Stocks Surging into Final Hour on Falling Long-Term Rates, Declining Inflation Fears, Short-Covering, Investor Performance Angst

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Technology longs, Medical longs, Financial longs and Biotech longs. I added to my (ILMN)/(QSII) longs and took profits in another 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 very high. Today’s overall market action is very bullish. The VIX is falling 6.20% and is high at 27.23. The ISE Sentiment Index is low at 93.0 and the total put/call is above average at .96. Finally, the NYSE Arms has been running high most of the day, hitting 1.45 at its intraday peak, and is currently .87. The Euro Financial Sector Credit Default Swap Index is falling 2.83% today to 114.0 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 2.68% to 140.76 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is rising 3.57% to 44 basis points. The TED spread is now down 420 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is plunging 10.67% to 36.63 basis points. The Libor-OIS spread is rising 2.23% to 38 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 6 basis points to 1.77%, which is down 87 basis points since July 7th. The 3-month T-Bill is yielding .16%, which is down 3 basis points today. Today’s rally is very broad-based. Transportation, Healthcare, Homebuilding, Construction, Education, Medical, Steel and Energy shares are especially strong. The Transportation Index is surging 4.2% today and is back above its 50-day moving average and looks poised to break above its 200-day average over the coming days. It is a huge positive to see the decline in the 10-year yield, which will help bring mortgage rates back down. Inflation expectations are falling again today despite another rise in commodity prices. This had been my number one concern. The US sovereign debt credit default swap index is falling 7% today to 42.0 basis points, which is also a positive. As well, despite the Nigerian pipeline attacks and large stock rally, oil isn’t rising too much. As long as oil doesn’t move above $75/bbl. the broad market should be ok. The AAII % Bulls fell to 28.0% this week, while the % Bears jumped to 48.8%, which is also a big positive. I continue to believe that overall investor sentiment is much more negative than is generally perceived. (MDRX) is surging 11.4% on heavy volume today after boosting 4Q guidance. This is helping lift (QSII) and (CERN) shares. I still see substantial upside in my (QSII) long through next year. Nikkei futures indicate an +134 open in Japan and DAX futures indicate an +30 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on lower long-term rates, short-covering, diminishing financial sector pessimism, declining credit market angst and investment manager performance anxiety.