Stocks Surging into Final Hour on Commodity Sector Bounce, Short-Covering, Bargain-Hunting, Earnings Optimism

Broad Market Tone:

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

Equity Investor Angst:

• VIX 16.59 -5.47%
  
• ISE Sentiment Index 131.0 +21.30%
  
• Total Put/Call 1.0 -13.04%
  
• NYSE Arms 1.10 +33.23%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 89.77 -.77%
  
• European Financial Sector CDS Index 97.67 +2.17%
  
• Western Europe Sovereign Debt CDS Index 179.33 +1.65%
  
• Emerging Market CDS Index 203.93 -1.26%
  
• 2-Year Swap Spread 19.0 unch.
  
• TED Spread 22.0 unch.
  

Economic Gauges:

• 3-Month T-Bill Yield .03% unch.
  
• Yield Curve 262.0 +2 bps
  
• China Import Iron Ore Spot $175.90/Metric Tonne -1.24%
  
• Citi US Economic Surprise Index -43.90 -.1 point
  
• 10-Year TIPS Spread 2.35% +5 bps
  

Overseas Futures:

• Nikkei Futures: Indicating +48 open in Japan
• DAX Futures: Indicating +39 open in Germany

Portfolio:

• Higher: On gains in my Biotech, Medical, Retail and Tech sector longs
  
• Disclosed Trades: Covered all of my (IWM)/(QQQ) 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 builds on yesterday's afternoon reversal despite eurozone debt worries, more hawkish fed commentary, emerging market inflation fears and rising food/energy prices. On the positive side, Road & Rail, HMO, Disk Drive, Semi, Computer, Ag, Oil Service, Alt Energy and Coal shares are especially strong, rising more than +2.0%. Small-caps and cyclicals are outperforming. The euro continues to trade poorly. Copper is jumping +2.5% and Lumber is gaining +1.1%. The US Muni CDS Index is falling -1.83% to 123.0 bps and the Saudi sovereign cds is falling -1.97% to 112.41 bps. On the negative side, Education, Airline and Education shares are down on the day. (XLF) has underperformed throughout the day. Oil is rising +2.56%, gold is gaining +.72% and the UBS-Bloomberg Ag Spot Index is surging +2.94%. The US price for a gallon of gas is falling -.01/gallon today to $3.93/gallon. It is up .79/gallon in 91 days. The Spain sovereign cds is rising +2.8% to 240.50 bps, the Greece sovereign cds is rising +3.07% to 1,313.15 bps and the US sovereign cds is jumping +11.1% to 45.75 bps. India's Sensex continues to trade very poorly, falling another -.28% overnight, despite gains in the rest of Aisa, and is now down -11.81% for the year. As well, Brazil's Bovespa is falling another -.84% today and is down -8.98% ytd. While today's commodities surge is a short-term positive for the broad market, it remains a longer-term negative as it intensifies emerging market inflation fears and raises the odds of hard-landings in those economies. The tone of the market is very positive today, however volume is lacking. I suspect stocks, after a brief pause, can build on recent gains through week's end. I expect US stocks to trade mixed-to-higher into the close from current levels on technical buying, short-covering, bargain-hunting, buyout speculation and earnings optimism.