Stocks Lower into Final Hour on Financial Sector Pessimism, Credit Angst, Rising Commodities

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Alternative Energy longs, Gaming longs and Commodity shorts. 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 substantially lower, almost every sector is falling and volume is light. Investor anxiety is above average. Today’s overall market action is bearish. The VIX is rising 3.4% and is still above-average at 21.69. The ISE Sentiment Index is below-average at 118.0 and the total put/call is high at 1.16. Finally, the NYSE Arms has been running around average most of the day and is currently .96. The Euro Financial Sector Credit Default Swap Index is rising 10.0% today to 88.25 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 5.0% today to 141.34 basis points. The TED spread is falling 2.86% to 1.02. The 10-year TIPS spread, a good gauge of inflation expectations, is unch. at 2.16%, which is the lowest since October 14, 2003 and down 47 basis points in about six weeks. The (XLF) is down 2.44% on the day, but bottomed around noon and has since trimmed losses, while the broad market recently made a new low. I wouldn’t be surprised to see some short-covering in the (XLF) into the close. The fact that volume remains very anemic during the recent pullback is a positive, in my opinion. (HPQ) reports after the close. While I am not long the stock, its report should be received positively by investors, which could help boost the Nasdaq tomorrow. Nikkei futures indicate a -115 open in Japan and DAX futures indicate an +15 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on short-covering and bargain-hunting.