Stocks Modestly Lower into Final Hour on Healthy Profit-taking and Higher Energy Prices

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Medical longs and Commodity shorts. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is slightly negative as the advance/decline line is modestly lower, almost every sector is rising and volume is light. As I suspected a few weeks ago, earnings have actually provided an upside catalyst for the major averages. Despite bear calls that second-quarter reports would show an imminent severe economic downturn was on the horizon, earnings have once again exceeded estimates. Moreover, guidance has been relatively strong with expectations of another double-digit profit gain in the third quarter. Recent economic data also show few signs of anything other than a “soft-landing” for U.S. economic growth. I suspect another wave of short-covering will commence in the near term on any pullback in energy prices, the Aug. 8 Fed meeting or improvements in the Middle Eastern situation. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, increased Fed “pause” speculation, lower long-term rates and bargain-hunting.