Stocks Soaring into Final Hour on Bargain-Hunting, Less Financial Sector Pessimism, Less Political Fear and Short-Covering

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Internet longs, Computer longs, Biotech longs, Semi longs and Retail longs. I added back to my (ISRG) long and took profits in a trading long today, thus leaving the Portfolio 100% net long. The tone of the market is very bullish as the advance/decline line is substantially higher, almost every sector is rising and volume is below average. Investor anxiety is high. Today’s overall market action is very bullish. The VIX is falling 9.05% and is very elevated at 55.4. The ISE Sentiment Index is below average at 127.0 and the total put/call is around average at .85. Finally, the NYSE Arms has been running above average most of the day, hitting 1.19 at its intraday peak, and is currently .80. The Euro Financial Sector Credit Default Swap Index is falling 1.63% today to 112.0 basis points. This index is up from a low of 52.66 on May 5^th, but down from 157.81 on Sept. 16^th. The North American Investment Grade Credit Default Swap Index is down 5.81% to 233.86 basis points. The TED spread is rising 2.19% to 214 basis points. The TED spread is now down 250 basis points in about six weeks. The 2-year swap spread is up 7.71% to 101.25 basis points. The Libor-OIS spread is rising 1.49% to 177 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 2 basis points to .33%, which is down 229 basis points in under five months and at the lowest level since Bloomberg record-keeping began in August 1998. The 10-year TIPS spread bottomed at .65% in October 1998 during the Asian financial crisis and at 1.24% in October 2001 during the technology bubble-bursting meltdown. The 3-month T-Bill yield is falling 6 basis points to .04%. Many market-leading stocks are substantially outperforming the major indices again today. Breadth has been very strong all day. Homebuilder, Gaming, Alterative Energy, Semi, Construction, I-Banking and Commodity stocks are posting 6%+ gains again today. There are few signs that any of the massive mountain of capital being parked in the safe haven of government bonds has begun to be redeployed into US stocks. There has never before in US history been this much potential bull firepower available, in my opinion. Even if you believe this is just a bear market rally, I suspect it will last longer and rise further than almost anyone expects. The recent huge decline in mortgages rates, overseas authorities getting with the stimulus program, a more moderate than expected Obama administration and declining odds of a filibuster-proof Democratic majority are all new large positive catalysts, in my opinion. Nikkei futures indicate an +315 open in Japan and DAX futures indicate an +100 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on less financial sector pessimism, diminished forced selling, short-covering, bargain-hunting, technical buying, declining political fear and seasonal strength.

Bear Radar

Style Underperformer:

Large-cap Value +1.13%

Sector Underperformers:

Drugs (-1.59%), Utilities (-.50%) and Airlines (-.36%)

irlind

Stocks Falling on Unusual Volume:

BCE, RTP, ANDE, JCG and KYN

Stocks With Unusual Put Option Activity:

1) OC 2) LAMR 3) DE 4) FLR 5) MLM

Bull Radar

Style Outperformer:

Mid-cap Growth (+1.15%)

Sector Outperformers:

Construction (+5.50%), Steel (+4.88%) and Semis (+3.75%)

Stocks Rising on Unusual Volume:

TSU, STBA, PENX, NCIT, STRL, IPCM, MSTR, RATE, HMSY, CPLA, ASEI, ASTE, HRLY, NAVG, ITRI, IBB, PSJ, KNM, GHL, EMV, RHB, BBL, EDU and MPR

Stocks With Unusual Call Option Activity:

1) BCE 2) HGSI 3) RMBS 4) BA 5) PCLN

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Citigroup:

- Reiterated Buy on (ADBE), target $27.

- Reiterated Buy on (MRK), target $42.

Night Trading
Asian Indices are -1.25% to +2.75% on average.
S&P 500 futures -.52%.
NASDAQ 100 futures -.13%.

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Company/EPS Estimate
- (DE)/.99

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- (TIF)/.25

Economic Releases
8:30 am EST

- Durable Goods Orders for October are estimated to fall 3.0% versus a .9% gain in September.

- Durables Ex Transports for October are estimated to fall 1.6% versus a 1.0% decline in September.

- Personal Income for October is estimated to rise .1% versus a .2% gain in September.

- Personal Spending for October is estimated to fall 1.0% versus a .3% decline in September.

- The PCE Core for October is estimated unch. versus a .2% increase in September.

- Initial Jobless Claims for last week are estimated to fall to 535K versus 542K.

- Continuing Claims are estimated to rise to 4080K versus 4012K prior.

9:45 am EST

- The Chicago Purchasing Manager report for November is estimated to fall to 37.0 from 37.8.

10:00 am EST

- The Final Univ. of Mich. Consumer Confidence index for November is estimated to fall to 57.5 versus a prior estimate of 57.9.

- New Home Sales for October are estimated to fall to 441K versus 464K in September.

10:35 am EST

- Bloomberg consensus estimates call for a weekly crude oil inventory build of 1,000,000 barrels versus a 1,599,000 barrel increase the prior week. Gasoline supplies are expected to rise by 500,000 barrels versus a 539,000 barrel increase the prior week. Distillate inventories are expected unch. versus a -1,471,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise .1% versus a .32% gain the prior week.

Upcoming Splits
- None of note

Other Potential Market Movers
- The weekly MBA mortgage applications report could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by technology and financial stocks in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.

Stocks Finish Near Session Highs, Boosted by Construction, HMO, Homebuilder, Commodity and Airline Shares

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