Stocks Surging into Final Hour on Earnings Optimism, Short-Covering and Lower Long-Term Rates

Broad Market Tone:

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

Equity Investor Angst:

• VIX 19.14 -10.23%
  
• ISE Sentiment Index 155.0 +47.62%
  
• Total Put/Call .80 -18.37%
  
• NYSE Arms .87 -42.68%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 82.87 -3.71%
  
• European Financial Sector CDS Index 123.18 bps -9.86%
  
• Western Europe Sovereign Debt CDS Index 176.83 bps -.84%
  
• Emerging Market CDS Index 225.38 -2.96%
  
• 2-Year Swap Spread 18.0 unch.
  
• TED Spread 19.0 unch.
  

Economic Gauges:

• 3-Month T-Bill Yield .12% unch.
  
• Yield Curve 270.0 -1 bp
  
• China Import Iron Ore Spot $184.10/Metric Tonne -.63%
  
• Citi US Economic Surprise Index +70.20 -6.9 points
  
• 10-Year TIPS Spread 2.41% -2 bps
  

Overseas Futures:

• Nikkei Futures: Indicating +35 open in Japan
• DAX Futures: Indicating +5 open in Germany

Portfolio:

• Higher: On gains in my Technology, Medical and Biotech longs
  
• Disclosed Trades: None
  
• Market Exposure: 100% Net Long

BOTTOM LINE: Today's overall market action is very bullish as the S&P 500 is building on yesterday's reversal higher despite Mideast Unrest, some disappointing economic data and emerging markets inflation fears. On the positive side, Education, Gaming, REIT, Construction, Hospital, Biotech, Medical, Networking, Disk Drive, Semi, Ag, Oil Service, Oil Tanker and Coal shares are especially strong, rising more than 1.5%. Small-cap shares are outperforming again. As well, (XLF) and (IYR) have outperformed throughout the day. Copper is rising +2.97%. The 10-year yield is falling -3 bps to 3.42%. The US Muni CDS Index is falling -4.53% to 161.59 bps. The Italy sovereign cds is falling -3.05% to 185.11 bps and the Russia sovereign cds is declining -4.30% to 143.97 bps. The Saudi sovereign cds is declining -4.08% to 136.0 bps and the Israel sovereign cds is falling -1.23% to 174.47 bps, which are also a big positives. On the negative side, Restaurant, Retail and Steel shares are underperforming, rising less than .5%. The Citi Eurozone Economic Surprise Index is falling -25.1% to +14.60, which is the lowest since Nov. 15, 2010. The UBS-Bloomberg Spot Ag Index is rising +3.3% and oil is gaining almost 2.0%. Oil's failure to follow-through on yesterday's downside reversal is a worry as the situation in the region continues to deteriorate. I expect more equity market volatility related to this over the coming weeks. I still believe $100/bbl. is the line in the sand. Any significant break above this level, would likely lead to more meaningful equity weakness. Stocks can likely grind back to recent highs, but not much higher, if oil hovers in the $90s. However, a significant break below $90 would likely propel the major averages to new multi-year highs. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, earnings optimism and lower long-term rates.