Stocks Lower into Final Hour on Profit-taking, Micron Tech Comments

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Computer longs, Medical longs and Internet longs. I added (IWM) and (QQQQ) hedges today, thus leaving the Portfolio 75% net long. The tone of the market is negative as the advance/decline line is lower, most sectors are declining and volume is above-average. About 12% of total mortgage loans are subprime. Of those 12%, another 12.6% are delinquent. Thus, only about 1.5% of total mortgage loans outstanding are currently problematic. I think the fact that bonds didn't rally, the dollar remains firm and stocks barely fell on yesterday's news was telling. I do not believe subprime woes are nearly large enough or will become large enough to bring down the bulletproof U.S. economy. There are just too many other positives that outweigh this negative. In fact, in the big picture, housing is a positive. If housing had continued booming we would be facing numerous Fed rate hikes and the very high probability of an economic hard landing. The Fed's Poole said this morning that inflation is likely to fall to a reasonable range and that U.S. growth should average about 3% this year. A headline on the front page of the Money Section of USA Today read, "Stocks May be Overdue for a Pullback." As well, CNBC had a portfolio manager on this morning talking about a global bird flu pandemic that leads to a global depression. I continue to believe the many bears remain stunningly complacent given recent gains and improving macro backdrop. I also still believe most bulls have raised cash of late. I continue to believe the next meaningful move in the currently "dull" major averages will be higher. I expect US stocks to trade mixed-to-higher into the close from current levels on stable energy prices, bargain hunting and short-covering.