Stocks Surging into Final Hour on Diminishing Sovereign Debt Fears, Short-Covering, Less Economic Pessimism, Technical Buying

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Technology longs, Retail longs, Medical longs and Biotech longs. I covered all of my (QQQQ)/(IWM) hedges and some of my (EEM) short 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, almost every sector is rising and volume is above average. Investor anxiety is very high. Today’s overall market action is bullish. The VIX is falling -3.62% and is high at 25.55. The ISE Sentiment Index is low at 97.0 and the total put/call is high at .97. Finally, the NYSE Arms has been running below average most of the day, hitting .28 at its intraday trough, and is currently .45. The Euro Financial Sector Credit Default Swap Index is falling -2.03% to 92.19 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 +1.17% to 104.45 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is unch. at 16 basis points. The TED spread is now down 447 basis points since its all-time high of 463 basis points on October 10^th, 2008. The 2-year swap spread is falling -4.26% to 29.50 basis points. The Libor-OIS spread is unch. at 10 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is up +2 basis points to 2.28%, which is down -37 basis points since July 7^th, 2008. The 3-month T-Bill is yielding .09%, which is unch. today. Market leaders are underperforming today. REIT, Education and I-Banking shares are also underperforming. On the positive side, Airline, Networking, Steel, Gold, Ag, Oil Service, Oil Tanker and Coal shares are rising 2.75%+. The Western Europe Sovereign CDS Index is dropping -10.8% today to 99.0 bps. As well, the US Sovereign CDS is falling -5.4%, which is also a large positive. Given the euro’s oversold technical state and large short base, further short-term strength is likely in the currency as traders anticipate a resolution to some of Europe’s sovereign debt issues. However, I suspect its strength will evaporate over the coming weeks as the ramifications of Europe’s actions are fully digested. It is noteworthy that the Euro Financial Sector CDS isn’t down more, (XLF) is not up more and (IYR) is flat given today’s speculation and broad market strength. Nikkei futures indicate an +148 open in Japan and DAX futures indicate an +58 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on diminishing sovereign debt angst, short-covering, less economic pessimism, bargain-hunting and technical buying.