Stocks Sharply Lower into Final Hour on Profit-taking

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Semi longs, Retail longs and Biotech longs. I added to my (EEM) short and added (QQQQ)/(IWM) hedges today, thus leaving the Portfolio 75% 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 major averages and breadth are near session lows. A number of market-leading stocks are at session lows, as well. I suspect this profit-taking could last a few days, given how far we have run and how many investors need this market lower to get back in the performance game. According to a recent Citigroup report, between year-end 2002 and year-end 2006, consumer net worth rose by $16.8 trillion. Of that increase, less than one-fifth came from increases in net real estate value. The S&P 500 has soared 25.2% since June of last year. Nationwide housing prices have barely declined after a 50% surge over the last few years. Americans' net worth is at record high levels, a fact that continues to be ignored by those calling for a consumer collapse. Unemployment is historically low and wages are growing at almost twice most measures of inflation. Today's jobless claims were the lowest since January. The job market appears to be strengthening again with the improvement in manufacturing, related to an end to the substantial inventory de-stocking. I expect retail sales to bounce back to healthy levels into the summer. I expect a surge in "the market run is over" calls over the next few days, and that will likely mark the end of this pullback. Bulls are stepping away, and bears are likely trying to get back performance by doubling down. I expect US stocks to trade mixed into the close from current levels as buyout speculation, lower long-term rates and a firmer dollar offsets profit-taking and consumer spending worries.