BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Medical longs and Internet longs. I covered all my (IWM)/(QQQQ) hedges and some of my (EEM) short today and then added them back this afternoon, thus leaving the Portfolio 75% net long. The tone of the market is bearish as the advance/decline line is lower, most sectors are falling and volume is about average. Investor anxiety is very high. Today’s overall market action is bearish. The VIX is rising 2.05% and is very elevated at 61.27. The ISE Sentiment Index is low at 107.0 and the total put/call is very high at 1.20. Finally, the NYSE Arms has been running very high most of the day, hitting 2.85 at its intraday peak, and is currently 1.84. The Euro Financial Sector Credit Default Swap Index is rising 1.7% today to 106.66 basis points. This index is up from a low of 52.66 on May 5th, but down from 157.81 on Sept. 16th. The North American Investment Grade Credit Default Swap Index is unch. at 186.25 basis points. The TED spread is falling 13.95% to 175 basis points. The TED spread is now down 289 basis points in just over four weeks.The 2-year swap spread is rising 2.07% to 104.75 basis points.The Libor-OIS spread is falling 2.49% to 170 basis points.The 10-year TIPS spread, a good gauge of inflation expectations, is unch. at .95%, which is down 167 basis points in about four months and at the lowest level since January 1999.The ongoing improvement in the credit markets and falling energy prices remain large positives, however the continued forced selling by funds is overwhelming any bullish developments right now. I still expect a strong rally to materialize before week's end. Nikkei futures indicate a -179 open in Japan and DAX futures indicate an +100 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on falling energy prices, improving credit markets, bargain-hunting and short-covering.
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