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

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Technology longs, Medical longs and Retail longs. I added to my (ISRG) long and took profits in another trading long 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 rising and volume is heavy. Investor anxiety is above average. Today’s overall market action is very bullish. The VIX is falling .54% and is very high at 42.04. The ISE Sentiment Index is below average at 122.0 and the total put/call is below average at .68. Finally, the NYSE Arms has been running low most of the day, hitting .11 at its intraday trough, and is currently .62. The Euro Financial Sector Credit Default Swap Index is dropping 6.8% today to 169.0 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 4.65% to 193.54 basis points. This index is still below its Dec. 5^th record high of 285.99. The TED spread is falling 1.95% to 96 basis points. The TED spread is now down 367 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is down 1.05% to 56.50 basis points. The Libor-OIS spread is falling 2.54% to 95 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is unch. at 1.34%, which is down 130 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 down 1 basis point today. It is a major positive to see the meaningful decline in credit default swaps today. As well, this broad market move finally has some volume behind it. The MS Cyclical Index is jumping 8% and the Transportation Index is surging 8.5% as severe economic gloom and doom subsides. The (XLF) is slightly underperforming today, but that is likely a result of the “sell the news” reaction by traders that anticipated the mark-to-market changes. I said last year that a change in this rule would be a significant broad market positive and I still believe that to be the case. The bears have lost a MAJOR tool in their arsenal, in my opinion. While the market is extended short-term and tomorrow’s jobs’ report will be quite poor, I suspect any near-term weakness will remain muted. Underinvested bulls and the many bears will use any weakness to increase market exposure and cover shorts. I suspect there is now severe portfolio manager performance anxiety in many quarters right about now. Nikkei futures indicate an +325 open in Japan and DAX futures indicate a -5 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on short-covering, less economic fear, falling credit market angst and diminishing financial sector pessimism.