Stocks Soaring into Final Hour on Less Economic Pessimism, Declining Financial Sector Pessimism, Short-Covering

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Technology longs, Biotech longs and Medical longs. I covered all of my (QQQQ)/(IWM) hedges and some of my (EEM) short 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 above average. Today’s overall market action is bullish. The VIX is falling 15.7% and is elevated at 47.72. The ISE Sentiment Index is low at 90.0 and the total put/call is above average at .96. Finally, the NYSE Arms has been running around average most of the day, hitting .93 at its intraday peak, and is currently .57. The Euro Financial Sector Credit Default Swap Index is rising 5.52% today to 120.33 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 rising 1.88% to 224.84 basis points. The TED spread is falling .55% to 101 basis points. The TED spread is now down 365 basis points in just over three months. The 2-year swap spread is rising 2.04% to 68.63 basis points. The Libor-OIS spread is falling 1.40% to 92 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is up 2 basis points to .58%, which is down 212 basis points in just over six 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 is yielding .11%, which is up 1 basis point today. Market-leading stocks are especially strong today. The sharp reversal higher in shares of (USB) and (BAC) were catalysts for the 12% surge in the (XLF) today. The surge in oil, sell-off in bonds and strengthening of the euro indicate economic fears are subsiding a bit. (AAPL) reports after the close today. I suspect they will exceed estimates and lower forward guidance. This should be priced into shares at current levels and any initial kneejerk sell-off will likely be short-lived. Nikkei futures indicate an +180 open in Japan and DAX futures indicate an +89 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, diminishing economic pessimism and declining financial sector worries.