Stocks Falling into Final Hour on Worries in the Financial Sector

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Retail longs and Biotech longs. I have not traded today, thus leaving the Portfolio 100% net long. The overall tone of the market is very negative today as the advance/decline line is substantially lower, almost every sector is falling and volume is heavy. Notwithstanding everyone's assumption that the Fed is done cutting rates, fed fund futures now imply a 62% chance for another 25-basis-point cut at the December meeting, up from 42% yesterday. My intraday gauge of investor angst is elevated. Many market-leading stock are holding well. Some, such as Google (GOOG) are higher. Tech stocks, in general, continue to substantially outperform. Despite today's worries, the investment grade credit default swap index is 1.03% lower over the last five days. As well, the speculative grade credit default swap index is 1.5% lower. The Bear Stearns High Yield Index is up .42% over the last week and the JPMorgan Emerging Market Bond Index is .93% higher over that period. The 30-day asset backed commercial paper yield is falling another 6 basis points today to 4.82%, which is down 151 basis points from September highs. Wall Street research downgrades are again running 3-1 over upgrades as the analyst community continues to display historical pessimism with stocks just off record highs. Yesterday, on CNBC's "Fast Money," Barton Biggs said that hedge funds are at their lowest levels of being net long in four years, according to his prime brokerage sources. Biggs' comments correspond with what I am hearing from my sources and the most recent Greenwich Alternative Investments hedge fund survey, which found a record low 8% of hedge fund managers were bullish on U.S. stocks. While it is still too early to tell whether or not it has already begun, I continue to believe the "mother of all short-covering rallies" is inevitable. I expect US stocks to trade modestly higher into the close from current levels on bargain-hunting, lower energy prices and short-covering.