Stocks Surging into Final Hour on Euro Bounce, Short-Covering, Bargain-Hunting, Technical Buying

Broad Market Tone:

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

Equity Investor Angst:

• VIX 32.85 -4.70%
  
• ISE Sentiment Index 182.0 +152.78%
  
• Total Put/Call .89 -32.58%
  
• NYSE Arms .18 -83.68%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 139.59 -3.57%
  
• European Financial Sector CDS Index 324.25 -1.54%
  
• Western Europe Sovereign Debt CDS Index 366.0 -1.40%
  
• Emerging Market CDS Index 329.57 -5.05%
  
• 2-Year Swap Spread 54.0 -1 bp
  
• TED Spread 51.0 +1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .01% unch.
  
• Yield Curve 171.0 +2 bps
  
• China Import Iron Ore Spot $132.0/Metric Tonne -5.98%
  
• Citi US Economic Surprise Index 40.50 -.6 point
  
• 10-Year TIPS Spread 1.96 +2 bps
  

Overseas Futures:

• Nikkei Futures: Indicating +87 open in Japan
• DAX Futures: Indicating -23 open in Germany

Portfolio:

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

BOTTOM LINE: Today's overall market action is bullish, as the S&P 500 recoups some of its recent losses, despite Eurozone debt angst, rising global growth fears and rising food/energy prices. On the positive side, Coal, Alt Energy, Steel, Internet, Computer, Disk Drive, Networking, Hospital, HMO, Gaming and Airline shares are especially strong, rising more than +3.5%. Small-caps and cyclicals are outperforming. (XLK) has outperformed throughout the day. Copper is rising +2.01%. Major European equity indices soared 3-5% today. The Germany sovereign cds is falling -5.53% to 111.17 bps, the France sovereign cds is dropping -4.93% to 236.50 bps, the Hungary sovereign cds is falling -4.05% to 577.21 bps, the Belgium sovereign cds is dropping -6.88% to 378.17 bps and the UK sovereign cds is falling -5.65% to 99.0 bps. On the negative side, Utility, REIT, Bank and Telecom shares are underperforming, rising less than 2%. Oil is rising +1.6%, gold is jumping +1.8%, the UBS-Bloomberg Ag Spot Index is rising +.98% and lumber is falling -1.8%. The Italian 10-year yield is just -2 bps lower today to 7.23%. The France and Belgium sovereign cds are still very near all-time highs and the Spain, Hungary, Italy sovereign cds are still close to their recent record highs. The Germany sovereign cds is still near its Oct. 4th multi-year high and the UK sovereign cds is still very near a new multi-year high. The TED spread continues to trend higher and is at the highest since May 2009. The 2-Year Swap spread is very near the highest since May 2010. The FRA/OIS Spread is near the highest since May 2010. The 2yr Euro Swap Spread is near the highest since Nov. 2008. The 3M Euro/Dollar Cross Currency Basis Swap is down -1.75% to -148.50 bps, which is the worst since October 2008 on a closing basis. The Libor-OIS spread is the widest since June 2009, which is also noteworthy considering the equity bounce off the recent lows. The Shanghai Composite was flat overnight despite gains in the rest of Asia. The Citi Asia-Pacific Economic Surprise Index is falling -10.10 points today and is near a 52-week low at -20.80 points. The China Blended Corporate Spread Index is rising +14.0 bps to 790.0 bps and is breaking out technically. China Iron Ore Spot has plunged -26.83% since February 16th and -27.1% since Sept. 7th. The 10-year yield is flat at 1.97% despite the large equity rally. US stocks are surging today on optimism over the possibility of a plan to "solve" the European debt crisis and "strong" US retail sales. Volume is very light with very few sellers(ARMS .19), which is a concern. I suspect retail sales for the holiday season will just be ok and not strong. There is much talk out of Europe once again, but little action so far. Given the market's very oversold state, investment manager underperformance and seasonal strength, I suspect stocks can build on today's gains over the short-term. However, I still believe that even if the market eventually gets what it appears to want, money printing and greater debt for the Eurozone, these measures are not long-term solutions for an acute debt crisis. Moreover, any US "bailout" of the Eurozone, which the President hinted at today, would prove disastrous for all parties over the intermediate-term. I still think the risk in equities remains substantial over the intermediate-term unless a real positive catalyst emerges from Europe. I expect US stocks to trade mixed-to-lower into the close from current levels on Eurozone debt angst, rising global growth fears, more shorting, rising food/energy prices and profit-taking.