Stocks Substantially Lower into Final Hour on Profit-taking, Global Growth Worries

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Medical longs, Computer longs and Internet longs. I added (IWM)/(QQQQ) hedges and added to my (EEM) short today, thus leaving the Portfolio 75% net long. The tone of the market is very bearish as the advance/decline line is substantially lower, every sector is falling and volume is below average. Investor anxiety is high. Today’s overall market action is very bearish. The VIX is rising 11.8% and is very elevated at 53.50. The ISE Sentiment Index is below average at 115.0 and the total put/call is about average at .91. Finally, the NYSE Arms has been running very high most of the day, hitting 2.98 at its intraday peak, and is currently 2.98. The Euro Financial Sector Credit Default Swap Index is rising 1.79% today to 95.0 basis points. This index is up from a low of 52.66 on May 5^th, but down from 157.81 on Sept. 16^th. The North American Investment Grade Credit Default Swap Index is falling 3.36% to 181.03 basis points. The TED spread is falling another 5.33% to 211 basis points. The TED spread is now down 253 basis points in about three weeks. The 2-year swap spread is rising .72% to 105.50 basis points. The Libor-OIS spread is falling 9.01% to 193 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 3 basis points to .94%, which is down 169 basis points in about four months and at the lowest level since January 1999. Today’s action is very disappointing. Losses aren’t that surprising given how much we had rallied, but the magnitude of the losses is. Financials are especially weak, which is always a large negative. On the positive side, a very high NYSE Arms reading, combined with below average volume, usually indicates the bears are running low on firepower. As well, credit angst indicators continue their rapid improvement. Given how much Asia has rebounded of late, I suspect severe losses could occur there tonight, as well. Nikkei futures indicate a -300 open in Japan and DAX futures indicate a -106 open in Germany tomorrow. I expect US stocks to trade mixed-to-lower into the close from current levels on more shorting, profit-taking and global growth worries.