Stocks Lower into Final Hour on Profit-taking Ahead of Housing Data

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Internet longs, Computer longs, Medical longs and Retail longs. I have not traded 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 below-average. The Bear Stearns High Yield Index is 1.2% higher over the last week. The JPMorgan Emerging Market Bond Index is 1.0% higher over that period and hit an all-time high three days ago. As well, the speculative grade credit default swap index is down 24.4% in five days and the LCDX leveraged loan index is back to levels seen before the credit turmoil accelerated. Moreover, the dollar-based 3-month Libor rate has dropped 45 basis points in 5 days and the 10-year swap rate has declined 4 basis points over that period. Given recent more positive economic data, the surge in commodities, dollar weakness and stocks back near their highs, I still wouldn't be surprised to hear more hawkish comments from this week's Fed speakers. This could also boost the oversold dollar and put pressure on overbought crude prices. Despite the 9% gain in the S&P 500 in just five weeks and that the index is just 1.4% off its all-time high, equity index futures traders' positions remain extraordinarily bearish. In my opinion, one of the indications that stocks were just correcting recently and not beginning a new bear market was the very strong bullish sentiment displayed by corporate insiders. According to CNBC, insider buying over the past 12 months was the greatest last month during the peak of the credit turmoil. Despite the recent surge in stocks back near record highs, insider selling remains muted, which is a big positive and bodes well for further gains. Citi raised its target price on Apple (AAPL) to $185 from $160. AAPL is making a new all-time high on the news, and I still except AAPL to exceed $180 before year-end. The MS Tech Index is substantially outperforming the S&P 500 today, and the index is now 28% higher over the last year and up 17.5% year to date. As I said at the beginning of the year, I still expect tech to outperform over the intermediate-term. The Fed's Fisher said this morning that the US is experiencing a "mitigation" in inflation, which gives the Fed some "wiggle room." He also said "some might have lost sight of our economy's resiliency." I expect US stocks to trade mixed into the close from current levels as short-covering and investment manager performance anxiety offsets worries over tomorrow’s housing data and profit-taking.