Stocks Lower into Final Hour on Surging Oil, Rising Credit Market Angst

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Medical longs, Gaming longs and ETF hedges. I covered some of my (IWM/QQQQ) hedges and some of my (EEM) short today, thus leaving the Portfolio 75% net long. The tone of the market is negative as the advance/decline line is lower, sector performance is mixed and volume is about average. Investor anxiety is above-average. Today’s overall market action is neutral. The VIX is falling .5% and remains above average at 23.82. The ISE Sentiment Index is below average at 116.0 and the total put/call is very high at 1.18. Finally, the NYSE Arms has been running around average most of the day and is currently .98. The Euro Financial Sector Credit Default Swap Index is rising 2.72% today to 96.58 basis points. This index is up from a low of 52.66 on May 5^th, but down from 129.46 basis points on March 20^th. The North American Investment Grade Credit Default Swap Index is rising 13.5% today to 141.57, which is also a negative. The TED spread is rising 2.91% to 1.12. I still believe given record short interest, recent steep stock declines, high investor angst, quarter-end on Monday and the market’s technically oversold state, a very sharp rally will materialize soon. The heavily shorted financials are attempting a recovery, despite more negative news. Any upside traction in this sector should light a match under the broad market. A number of market leading stocks have been trading much better today and a number of sectors are rising despite losses in the major averages. Commodity, medical, road & rail, hospital, construction, hmo, drug, biotech and defense shares are all higher for the day. Nikkei futures indicate a +5 open in Japan and DAX futures indicate an +56 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on short-covering, better economic data, quarter-end window dressing and bargain-hunting.