Stocks Soaring into Final Hour on Less Economic Fear, Diminishing Credit Market Angst, Falling Financial Sector Pessimism, Short-Covering

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Medical longs, Technology longs, Financial longs, Biotech longs and Retail longs. I covered all of my (IWM)/(QQQQ) hedges, took profits in a trading long and added to my (MS) long this morning, thus leaving the Portfolio 100% net long. The tone of the market is very positive as the advance/decline line is substantially higher, every sector is rising and volume is about average. Investor anxiety is about average. Today’s overall market action is very bullish. The VIX is falling 6.65% and is very high at 42.91. The ISE Sentiment Index is above average at 182.0 and the total put/call is slightly below average at .74. Finally, the NYSE Arms has been running very low most of the day, hitting .17 at its intraday trough, and is currently .36. The Euro Financial Sector Credit Default Swap Index is plunging 9.09% today to 157.50 basis points. This index is down from its record March 10th high of 208.75. The North American Investment Grade Credit Default Swap Index is dropping 3.38% to 191.79 basis points. This index is still below its Dec. 5^th record high of 285.99. The TED spread is rising .24% to 102 basis points. The TED spread is now down 361 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is falling 6.67% at 59.50 basis points. The Libor-OIS spread is falling 1.66% to 99 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 5 basis points to 1.30%, which is down 134 basis points since July 7th. 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 .20%, which is unch. today. The 2-year swap spread is rolling over again and has dropped 24 basis points in 11 days. As well, the euro financial sector credit default swap index has plunged 51 basis points in 10 days, which is a huge positive, as well. It is also a big positive to see the US sovereign debt credit default swap index down to 83.0 from 100.5 on February 25^th. Cyclical stocks are especially strong today, with the MS Cyclical Index soaring 7.51%. Banks, REITs and Homebuilders are all seeing double-digit percentage gains. I suspect US stocks will digest today’s gains in an orderly fashion for a couple of days before surging again towards week’s end. US stocks continue to trade in a fashion that indicates at the very least a tradable rally, and quite possibly a major low, is now in place. Nikkei futures indicate an +165 open in Japan and DAX futures indicate an +16 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on short-covering, less financial sector pessimism, diminishing credit market angst, bargain-hunting and declining economic fear.