Stocks Surging into Final Hour on Declining Political Angst, Less Economic Fear, Short-Covering and Technical Buying

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Biotech longs, Medical longs, Retail longs and Technology longs. I covered all my (IWM)/(QQQQ) hedges and some of my (EEM) short this morning, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is substantially higher, almost every sector is rising and volume is slightly below average. Investor anxiety is high. Today’s overall market action is very bullish. The VIX is falling -1.23% and is around average at 17.69. The ISE Sentiment Index is slightly below average at 131.0 and the total put/call is below average at .70. Finally, the NYSE Arms has been running around average most of the day, hitting 2.49 at its intraday peak, and is currently .66. The Euro Financial Sector Credit Default Swap Index is rising +5.92% to 69.74 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 rising +1.03% to 84.97 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is unch. at 20 basis points. The TED spread is now down 443 basis points since its all-time high of 463 basis points on October 10^th, 2008. The 2-year swap spread is rising +2.34% to 27.38 basis points. The Libor-OIS spread is unch. at 11 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is up +2 basis points to 2.38%, which is down -27 basis points since July 7^th, 2008. The 3-month T-Bill is yielding .05%, which is unch. today. Today’s gains are broad-based and market leading stocks are outperforming. Cyclicals and small-caps are also outperforming. Gaming, REIT, HMO, Drug, Biotech, Paper, Steel and Oil Tanker shares are especially strong, rising 1.75%+. (IYR) has traded well throughout the day. Commodities are surging despite US dollar strength and some negative global economic data. The Baltic Dry Index is now up almost 5% over the last week. On the negative side, several important CDS indices are rising today and market volume is lackluster. The market’s very positive reaction to news that was already happening late last week and should have already been mostly priced into stocks is bullish. A commentator on CNBC just said everyone was already too bullish on Apple(AAPL), however short interest in the shares soared 34% to 15.6 million shares in the latest report. I continue to believe upside earnings surprises, short-covering, multiple expansion and new product announcements will drive the shares significantly higher than current levels over the intermediate/long-term. Nikkei futures indicate an +156 open in Japan and DAX futures indicate an +12 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, technical buying, less financial sector pessimism, diminishing political angst and declining economic fear.