Stocks Mostly Higher Into Final Hour on More Economic Optimism, Short-Covering

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Internet longs, Telecom longs and Semi longs. I covered my (IWM)/(QQQQ) hedges into this morning’s weakness, thus leaving the Portfolio 100% net long. The tone of the market is slightly positive as the advance/decline line is modestly higher, sector performance is mixed and volume is above-average. One of the amazing characteristics of the current 18% S&P 500 rally since 2006 lows is how small every pullback is. Besides a great macro backdrop for stocks, I think another main reason for this is the stunning complacency by the bears and relentless rise in short interest. I have seen few signs of short capitulation, notwithstanding the strong market advance. Maybe the macro backdrop will worsen but from my view it is currently improving. The recent trading range to start the year is just allowing the shorts to reload, which makes another upside breakout that much more likely. The 10-year yield remains stable today at 4.88% despite this morning's strong data. I also heard several pundits say that the historic quarterly double-digit earnings growth gains by the S&P 500 is ending this earnings season. I suspect those predictions will be proven incorrect. I expect US stocks to trade modestly higher into the close from current levels on bargain-hunting, short-covering, more economic optimism and stable long-term rates.