Stocks Lower into Final Hour on Continuing Weakness in Financials and Homebuilders

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Computer longs, Biotech longs and Medical longs. I have not traded today, thus leaving the Portfolio 75% net long. The overall tone of the market is mildly negative today as the advance/decline line is lower, sector performance is mixed and volume is very heavy. My intraday gauge of investor angst is elevated again. Investor angst is at levels normally associated with meaningful market bottoms. The NYSE Arms hit a very elevated 2.97 this morning. The VIX is at the highest level since early 2003. The ISE Sentiment Index 10-day moving average is at the second lowest reading on record. The CBOE total put/call 10-day moving average is also at the second highest reading on record. Money market funds, this week, saw $36 billion in inflows, the most since 2005. As well, the average 30-year mortgage rate fell nine basis points this week to 6.59%. This is down from 6.73% three weeks ago. November housing price futures are maintaining recent gains at $215,800. Trading has a panicky feel again today even as global central banks inject further liquidity into the system. The futures markets are now pricing in an imminent rate cut by the U.S. Fed. If this were to occur, the heavily shorted financials and housing-related equities would likely see extraordinary moves higher. At this point, I disagree that it would scare investors and result in further downside. As well, many of the hedge funds that are currently under duress are the very types of funds that I have been saying for some time will see substantial outflows. I still think a good portion of these outflows will move back into more positively correlated U.S. stocks strategies. Insider buying in general has soared recently, but especially so in financial equities even as investors stampede out the door, according to InsiderScore.com. In fact, this round of insider buying is led by the troubled financial industry, particularly among real estate investment trusts and other companies exposed to the subprime mortgage fallout, according to the report. This is very significant, in my opinion. RBC released its monthly consumer confidence index this morning. It came in at the best level in five months, jumping from 76.1 to 89.3. It appears that falling gasoline prices and a healthy job market were large contributors. It is also interesting to note that the gauge that measures consumers' feelings about the economy and their own financial fortunes over the next six months soared to 43.9 from 23.1 in July. As well, the employment component of the survey rose to 124.5 from 116.8 the prior month. Finally, the gauge that measures consumers' comfort level in making major purchases surged to 97.9 from 83.6 in July. This survey is contradictory to fears of imminent major job losses and a plunge in consumer spending. I still think consumer sentiment will improve further over the intermediate-term as housing fears subside, interest rates remain low, inflation decelerates further, energy prices continue to fall meaningfully, unemployment remains historically low, wages continue to substantially outpace inflation and stocks resume their major uptrend. Countrywide Financial(CFC), the source of much angst today, is trading near session highs, rebounding almost 3 points from today’s low. I expect US stocks to trade higher into the close from current levels on short-covering, rising expectations for a Fed rate cut and bargain hunting.