Stocks Sharply Lower into Final Hour on Financial Sector Worries, Economic Concerns

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Software longs, Medical longs and Computer 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 very negative as the advance/decline line is substantially lower, every sector is declining and volume is about average. Investor anxiety is high again. Today’s overall market action is very bearish. The VIX is rising 10.5% today to a high 26.0. The ISE Sentiment Index is a very low 77.0 and the total put/call is a high 1.23 again today. Finally, the NYSE Arms has been running high all day and is currently 1.71. Today’s losses are mainly the result of ongoing worries over the financial sector and concerns that the bubble in commodities will prevent the Fed from acting in a more aggressive way if necessary. Considering how much US manufacturing is outsourced to emerging market countries, I suspect we will begin to see further signs of slowing in the growth rates of those countries over the coming weeks, which should provide the catalyst for a reversal lower in most commodity prices, thus giving the Fed more leeway. Google(GOOG) is trading relatively well today after comScore clarified its recent data that had pressured GOOG shares. They said that a careful analysis of the data doesn’t support inventors’ concerns that the economy is hurting Google’s biz. They also said, as I pointed out right after the release of the data, that Google’s quality initiatives drove down clicks. I suspect another surge in Google shares is in the offing on any signs of broad market stabilization. The Baltic Dry Index surged 3.8% today, the biggest gain this month. The JPMorgan Emerging Market Bond Index and Bear Stearns High Yield Index are .7% higher for the week. The Investment Grade Credit Default Swap Index is 1.3% lower for the week, which is also a positive. The Fed’s Evans said this afternoon that “fast moving events call for fast moving policy,” which could be an indication of another surprise rate cut before the March 18^th meeting. Nikkei futures indicate a -285 open in Japan and DAX futures indicate a -17 open in Germany on Monday. I expect US stocks to trade modestly higher into the close from current levels on short covering, lower long-term rates, Fed rate cut speculation and bargain hunting.