially strong, rising 1.75%+. (XLF) and (IYR) have traded well throughout the day. On the negative side, cds indices are mostly higher and long-term rates are moving back up. Moreover, considering Asia’s weakness last night, the banker grillings, terror rumors, (GOOG)/China news and bearish energy inventory data, today’s broad market action is even more impressive. Nikkei futures indicate a +105 open in Japan and DAX futures indicate an +35 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, technical buying, less economic fear, diminishing financial sector pessimism and lower energy prices.