Stocks Lower into Final Hour on Profit-taking, Shorting, Higher Energy Prices

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Biotech longs, Computer longs and Medical longs. I added (IWM)/(QQQQ) hedges and added to my (EEM) short this morning, thus leaving the Portfolio 75% net long. The overall tone of the market is mildly negative as the advance/decline line is slightly lower, most sectors are declining and volume is above average. Investor anxiety is high again. Today’s overall market action is just mildly bearish. The VIX is rising 7% today to a very high 29.65. The total put/call is an above average 1.05 and the ISE Sentiment Index hit a very low 87.0 today. As well, the NYSE Arms has been high all day. This morning’s gains left the major averages very extended short-term. Microsoft’s(MSFT) immediate weakness this morning following such a stellar quarter was a tell. Moreover, there are many hedge fund blow-up rumors swirling today. Many stocks are higher on the day, despite the losses in the major averages. Weakness is the most pronounced in the retailers and financials, which have had humongous gains in a very short period. Economically sensitive small-caps and cyclicals are outperforming substantially today. I still seriously doubt a full retest of recent lows will occur, as so many expect. Given how extended Asian indices are, I would expect to see weakness there Sunday night, which could further pressure US shares Monday morning. Nikkei futures indicate a -200 point decline on the open in Japan Sunday night. Fed fund futures now imply a 72.0% chance for a 50 basis point cut and a 28.0% chance for a 25 basis point cut at the Jan. 30^th meeting. I expect US stocks to trade mixed-to-lower into the close from current levels on profit-taking, higher energy prices and more shorting.