Stocks Surging into Final Hour on Falling Sovereign Debt Angst, Less Economic Fear, Tax Policy/Election Optimism, Rising QE2 Expectations

Broad Market Tone:

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

Equity Investor Angst:

• VIX 18.59 -1.80%
  
• ISE Sentiment Index 111.0 -15.27%
  
• Total Put/Call .74 -35.09%
  
• NYSE Arms .89 +31.17%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 93.75 bps -3.11%
  
• European Financial Sector CDS Index 89.83 bps -7.73%
  
• Western Europe Sovereign Debt CDS Index 142.83 bps -.58%
  
• Emerging Market CDS Index 187.54 bps -4.15%
  
• 2-Year Swap Spread 16.0 -1 bp
  
• TED Spread 17.0 unch.
  

Economic Gauges:

• 3-Month T-Bill Yield .12% +1 bp
  
• Yield Curve 206.0 +1 bp
  
• China Import Iron Ore Spot $150.80/Metric Tonne +.40%
  
• Citi US Economic Surprise Index +3.10 +.9 point
  
• 10-Year TIPS Spread 2.05% +7 bps
  

Overseas Futures:

• Nikkei Futures: Indicating +162 open in Japan
• DAX Futures: Indicating +17 open in Germany

Portfolio:

• Higher: On gains in my Tech, Ag, Retail 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 US housing worries and recent sharp equity gains. On the positive side, Road & Rail, Disk Drive, Gold, Oil Service, Alt Energy, Coal, Software, Construction, Homebuilding and Ag shares are especially strong, rising 2.0%+. Small-caps and cyclicals are outperforming. The Transportation Index is jumping +3.0% to 4,751.28, which is getting close to its high for the year of 4,812.87. (IYR) has traded well throughout the day. Lumber is surging another +4.1% and copper is +.8% higher. Lumber has gained +13.9% in 5 days and is at the highest level since mid-May. The Spain sovereign cds is dropping -4.12% to 202.86 bps, the Portugal sovereign cds is falling -4.41% to 378.04 bps, the Greece sovereign cds is declining -3.34% to 688.14 bps and the Ireland sovereign cds is falling -3.5% to 420.24 bps. The ongoing collapse in the Euro Financial Sector CDS Index remains a major positive. As well, other key cds indices remain in their recent downtrends. On the negative side, Education, Gaming, Bank and Semi shares are slightly lower on the day. (XLF) is underperforming again. The 10-year yield is unch. at 2.43% despite equity gains. The major averages are getting short-term overbought again, however I still expect a test of this year's highs before the election. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, falling sovereign debt angst, buyout speculation, rising QE2 expectations, technical buying, less economic fear, investor performance angst and tax policy/election optimism.