Stocks Lower into Final Hour on Global Growth Concerns, Forced Selling

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Semi longs, Medical longs, Biotech longs and Commodity shorts. 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 modestly negative as the advance/decline line is slightly lower, sector performance is mixed and volume is about average. Investor anxiety is above average. Today’s overall market action is bearish. The VIX is rising 2.4% and is still above-average at 23.11. The ISE Sentiment Index is low at 111.0 and the total put/call is slightly above average at .94. Finally, the NYSE Arms has been running around average most of the day and is currently .88. The Euro Financial Sector Credit Default Swap Index is rising 1.5% today to 84.83 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 2.4% today to 135.5 basis points. The TED spread is falling 2.4% to 1.11. The 10-year TIPS spread, a good gauge of inflation expectations, is stable at 2.29%, which is the lowest since May 2nd and down 34 basis points in less than a month. As I said several weeks ago, the stunning rally in the hated financials and decline in the much-loved commodities would likely lead to a spike in hedge fund closure rumors. We have been getting those rumors and today’s action indicates to me that some of those rumors are likely true. Mid-cap growth shares, which had been the best performers for quite some time, are especially weak today. This is likely a result of momentum funds cutting risk across the board. Financial shares continue to consolidate recent gains well. The (XLF) is near session highs. The energy sector corporate insiders picked up selling substantially last week. Energy insiders sold $507,492,959 worth of stock, while only purchasing $22,379,085 worth. This is noteworthy, especially considering insider activity remains quite bullish in other sectors. The Energy Intelligence Group reported that global oil production remained at a record high of 87.8 million barrels per day in June, with global demand at 86.8 million barrels per day. I think global demand for oil began to decelerate in July much more than is commonly perceived by the many oil bulls. I suspect emerging markets will likely see weakness again tonight. Brazil, Russia, India and China, which had been investor favorites, are under the most pressure now. Nikkei futures indicate an +27 open in Japan and DAX futures indicate an +39 open in Germany tomorrow. I expect US stocks to trade modestly lower into the close from current levels on forced selling, global growth worries and more shorting.