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

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Semi longs and Alternative Energy longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is slightly negative as the advance/decline line is about even, sector performance is mostly negative and volume is about average. Investor anxiety is slightly above average. Today’s overall market action is mildly bearish. The VIX is falling 1.09% and is still above-average at 21.75. The ISE Sentiment Index is low at 107.0 and the total put/call is about average at .89. Finally, the NYSE Arms has been running high most of the day, hitting a peak of 1.53, and is currently 1.23. The Euro Financial Sector Credit Default Swap Index is rising 2.85% today to 91.35 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 +.89% to 143.62 basis points. The TED spread is rising .02% to 1.13 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is dropping 4 basis points to 2.0%, which is down 62 basis points in about seven weeks and at the lowest level since October 2003. I continue to see evidence of forced selling. I suspect the many hedge funds that had massively overweight commodities are seeing redemption notices right now, which is leading to pressure in many non-commodity stocks as they are forced to liquidate holdings to meet these redemptions. As well, margin calls are likely a factor. We should see the broad market lift when this forced selling subsides. A number of sectors are higher today. Paper, telecom, financial, medical, biotech, hospital, insurance, reit and retail shares are all higher on the day. As well, breadth has been decent all day. Weekly retail same-store-sales rose 1.7% this week from a 1.5% increase the prior week. The Lehman(LEH) credit default swap is falling 5.3% today, which is a positive. It has declined 75 basis points in 8 days on takeover speculation. Russian stocks fell another 4.3% today and are back near recent lows, declining 33% in just over 4 months. I still see more downside there. Nikkei futures indicate a -49 open in Japan and DAX futures indicate an +1 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on short-covering, falling commodity prices, less financial sector pessimism and bargain-hunting.