Stocks Surging into Final Hour on Short-Covering, Bargain-Hunting, Less Tech Sector Pessimism, Euro Bounce

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 36.74 -13.43%
  
• ISE Sentiment Index 182.0 -19.6%
  
• Total Put/Call .99 -8.33%
  
• NYSE Arms .97 +9.37%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 127.92 +3.63%
  
• European Financial Sector CDS Index 240.64 +7.42%
  
• Western Europe Sovereign Debt CDS Index 296.17 +.34%
  
• Emerging Market CDS Index 305.86 +4.99%
  
• 2-Year Swap Spread 33.0 +1 bp
  
• TED Spread 31.0 -1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .00% +1 bp
  
• Yield Curve 192.0 +3 bps
  
• China Import Iron Ore Spot $177.90/Metric Tonne +.06%
  
• Citi US Economic Surprise Index -76.60 +2.1 points
  
• 10-Year TIPS Spread 1.99% -5 bps
  

Overseas Futures:

• Nikkei Futures: Indicating +112 open in Japan
• DAX Futures: Indicating +97 open in Germany

Portfolio:

• Higher: On gains in my Tech, Medical, Biotech and Retail sector longs
  
• Disclosed Trades: Covered all of my (IWM)/(QQQ) hedges, covered some of my (EEM) short, then added back some (IWM)/(QQQ) hedges
  
• Market Exposure: Moved to 75% Net Long

BOTTOM LINE: Today's overall market action is very bullish, as the S&P 500 trades substantially higher despite rising eurozone debt angst, more weak economic data, rising food/energy prices and emerging markets inflation fears. On the positive side, Coal, Alt Energy, Oil Service, Steel, Internet, Software, Disk Drive, Networking, Medical Equipment, Hospital and HMO shares are especially strong, rising more than +4.0% on the day. Small-Caps are outperforming. "Growth" stocks are substantially outperforming "value" shares. Tech sector shares have traded well throughout the day. Gold is dropping -3.2%, Silver is falling -4.5%, Copper is gaining +1.33% and Lumber is rising +1.1%. Weekly retail sales rose +4.4% this week versus a +4.8% gain the prior week. On the negative side, Homebuilding shares are relatively weak, rising less than 1.0%. Cyclicals are underperforming. (XLF) has also lagged throughout the day. Oil is gaining +2.02% and the UBS-Bloomberg Ag Spot Index is rising +.91%. Rice is still near a multi-year high, rising +28.0% in about 8 weeks. The US price for a gallon of gas is unch. today at $3.57/gallon. It is up .43/gallon in about 7 months. The Germany sovereign cds is rising +2.79% to 85.0 bps, the France sovereign cds is rising +3.4% to 162.0 bps, the Greece sovereign cds is rising +5.04% to 2,123.0 bps, the Portugal sovereign cds is gaining +7.92% to 1,014.63 bps, the Italy sovereign cds is rising +1.60% to 377.66 bps, the Spain sovereign cds is gaining +5.26% to 377.38 bps, the Brazil sovereign cds is soaring +11.97% to 163.66 bps, the China sovereign cds is gaining +3.2% to 115.92 bps, the Russia sovereign cds is gaining +4.56% to 206.0 bps, the Japan sovereign cds is climbing +3.38% to 109.31 bps and the UK sovereign cds is rising +2.27% to 84.60 bps. Moreover, the European Investment Grade CDS Index is gaining +3.06% to 145.53 bps. The FRA/OIS Spread made another new multi-year high today and is rising +2.9 bps to 50.25 bps. The 2-Year Swap Spread is still very near its recent high and the TED spread is also near a new multi-year high. The Eurozone Financial Sector CDS Index is surging to another new all-time high today. The China Corporate Blended Spread Index is hitting an new multi-year high today, rising +22.0 bps to 629.0 bps. Spanish and Italian equities could not rally with the rest of Europe and the US today. China's 7-day repo rate is surging another +21 bps today to 5.21%. The UBS-Bloomberg Ag Spot Index made a new record closing high today, which is a huge negative. Despite the large gain in stocks, the 10-year yield rose just +4 bps to 2.15%. Gauges of credit angst in Europe continue to deteriorate rapidly despite today's equity gains, which remains a large negative. Volume is uninspiring on today's equity advance. Growth stock leaders were extremely strong today. I suspect much of today's advance was related to hedge fund short-covering ahead of Bernanke's speech. As well, some global economic datapoints came in better-than-feared. Given how oversold stocks were, further near-term gains are likely, however gauges of European credit angst must begin to improve very soon or equity weakness will likely resume over the coming weeks. I expect US stocks to trade modestly higher into the close from current levels on short-covering, bargain-hunting, less tech sector pessimism, buyout speculation and a bounce in the euro.