Stocks Mildly Lower into Final Hour on 3-day Weekend Worries, Option Expiration

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Medical longs, Internet longs, ETF hedges and commodity shorts. I have not traded today, thus leaving the Portfolio 75% net long. The overall tone of the market is negative as the advance/decline line is lower, most sectors are declining and volume is about average. Investor anxiety is above average. Today’s overall market action is mildly bearish. The VIX is falling 1.2% today, but remains high at 25.2. The ISE Sentiment Index is a very low 78.0 and the total put/call is a high 1.16 today. Cyclicals are under mild pressure across the board today after some disappointing economic data. Tech stocks are weak on comments from electronics retailer Best Buy(BBY). However, (BBY) itself is only down 2.2% and is near session highs. Moreover, a boutique firm cut its 1Q estimates for (GS) yet it is .9% higher, at session highs. The (XLF) is also .7% higher, at session highs. Finally, (CMG) missed estimates, but is up 8 points from morning lows and is also at session highs. These are very positive signs and indicate how much bad news is already factored into many stocks at current levels. One of my longs (PWR) is jumping 6.2% today after CSFB added the stock to its Focus List with a $40 target, almost 100% higher from current levels. They said PWR is one of the most interesting infrastructure and derivative renewable power plays in their universe. With existing US power grid in dire need of an upgrade and the expected strong growth in renewable energy generation, they see several years of accelerating spending on power transmission. I agree and think their price target is reasonable. There are rumors again of a (GE) takeover of (ILMN), which I am long. Finally, the Hollywood Reporter is saying that Toshiba is expected to drop HDDVD and Wal-Mart(WMT) said it is moving exclusively towards the blu-ray format, both of which benefit my (SIGM) long. There will be a bit more competition for the company over the next year, however the market is getting significantly larger and I still think the stock will rise substantially from current levels. Corporate insiders remain very bullish on US stocks, despite the overwhelming belief by the herd that the US is plunging into a recession and protracted bear market. I suspect some of today’s selling is also related to option expiration and apprehension over the coming three-day weekend, considering what happened in Asia over the last US holiday weekend. Nikkei futures indicate a -137 open in Japan and DAX futures indicate a +70 open in Germany. I expect US stocks to trade mixed-to-higher into the close from current levels on bargain-hunting and short-covering.