Stocks Mostly Lower into Final Hour on Financial Sector Rumors

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Medical longs, Alternative Energy longs, Biotech longs and Software longs. I covered all of my (IWM/QQQQ) hedges and some of my (EEM) short today, thus leaving the Portfolio 100% net long. The tone of the market is mildly negative as the advance/decline line is slightly lower, sector performance is mostly positive and volume is about average. Investor anxiety is above-average. Today’s overall market action is mildly bearish. The VIX is rising .26% and remains above average at 23.50. The ISE Sentiment Index is low at 92.0 and the total put/call is above average at 1.02. Finally, the NYSE Arms has been running around average most of the day and is currently .94. The Euro Financial Sector Credit Default Swap Index is falling 5.42% today to 91.11 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 falling 1.5% today to 662.97, which is also a positive. The TED spread is falling 7.03% to 1.05. The heavily-shorted (XLF) is attempting to trim losses into the final hour despite more negative rumors regarding Lehman Brothers(LEH). One of my longs, (ILMN), is hitting another new all-time high today. The stock is up 48.4% for the year and is 116.6% higher over the last 12 months. The shares are extended again near-term, but I still see substantial upside over the intermediate-to-long-term from current levels. Nikkei futures indicate an +125 open in Japan and DAX futures indicate an +63 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.