Stocks Surging into Final Hour on Tax Policy/Election Optimism, QE2 Expectations, Less Economic Fear, Technical Buying

Broad Market Tone:

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

Equity Investor Angst:

• VIX 21.93 -6.80%
  
• ISE Sentiment Index 149.0 +61.96%
  
• Total Put/Call .91 +15.19%
  
• NYSE Arms .34 -75.52%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 101.57 bps -3.02%
  
• European Financial Sector CDS Index 114.65 bps -4.50%
  
• Western Europe Sovereign Debt CDS Index 154.50 bps +.54%
  
• Emerging Market CDS Index 209.80 bps -3.94%
  
• 2-Year Swap Spread 18.0 -1 bp
  
• TED Spread 18.0 +4 bps
  

Economic Gauges:

• 3-Month T-Bill Yield .11% -4 bps
  
• Yield Curve 207.0 -3 bps
  
• China Import Iron Ore Spot $141.40/Metric Tonne +.21%
  
• Citi US Economic Surprise Index -1.20 +3.2 points.
  
• 10-Year TIPS Spread 1.87% +8 bps
  

Overseas Futures:

• Nikkei Futures: Indicating +127 open in Japan
• DAX Futures: Indicating +36 open in Germany

Portfolio:

• Higher: On gains in my Biotech, Tech, Retail, Ag and Medical 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 breaks convincingly out of its recent trading range despite weaker eurozone economic data and recent sharp gains. On the positive side, Coal, Gold, Computer, Semi, Disk Drive, Networking, Bank and Road/Rail shares are especially strong, rising 3.0%+. (XLF) has traded well throughout the day. Small-cap and cyclical shares are also outperforming. Copper is jumping +1.76% and the S&P GSCI Ag Spot Index is jumping +2.68% today. The Portugal sovereign cds is falling -1.18% to 401.47 bps and the Hungary sovereign cds is declining -4.1% to 292.43 bps. Moreover, it is a large positive to see some key cds indices with meaningful declines. On the negative side, Food, Homebuilding and Utility shares are underperforming, rising less than 1.0%. Weekly retail sales rose +2.6% this week versus a +2.6% gain the prior week and down from a +3.0% gain the first week of Sept. Lumber is falling -.6%, which puts it further below its 50-day moving average and gold is surging to another new record high at $1,341.90. Despite better economic data of late, recent declines in yield and today's equity rally, the 10-year yield is unch. at 2.47%. The Greece sovereign cds is rising +1.44% to 771.81 bps and the California muni cds is up again, rising 5.11% over the last 5 days to 280.0 bps. The market continues to ignore most negative news items, which remains a large positive. Some key stocks and sectors are breaking out again. I suspect more of recent stock gains are related to US tax policy/election optimism than perceived. The recent whipsaw market action has likely left many hedge fund managers even more poorly positioned to benefit from upside action, which should lead to further near-term market upside. I expect US stocks to trade mixed-to-higher into the close from current levels on less economic fear, short-covering, rising QE2 speculation, investment manager performance angst, technical buying, buyout speculation and tax policy/election optimism.