Stocks Lower into Final Hour, Weighed Down by Commodity, Airline and Homebuilding Shares

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Computer longs, Biotech longs, Gaming longs and Commodity shorts. I covered some of my (IWM)/(QQQQ) hedges and some of my (EEM) short today, thus leaving the Portfolio 75% net long. The overall tone of the market is bearish as the advance/decline line is lower, sector performance is mostly negative and volume is heavy. Investor anxiety is very high again. Today’s overall market action is mildly bearish. The VIX hit a very high 29.3. The ISE Sentiment Index is a very low 67.0 and the total put/call hit a high 1.33 again today. Finally, the NYSE Arms hit a high 2.0. The 10-year swap spread is rising another 1.9 basis points today to 86.86 basis points over Treasuries. It is still at the highest level since July 2001. However, the TED spread is falling 13 basis points to 150 basis points, which is a positive. Overall, credit market angst is subsiding a bit today, which is a big positive. As well, internet, software, semi, networking, computer service, telecom, banks, I-banks, insurance, REIT and tobacco shares are all rising today despite headline losses in the major averages. Investor sentiment remains extraordinarily depressed. Besides short interest soaring to another record in February, the AAII % Bulls fell to 21.9% this week, while the AAII % Bears jumped to 51.6%. Nikkei futures indicate a -100 open in Japan and DAX futures indicate a -7 open in Germany on Monday. I expect US stocks to trade modestly higher into the close from current levels on short-covering and subsiding credit market angst.