Stocks Mostly Lower into Final Hour on Financial Sector Concerns, Rising Oil

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Alternative Energy longs and Internet longs. I have not traded today, thus leaving the Portfolio 75% net long. The tone of the market is negative as the advance/decline line is lower, most sectors are declining and volume is below average. Investor anxiety is slightly above average. Today’s overall market action is bearish. The VIX is falling .31% and remains above average at 22.80. The ISE Sentiment Index is low at 105.0 and the total put/call is slightly below average at .82. Finally, the NYSE Arms has been running above average most of the day and is currently 1.21. The Euro Financial Sector Credit Default Swap Index is rising .74% today to 86.01 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 .75% today to 124.22. The TED spread is falling 1.6% today to .92 basis points. Despite the rise in oil today, the 10-year TIPS spread, a good gauge of inflation expectations, is down 4 basis points to 2.46%. This is also down 13 basis points in 10 days. The underlying action in the broad market is worse than the major averages suggest. Airline, retail, homebuilding, insurance, hmo, bank, I-banking and disk drive shares are all under meaningful pressure, falling over 2% for the day. Mid-cap growth stocks remain, by far, the strongest segment of the market, rising another .34% today. The (XLF) is trading at session lows, falling another 3.3%. It is noteworthy that the US dollar is mounting a .6% rally today despite the rise in oil and intensifying financial sector worries. I suspect the Fed will leave rates unch. at this week’s meeting, but adopt a more hawkish policy statement. Nikkei futures indicate a +48 open in Japan and DAX futures indicate an -37 open in Germany tomorrow. I expect US stocks to trade mixed-to-lower into the close from current levels on rising energy prices, financial sector worries and global growth concerns.