Stocks Mostly Lower into Final Hour on More Economic Pessimism, Profit-taking

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Semi longs, Software longs and Medical longs. I have not traded today, thus leaving the Portfolio 100% net long. The overall tone of the market is mildly negative today as the advance/decline line is slightly lower, sector performance is mixed and volume is light. Investor anxiety is above average again. Today’s overall market action is neutral. The NYSE Arms hit a high 1.42 and the VIX is rising another 2.5% today, back to 21. The 10-year yield is falling another 10 basis points on another spike in economic pessimism as investors ignore today’s healthy December Chicago PMI report and chose to focus on the weaker November New Homes Sales report. Gauges of credit market angst are falling again today. The TED spread is falling 13 basis points to 158 basis points today. The 10-year swap spread is down 2.1 basis points to 64.9 basis points over Treasuries. LIBOR is dropping again and the 30-day US asset backed commercial paper yield is falling 10 basis points today. With such light volume, elevated levels of investor pessimism and high NYSE Arms readings over the last couple of days, it shouldn’t take too much buying to boost the averages by Monday’s close, which I expect. Recent long addition (SIGM) is surging 8% on above-average volume today. I still see substantial upside in the shares even after this year’s strong gains. I expect US stocks to trade mixed-to-higher into the close from current levels on diminishing credit market angst, seasonal strength, bargain-hunting and short-covering.