Stocks Lower into Final Hour on Financial Sector Worries

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Alternative Energy longs, Computer longs and Medical longs. I added (IWM)/(QQQQ) hedges and added to my (EEM) short today, thus leaving the Portfolio 75% net long. The tone of the market is mildly negative as the advance/decline line is slightly lower, most sectors are declining and volume is below average. Investor anxiety is slightly above average. Today’s overall market action is mildly bearish. The VIX is rising .62% and remains above average at 21.10. The ISE Sentiment Index is below average at 110.0 and the total put/call is above average at .92. Finally, the NYSE Arms has been running about average most of the day and is currently .96. Financial equities are under pressure again today, despite a decline in their credit-default swaps and a positive report from Goldman Sachs(GS). This is weighing on the broad market. The Shanghai Composite fell to another new 52-week low last night. This index is now down 54.4% from its October high and down 46.9% ytd. On the positive side, the Euro Financial Sector Credit Default Swap Index is falling another 3.5% today to 71.4 basis points. This is up from a low of 52.66 on May 5^th, but still down from 129.46 basis points on March 20^th. The North American Investment Grade Credit Default Swap Index is falling 2.6% today to 105.2, which is also a large positive. The TED spread is falling 5.2% today to .82 basis points. Leading growth stocks are substantially outperforming the broad market and value stocks again today. Despite a decline in the US dollar versus the euro, oil was unable to mount a rally today. Weekly retail sales rose 2.2% this week, up from a 2.1% gain the prior week and up from a .5% gain the week of March 4^th. One of my longs (NUAN) is seeing a huge spike in call option activity today, which could be related to (MSFT) acquisition rumors. Lazard reiterated its Buy today on (ISRG) and said it sees upside to its 2Q forecasts. It said that hospitals are getting financing and using the da Vinci for wider surgical uses. Nikkei futures indicate an +72 open in Japan and DAX futures indicate a -4 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on falling energy prices, bargain-hunting, diminishing credit market angst and short-covering.