Stocks Soaring into Final Hour on Short-Covering, Declining Economic Fear, Lower Credit Market Angst, Lower Long-term Rates

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Technology longs, Medical longs, Retail longs and Biotech longs. I haven’t traded today, thus leaving the Portfolio 100% net long. The tone of the market is very positive as the advance/decline line is substantially higher, almost every sector is gaining and volume is above average. Investor anxiety is high. Today’s overall market action is very bullish. The VIX is falling 3.22% and is very high at 40.83. The ISE Sentiment Index is low at 99.0 and the total put/call is slightly above average at .89. Finally, the NYSE Arms has been running high most of the day, hitting 2.29 at its intraday peak, and is currently 1.49. The Euro Financial Sector Credit Default Swap Index is falling 2.18% today to 158.67 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 falling 1.35% to 178.95 basis points. This index is still below its Dec. 5^th record high of 285.99. The TED spread is rising 4.4% to 109 basis points. The TED spread is now down 354 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is falling .85% to 58.50 basis points. The Libor-OIS spread is rising .14% to 99 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 10 basis points to 1.50%, which is down 114 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 .14%, which is down 4 basis points today. The bears attempted to take down (XLF) late this afternoon and failed, which appears to have spurred another round of short-covering. (IYR), which is where the bears are focusing most of their attention right now, is seeing another late-day surge to session highs, rising 2.6%. It is a large positive that the major averages are able to rally meaningfully today as the financials digest recent outsized gains. The Transportation Index is soaring 7.2% today, breaking up through its 50-day moving average on volume, which is a major positive. I suspect many underinvested or bearish portfolio managers are starting to feel serious performance anxiety right about now. As well, put/call readings are showing a significant uptick in bearishness, which bodes well for an extension of recent gains. Nikkei futures indicate an +150 open in Japan and DAX futures indicate a +30 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on short-covering, diminishing credit market angst, bargain-hunting, lower long-term rates and declining economic fear.