Stocks Sharply Lower into Final Hour as Extreme Pessimism Builds

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Software longs and Semi longs. I covered my (QQQQ)/(IWM) hedges and took profits in some existing shorts 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, most sectors are declining and volume is heavy. Investor anxiety is very high again. Today’s overall market action is bearish. The total put/call hit a very high 1.48 and the ISE Sentiment Index hit a record low 23.0 today. The VIX is finally spiking today, rising 11%, to a relatively high 27. There are some bright spots today despite the headline losses. The Morgan Stanley Tech sector index is only .2% lower on the day. Computer services, biotech, retail, restaurants, networking, semis, software and computer hardware are all higher or just slightly lower on the day. As well, a number of market leading stocks are being accumulated today on every tick lower in the averages and others trade as though they are “washed out.” There are also an unusual number of stocks rising on volume today given the losses in the major averages. I will monitor the close today and decide whether or not to further shift market exposure. I expect US stocks to trade modestly higher into the close from current levels on short-covering, bargain hunting and lower energy prices.