Stocks Post Largest 2-day Rally Since August on Buyout Speculation and Diminishing Subprime Fears

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Retail longs, Medical longs, Biotech longs and Energy-related shorts. I added to my (TSCO) long into this morning’s weakness and took profits in another trading long, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is higher, most sectors are rising and volume is average. Johnson Redbook weekly retail same-store sales rose 3.7% this week vs. a 3.4% rise the prior week. As I speculated a couple of months ago, weekly retail sales are now meaningfully above the long-term average of around 3.1%. As well, this week's increase is the best weekly rise since October of last year and substantially above last year's 2.5% gain during the same week. This is a big positive. And considering all the talk of job losses, housing collapses, soaring inflation and the surge in gasoline prices by the many stock market bears, it is even more impressive. There is little evidence of a meaningful consumer spending slowdown. For a substantial market decline to occur from current levels, evidence of this must begin to show up very soon, in my opinion. Halliburton (HAL), many investors' favorite oil services stock, just lowered first-quarter estimates from $0.59 to $0.49-$0.54. The company is blaming the shortfall on decreased drilling and completion activity in Canada and the northern U.S. The stock is falling 4.5% from session highs and dragging the entire oil service sector lower. Maybe the recent surge in energy insider selling was significant. The Philadelphia Stock Exchange Oil Service Sector Index (OSX) has been dead money for almost 15 months as the S&P 500 climbed over 10%.I expect US stocks to trade mixed-to-higher into the close from current levels on bargain-hunting, buyout speculation and short-covering.