Stocks Lower into Final Hour on Global Growth Worries

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Computer longs and Medical longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is mildly negative as the advance/decline line is lower, sector performance is mostly negative and volume is very light. Investor anxiety is above average. Today’s overall market action is mildly bearish. The VIX is rising 4.1% and is still above-average at 20.22. The ISE Sentiment Index is below average at 137.0 and the total put/call is above average at .99. Finally, the NYSE Arms has been running high most of the day, hitting a peak of 1.5, and is currently 1.03. The Euro Financial Sector Credit Default Swap Index is falling 1.2% today to 89.50 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 +.4% to 143.43 basis points. The TED spread is rising 2.0% to 1.10 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 3 basis points to 2.14%, which is down 49 basis points in about seven weeks. Outside of energy, most commodities fell this week. The S&P Goldman Agriculture Spot Index fell 5.4% this week and is now back below its 200-day moving average. As well, the Base Metal Spot Index fell 3.63% for the week. I suspect energy prices will play catch up with these declines next week, notwithstanding any spike on Tuesday related to a possible direct strike on Gulf energy infrastructure by Hurricane Gustav. Finally, the Baltic Dry Index fell another 3.6% for the week. The Citi eurozone economic surprise index is now -162.0 versus a reading of +72.50 for the US economic surprise index. The US dollar continues to trade as if it is consolidating recent gains before another surge higher. The heavily-shorted (XLF) is rising another .3% today to session highs. I think the weakness in the tech sector today, related to Dell’s(DELL) report, is overdone. It is interesting to note that even though the S&P 500 is basically flat for the week, the NSYE Cumulative Advance/Decline line jumped 9.1% this week and breaking above the trading range it has been in since late June. I still expect that given recent positive developments in the financial sector, very bearish US stock market sentiment, oil’s poor trading action, much better-than-expected economic data and declining political fears, it is likely that stocks will break higher next week on better volume. Nikkei futures indicate a -150 open in Japan and DAX futures indicate an +9 open in Germany on Monday. I expect US stocks to trade modestly higher into the close from current levels on short-covering, falling commodity prices, less economic pessimism, less financial sector pessimism and bargain-hunting.