Stocks Lower into Final Hour on Weakness in Europe, Higher Oil and Rising Rates

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Biotech longs, Medical longs and I-Banking longs. I added to my (TLT) long and to a steel short 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. A number of market-leading growth stocks are substantially outperforming today with some posting sharp gains. This is especially significant considering the recent rise in rates. I sense the long-term trend is in the initial stages of switching away from expensive value stocks and toward cheap growth stocks. (According to value stock guru Jeremy Grantham, value is expensive, and a recent CSFB report said that growth was cheaper than value for first time in over 30 years.) The days of shorts throwing darts at stocks with P/Es above 20, regardless of the underlying fundamentals, and making money on the multiple contraction are likely over. The 10-year yield is beginning to stabilize. It is down to 5.09% now. It is interesting to note that the iShares Lehman TIPS Bond Fund (TIP) continues to decline, and gold trades very poorly as the U.S. dollar firms. This indicates inflation worries aren't the cause of the rise in yields, in my opinion. I continue to believe that the recent rise in yields is more related to the "recession is imminent" trade being taken off by large macro funds. I still believe that, after 3% growth this quarter, U.S. GDP growth will move back toward 2% as inventory rebuilding subsides and the effects of the recent rise in rates takes hold. Long-term yields are likely very near a peak for the year, in my opinion. I plan to add meaningfully to my iShares Lehman 20+ Year Treasury Bond (TLT) long on any unexpected move in the 10-year yield to around 5.15%-5.25%. Today's trading feels like a mini panic. The NYSE Arms is soaring to a high 1.48. The VIX is surging 13%. The CBOE total put/call is an above average 1.15, and the ISE Sentiment Index is plunging 34%, to a depressed 78.0. I expect US stocks to trade modestly higher into the close from current levels on bargain hunting and short-covering.