Stocks Lower into Final Hour as Lingering Credit Worries Offset Positive Economic Data

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Internet longs, Medical longs and Retail longs. I added slightly to my (GILD), (UA) and (PWR) longs, covered my (IWM)/(QQQQ) hedges and took some profits in my (EEM) short today, thus leaving the Portfolio 100% net long. The overall tone of the market is negative today as the advance/decline line is lower, most sectors are declining and volume is very heavy. My intraday gauge of investor angst is at an elevated level. Money market funds saw inflows of $12.57 billion, reaching another record high of $2.54 trillion. Recent market action makes me more convinced than ever that the secular trend of disinflation is still firmly intact. It is interesting to note the Baltic Dry Index hit another new high yesterday. As well, U.S. rail carload traffic has been trending higher since bottoming in February. The gasoline crack spread is dropping another 7.5% today. It has now collapsed 72.4% from May highs. I still expect oil to start a meaningful decline over the next month, and I plan to further increase my energy short exposure over the coming weeks. I can't stress enough how important the shift is away from “value” stocks and into “growth” stocks over the last two days. It is massive, and I barely hear it mentioned. If you are in a broad array of quality growth stocks, you very well may be even over the last two days, with the broad market down meaningfully. I believe this year marks the beginning of a shift toward the “growth style” that will last for years. There are literally hundreds of growth stocks I monitor up over 1% today with the DJIA down 100. Google (GOOG), my largest long position, is 7 points higher. I still view this stock as egregiously undervalued relative to other high-quality growth stocks and its Internet peers. If the major U.S. averages are able to close around current levels or higher, I wouldn't be surprised to see a sharp rally in Asia on Sunday night and Europe Monday morning, given how oversold those indices have become. Many are even more oversold than the U.S. averages. A sharp rally overseas would likely lead to strength here in the U.S. on Monday. I plan to finish the day 100% net long. I expect US stocks to trade higher into the close from current levels on bargain-hunting, lower long-term rates, more economic optimism and short-covering.