Stocks Surging into Final Hour on Diminishing Sovereign Debt Angst, Less Economic Fear, Short-Covering, Technical Buying

Broad Market Tone:

• Advance/Decline Line: Substantially Higher
  
• Sector Performance: Almost Every Sector Rising
  
• Volume: About Average
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 24.32 -5.15%
  
• ISE Sentiment Index 116.0 +.85%
  
• Total Put/Call .82 -18.81%
  
• NYSE Arms .67 -68.10%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 108.87 bps -1.23%
  
• European Financial Sector CDS Index 121.55 bps +1.16%
  
• Western Europe Sovereign Debt CDS Index 132.0 bps -1.36%
  
• Emerging Market CDS Index 232.97 bps -3.98%
  
• 2-Year Swap Spread 21.0 -2 bps
  
• TED Spread 35.0 -1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .15% unch.
  
• Yield Curve 237.0 +5 bps
  
• China Import Iron Ore Spot $124.80/Metric Tonne +2.63%
  
• Citi US Economic Surprise Index -36.80 -1.2 points
  
• 10-Year TIPS Spread 1.75% +4 bps
  

Overseas Futures:

• Nikkei Futures: Indicating +190 open in Japan
• DAX Futures: Indicating -3 open in Germany

Portfolio:

• Higher: On gains in my Medical, Retail, Biotech and Technology long positions
  
• Disclosed Trades: Covered all of my (IWM)/(QQQQ) hedges and some of my (EEM) short
  
• Market Exposure: Moved to 100% Net Long

BOTTOM LINE: Today's overall market action is very bullish as the S&P 500 trades near session highs, despite more negative US economic data. On the positive side, Airline, Road&Rail, Gaming, Bank, Wireless, Steel and Coal stocks are especially strong, rising 4.0%+. Small-cap and cyclical shares are outperforming and the Transports are surging +4.0%. (IYR) has traded well throughout the day. Copper is rising another +2.2%. The European Investment Grade CDS Index is falling -3.5% to 109.42 bps. The AAII % Bulls fell to 32.2 this week, while the % Bears rose to 45.0, which is also a positive. The 10-year yield is rising +5 bps. On the negative side, Education, Food, Hospital and Ag shares are underpeforming. Given the magnitude of today's equity rally and recent bond market strength, I would have expected the 10-year yield to have risen more today. I would not be surprised to see some mild profit-taking in European banks on tomorrow's stress test results. However, it is a big positive that that S&P 500 is finally able to penetrate its 50-day moving average. After any "sell the news" morning weakness tomorrow, I would expect to see stocks rebound into the afternoon. I expect US stocks to trade mixed-to-higher into the close from current levels on less economic fear, short-covering, diminishing sovereign debt angst and technical buying.