Stocks Sharply Lower into Final Hour on Profit-taking and Rising Long-term Rates

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Internet longs, Telecom longs and Retail longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is very negative as the advance/decline line is substantially lower, every sector is declining and volume is above-average. The U.S. economy is accelerating modestly based on all the gauges I monitor. I suspect the recent surge in yields is mainly the result of the "housing price collapse" theory quickly losing supporters.Just a few months ago, when the 10-year was around 4.5%, I would guess the majority expected substantial price declines in the average home price, which would have led to much slower economic growth than the mild deceleration seen in the second half of last year. While substantial home price declines are unlikely -- the Case-Schiller Housing futures are now forecasting just a 1.5% decline in the average home price by May, up from projections of a 5.2% increase a few months ago -- I do not expect economic growth to accelerate too much. There are still too many economic drags along with a likely deceleration in global growth. As well, measures of inflation are poised to show another meaningful deceleration as the hugely positive effects of the decline in commodities works through the system. I took profits in most of my iShares Lehman 20+ Year Treasury Bond (TLT) long a few months ago. I will look to build this long position back up on any move in the 10-year yield to around 5%. The bottom line is, in my opinion, that the yield rising modestly is a good thing as a severe economic downturn is less likely while lower inflation readings are more likely. The 10-year yield is currently stabilizing. This should help stocks into the close. The yield is now 5 basis points higher after reaching 7 over the last hour. My intra-day gauges of investor angst are elevated. As well, the VIX is surging 14%. The CBOE total put/call is an above-average 1.27. Considering a triple-digit Dow loss, I have an unusual amount of green on my screens that monitor about 1,000 stocks. I expect US stocks to trade modestly higher into the close from current levels on bargain-hunting, short-covering, more economic optimism and falling energy prices.