Stocks Surging into Final Hour on Less Financial Sector Pessimism, Short-Covering, Diminished Terrorism Fears, Buyout Speculation

Broad Market Tone:

• Advance/Decline Line: Substantially Higher
  
• Sector Performance: Almost Every Sector Rising
  
• Volume: Below Average
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 21.57 -1.96%
  
• ISE Sentiment Index 111.0 +15.63%
  
• Total Put/Call .81 -36.22%
  
• NYSE Arms .65 -18.65%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 102.14 bps -1.08%
  
• European Financial Sector CDS Index 107.17 bps -4.62%
  
• Western Europe Sovereign Debt CDS Index 148.96 bps -1.85%
  
• Emerging Market CDS Index 243.56 bps -2.59%
  
• 2-Year Swap Spread 20.0 unch.
  
• TED Spread 16.0 unch.
  

Economic Gauges:

• 3-Month T-Bill Yield .13% unch.
  
• Yield Curve 221.0 -2 bps
  
• China Import Iron Ore Spot $139.30/Metric Tonne -.29%
  
• Citi US Economic Surprise Index -15.50 +1.4 points
  
• 10-Year TIPS Spread 1.84% +2 bps
  

Overseas Futures:

• Nikkei Futures: Indicating -16 open in Japan
• DAX Futures: Indicating -6 open in Germany

Portfolio:

• Higher: On gains in my Tech, Retail, Ag and Medical long positions
  
• Disclosed Trades: Covered all of my (IWM)/(QQQQ) hedges and covered some of my (EEM) short
  
• Market Exposure: Moved to 100% Net Long

BOTTOM LINE: Today's overall market action is bullish as the S&P 500 is trading near session highs on low volume and is now slightly above its 200-day moving average. On the positive side, Education, Homebuilding, Bank, Networking, Disk Drive, Semi, Computer, Internet, Steel and Oil Tanker shares are especially strong, rising 2.0%+. Small-cap and cyclicals are substantially outperforming. (XLF) has traded well throughout the day. Copper is jumping +2.4% and Lumber is rising +1.32%. The European Investment Grade CDS Index is falling -3.29% to 95.42 bps. Moreover, the Spain sovereign cds is dropping -3.54% to 219.08 bps and the Portugal sovereign cds is falling -3.13% to 320.52 bps. On the negative side, Hospital shares are down on the day and Restaurant, Drug, Biotech, Telecom and Utility shares are underperforming, rising less than .5%. The 10-Year Yield is falling -6 bps to 2.73%, which is negative. The Greece sovereign cds is rising +.64% to 917.45 bps, the Japan sovereign cds is rising +.4% to 66.21 bps and the US Muni CDS Index is rising +.88% to 230.50 bps. Breadth is good, but volume is lackluster again today. The S&P 500 is near a critical technical level and a convincing break above this level would likely lead to even further near-term upside. However, I am closely monitoring my technical gauges for any signs of developing weakness, given the trading range we have be trapped in for some time. I expect US stocks to trade mixed-to-higher into the close from current levels on less terrorism fear, diminishing financial sector pessimism, short-covering, buyout speculation and technical buying.