Stocks at Session Lows into Final Hour on Terrorism Fears, Subprime Worries and End-of-Quarter Profit-taking

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my I-Banking longs, Software longs and Biotech longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is mildly negative as the advance/decline line is mildly lower, most sectors are lower and volume is about average. The PCE Core year over year rose 1.9% in May, the smallest increase since March 2004. This is also well below the 20-year average of 2.5% and within the Fed's comfort zone. The myth of problematic inflation lives on; however, if oil begins collapsing in the third quarter as it did last year, this argument will become extremely difficult to make. The fundamentals for oil are even worse this year, in my opinion. The 10-year yield is at session lows, falling 8 basis points. It has dropped 30 basis points in less than two weeks. The NYSE Arms is an above-average 1.23, the VIX is rising 8.2% and the CBOE total put/call is an above-average 1.0. Sloppy action over the last few days appears to me to be a function of buyers stepping away after a great quarter and aggressive funds selling/shorting winners. I expect large buyers to re-emerge next week. I also think better-than-expected earnings, a break below 5% in the 10-year yield, diminishing subprime fears and a large acquisition could provide upside catalysts for the broad market over the coming weeks. I expect US stocks to trade modestly higher into the close from current levels on lower long-term rates and subsiding end-of-quarter profit-taking.