Stocks Reversing Higher into Final Hour on Rising QE2 Expectations, Tax Policy/Election Optimism, Falling Sovereign Debt Angst, Buyout Speculation

Broad Market Tone:

• Advance/Decline Line: Slightly Higher
  
• Sector Performance: Mixed
  
• Volume: Below Average
  
• Market Leading Stocks: Outperforming
  

Equity Investor Angst:

• VIX 18.88 -.42%
  
• ISE Sentiment Index 124.0 -2.36%
  
• Total Put/Call 1.20 +46.34%
  
• NYSE Arms .73 -46.23%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 96.76 bps +1.0%
  
• European Financial Sector CDS Index 98.08 bps -2.65%
  
• Western Europe Sovereign Debt CDS Index 143.67 bps -3.15%
  
• Emerging Market CDS Index 196.15 bps -1.14%
  
• 2-Year Swap Spread 17.0 unch.
  
• TED Spread 17.0 unch.
  

Economic Gauges:

• 3-Month T-Bill Yield .11% unch.
  
• Yield Curve 205.0 +1 bp
  
• China Import Iron Ore Spot $147.90/Metric Tonne +1.56%
  
• Citi US Economic Surprise Index +2.20 +1.0 point
  
• 10-Year TIPS Spread 1.98% unch.
  

Overseas Futures:

• Nikkei Futures: Indicating +87 open in Japan
• DAX Futures: Indicating +21 open in Germany

Portfolio:

• Higher: On gains in my Tech, Ag and Biotech long positions
  
• Disclosed Trades: None
  
• Market Exposure: 100% Net Long

BOTTOM LINE: Today's overall market action is bullish as the S&P 500 trades near session highs despite morning weakness and recent gains. On the positive side, Airline, Restaurant, Bank, Disk Drive, Semi, Computer and Oil Service shares are especially strong, rising 1.0%+. Small-caps are outperforming. (XLF)/(IYR) have traded well throughout the day. The S&P GSCI Ag Spot index is jumping again, rising +2.12% today and lumber is gaining +4.27%. China Import Iron Ore Spot has risen +6.22% in 5 days. Gold is pulling back -.29%. The 10-year yield is rising +2 bps to 2.41%. The ongoing collapse in the Euro Financial Sector CDS Index is a major positive. As well, other key cds indices remain in their recent downtrends. On the negative side, Road & Rail, Coal and Oil Tanker shares are under mild pressure, falling more than 1.0%. Cyclicals are underperforming today. Weekly retail sales rose +2.5% versus a +2.6% gain the prior week and down from a +3.0% gain the first week of September. The CBOE total put/call opened this morning at an elevated 1.89, which was the highest since June 24th, right before the market made an important low on July 1. I suspect the DJIA may make a serious attempt to take out its high for the year at 11,258 before the election. I expect US stocks to trade modestly higher into the close from current levels on short-covering, falling sovereign debt angst, buyout speculation, rising QE2 expectations, tech sector strength, technical buying, investor performance angst and tax policy/election optimism.