Stocks Mostly Lower into Final Hour on Profit-taking

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Internet longs and Retail longs. I added to my (EEM) short and added (QQQQ)/(IWM) hedges this afternoon, thus leaving the Portfolio 75% net long. The tone of the market is negative as the advance/decline line is lower, almost every sector is lower and volume is about average. The China Banking Regulatory Commission, in an attempt to cool its overheated stock market, ruled Friday after the close that Chinese banks can now invest as much as 50% of their funds in overseas stock markets. In my opinion, it would be in China's own interests for numerous reasons to promote the purchase of U.S. stocks. Dennis Slothower, editor of the On the Money newsletter, says that this means that "up to $2.3 trillion in China monies ... can now move out of China," MarketWatch.com reported. To put that in perspective, the total value of all publicly traded stocks in the U.S. is around $15.1 trillion. If even a modest faction of this money makes its way into U.S. stocks, we could see a "further parabolic advance in equities," Slothower said. The total value of U.S. shares contracted last year, despite the 15.8% rise in the S&P 500, by the most in 22 years as a result of booming M&A activity, giant corporate stock buybacks, muted IPO activity and limited secondary offerings. So far, we have seen more of the same this year. I continue to believe overall investor sentiment regarding the prospects for U.S. stocks has never been this poor in history with the DJIA near an all-time high. While U.S. investors are likely to remain "irrationally pessimistic" toward domestic shares a while longer, an increase in demand for U.S. equities from Chinese investors could turn the tide. I still believe a low supply of U.S. stock and increasing demand will make for a lethally bullish combination. I expect US stocks to trade mixed into the close from current levels as profit-taking offsets buyout speculation.