Stocks Sharply Lower into Final Hour Despite Financial Sector Strength on Rising Economic Pessimism

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Medical longs, Computer longs and Internet 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 negative today as the advance/decline line is lower, sector performance is mostly negative and volume is above average. Investor anxiety is above average. Today’s overall market action is bearish. It is very disappointing that we are giving back this much of the last two days’ gains given the relative strength in the financials. Large-cap growth leaders with any exposure to consumer spending are especially weak as investors continue to price in the worst case economic scenario. Meanwhile, the odds of a recession have actually declined over the last two days, according to Intrade.com. Bear complacency remains extraordinarily high given how much bad news is already factored into stock prices at current levels and the real potential for significant positive near-term catalysts. However, size buyers are scarce as investor confidence remains extraordinarily depressed. A significant confidence-boosting near-term catalyst needs to materialize soon to prevent the major averages from taking out recent lows. I expect US stocks to trade mixed into the close from current levels as short-covering, lower energy prices and diminishing credit angst offset more economic pessimism.