Stocks Mostly Lower into Final Hour on Iran Tensions, Global Growth Worries

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Medical longs, Software longs and Computer longs. I covered all my (IWM)/(QQQQ) hedges and some of my (EEM) short today, thus leaving the Portfolio 100% net long. The tone of the market is modestly negative as the advance/decline line is about even, sector performance is mostly negative and volume is about average. Investor anxiety is above average. Today’s overall market action is mildly bearish. The VIX is falling 1.44% and is still above-average at 22.61. The ISE Sentiment Index is depressed at 70.0 and the total put/call is above average at 1.02. Finally, the NYSE Arms has been running high most of the day and is currently 1.33. The Euro Financial Sector Credit Default Swap Index is rising 2.0% today to 83.46 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 -.3% today to 132.98 basis points. The TED spread is rising .3% to 1.14. 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 3 weeks. Given Iran and Israel’s saber-rattling comments today, oil’s small rise is a large positive. Oil tanker rates have plunged 33.9% this week, which could indicate less hoarding. As well, the US dollar continues to trade very well, rising another .2%, despite today’s perceived disappointing economic data, which bodes well for another decline in commodities next week. According to Intrade.com, notwithstanding Israel’s comments today, the percent chance of a US/Israeli air strike on Iran before October is only 11%, down from 30% at the beginning of April. Financial shares continue to consolidate recent gains even better than I would have expected, which has to worry the many bears. The (XLF) is at session highs, rising .42%. The (XLF) is 26% higher from its July 15^th lows. The BankRate.com average 30-year fixed mortgage rate is now 6.26%, which is down 25 basis points in a week. I expect mortgage rates to continue to trend lower over the intermediate-term. Nikkei futures indicate an +16 open in Japan and DAX futures indicate an +35 open in Germany on Monday. I expect US stocks to trade modestly higher into the close from current levels on short-covering, less financial sector pessimism and bargain-hunting.