Stocks Mixed into Final Hour as Lower Rates, Buyout Activity, Positive Economic Data Offset by Subprime Concerns, Profit-taking

BOTTOM LINE: The Portfolio is higher into the final hour on gains in Retail longs, Internet longs and Semi longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is mildly negative today as the advance/decline line is lower, most sectors are declining and volume is below average. It is interesting to note the recent uptick in “bull-mocking” by the “permabears.” I would expect to see this near a major market bottom, not anywhere near a top. This is just further evidence of the “U.S. negativity bubble”, in my opinion. It appears the bears' strategy is to take investors' focus off of their own numerous failed calls as the major averages surge once again to records. By chastising the bulls, however, the "fearleaders" are just drawing more attention to their own analysis. Investors would be well-served to perform historical searches on the bears' dire commentary to remind themselves of what they have been told since the major bear market lows of October 2002. The bears' scary predictions during periods of high market stress have been especially telling. The S&P 500 is up 111.5% since the 2002 low, averaging a 17% return on an annualized basis. It is also notable, considering the view by most that oil can only go higher, that the gasoline crack spread has collapsed 40% in five days and is down 17% just today. Moreover, the spread has plunged 57% from the highs seen in mid-May, around when gasoline futures peaked for the year. As well, gasoline futures are dropping another 3.5% today and convincingly breaking down through the uptrend that has been in place since December of last year. The contango in the oil futures market, which encouraged hoarding, is also beginning to reverse meaningfully for the first time in years. This is also occurring when crude oil large speculative traders have never been more net long oil futures and commercial hedgers, historically the “smart money,” have never been more net short oil. I suspect we are within six weeks of another major tradable top in oil, similar to the one seen last year before the commodity plunged $28 per barrel in less than six months. Like last year, this decline should provide another huge upside catalyst for the broad market. I plan to meaningfully increase my energy-related short exposure again over the next six weeks. I expect US stocks to trade mixed-to-higher into the close from current levels on lower long-term rates, buyout speculation and lower commodity prices.