Stocks Surging into Final Hour on Less Economic Fear, Less Energy Sector Pessimism, Short-Covering, Bargain-Hunting

Broad Market Tone:

• Advance/Decline Line: Substantially Higher
  
• Sector Performance: Every Sector Rising
  
• Volume: Around Average
  
• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• VIX 30.76 -13.45%
  
• ISE Sentiment Index 75.0 -33.04%
  
• Total Put/Call .89 +1.14%
  
• NYSE Arms .36 -88.69%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 121.02 bps +.28%
  
• European Financial Sector CDS Index 159.30 bps +1.22%
  
• Western Europe Sovereign Debt CDS Index 150.33 bps +13.46%
  
• Emerging Market CDS Index 277.07 bps -1.83%
  
• 2-Year Swap Spread 43.0 -2 bps
  
• TED Spread 40.0 +1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .14% -1 bp
  
• Yield Curve 253.0 +4 bps
  
• China Import Iron Ore Spot $145.40/Metric Tonne +.97%
  
• Citi US Economic Surprise Index +15.80 -2.3 points
  
• 10-Year TIPS Spread 2.04% +4 bps
  

Overseas Futures:

• Nikkei Futures: Indicating +187 open in Japan
• DAX Futures: Indicating +29 open in Germany

Portfolio:

• Higher: On gains in my Biotech, Medical, Retail and Technology long positions
  
• Disclosed Trades: Covered some of my (IWM)/(QQQQ) hedges and some of my (EEM) short
  
• Market Exposure: Moved to 75% Net Long

BOTTOM LINE: Today's overall market action is very bullish as the S&P 500 trades near session highs despite rising sovereign debt angst and mostly weaker European shares. On the positive side, Airline, Hospital, Biotech, Semi, Steel, Oil Service, Energy, Oil Tanker and Coal stocks are significantly higher on the day, rising 3.0%+. Small-cap and cyclical shares are outperforming. Weekly retail sales rose +2.7% this week versus a +2.8% rise the prior week. This is down from a +3.9% increase the first week of April, but up from a +2.4% gain the first week of May. On the negative side, Education, Retail, REIT, Telecom and Defense shares are underperforming. (IYR) has underperformed throughout the day. Most cds indices are rising today, with the big jump in the Western Europe Sovereign CDS Index being an especially large negative. Copper isn't participating in today's equity rally. As well, the S&P GSCI Ag Spot Index is breaking down further into a bear territory, falling -1.3% and taking out its July 2009 low. This index is now down -21.4% in less than 5 months. It is also noteworthy that Chinese Wholesale Spot Pork is down -15.1% over the last 4 1/2 months and the Chinese government has announced a stockpiling program to prevent further price declines. Much of today's stock rally is related to short-covering and bargain-hunting in the worst-performing stocks. I would like to see the S&P 500 close convincingly above its 200-day moving average, with better volume and leadership and a breakdown in key cds indices before becoming more aggressive on the long side. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, bargain-hunting, less energy sector pessimism, declining economic fear and diminishing financial sector pessimism.