Stocks Gaining into Final Hour on Rising QE-2 Expectations, Tax Policy/Election Optimism, Falling Sovereign Debt Angst

Broad Market Tone:

• Advance/Decline Line: Substantially Higher
  
• Sector Performance: Most Sectors Rising
  
• Volume: Around Average
  
• Market Leading Stocks: Outperforming
  

Equity Investor Angst:

• VIX 20.58 -4.59%
  
• ISE Sentiment Index 164.0 +36.67%
  
• Total Put/Call .86 -19.63%
  
• NYSE Arms 1.22 +1.22%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 97.01 bps -1.17%
  
• European Financial Sector CDS Index 108.49 bps -5.22%
  
• Western Europe Sovereign Debt CDS Index 150.0 bps +.11%
  
• Emerging Market CDS Index 197.97 bps -2.46%
  
• 2-Year Swap Spread 17.0 unch.
  
• TED Spread 17.0 unch.
  

Economic Gauges:

• 3-Month T-Bill Yield .11% unch.
  
• Yield Curve 204.0 +1 bp
  
• China Import Iron Ore Spot $145.30/Metric Tonne +.83%
  
• Citi US Economic Surprise Index -2.80 -3.6 points.
  
• 10-Year TIPS Spread 1.98% +6 bps
  

Overseas Futures:

• Nikkei Futures: Indicating +42 open in Japan
• DAX Futures: Indicating +8 open in Germany

Portfolio:

• Higher: On gains in my Tech, Ag, Medical, Retail and Biotech long positions
  
• Disclosed Trades: None
  
• Market Exposure: 100% Net Long

BOTTOM LINE: Today's overall market action is very bullish as the S&P 500 trades near session highs despite another poor jobs report and recent gains. On the positive side, Gaming, Disk Drive, Steel, Ag, Oil Service, Coal, Airline, Road & Rail and Construction shares are especially strong, rising 1.75%+. Small-caps and cyclicals are outperforming. The S&P GSCI Ag Spot index is soaring again, rising +6.31% today, lumber is gaining +4.48% and copper is rising +2.91%. The Spain sovereign cds is falling -4.0% to 218.87 bps and the Greece cds is declining -2.23% to 739.04 bps. The -14.31% decline over the last 5 days in the Euro Financial Sector CDS Index is a major positive. S&P 500 implied correlation is breaking below its 200-day moving average today for the first time since May to 64.06%, which is also a positive. On the negative side, Bank and Semi shares are down on the day. (XLF) and (IYR) have been underperforming throughout the day. Gold is rising +.92%. The 10-year yield is flat again today at 2.38% despite equity gains. Stock investors continue to ignore most negatives as bad news means rising odds for QE-2, which short-term investors continue to cheer. The DJIA's breaking above 11,000 will likely lead to further short-term gains as performance angst kicks into high-gear for many. One of my longs, (MOS), is jumping +7% today on soaring ag spot prices and buyout speculation. I still see further upside in the shares from current levels as recent positives are likely not yet priced in. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, falling sovereign debt angst, technical buying, buyout speculation, investor performance angst, commodity strength and tax policy/election optimism.