Stocks Lower into the Final Hour on Profit-taking, Short-Selling and Global Growth Worries

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Retail longs, Biotech longs and Medical longs. I added (IWM)/(QQQQ) hedges today, 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 above average. Investor anxiety is high. Today’s overall market action is bearish. The VIX is rising .26% and is very elevated at 58.52. The ISE Sentiment Index is below average at 117.0 and the total put/call is slightly below average at .81. Finally, the NYSE Arms has been running high most of the day, hitting 2.39 at its intraday peak, and is currently 1.08. The Euro Financial Sector Credit Default Swap Index is falling another 8.91% today to 128.0 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 .99% to 257.34 basis points. The TED spread is falling .25% to 217 basis points. The TED spread is now down 247 basis points in two months. The 2-year swap spread is down 2.82% to 117.88 basis points. The Libor-OIS spread is rising 1.29% to 191 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 6 basis points to .24%, which is down 238 basis points in under five months and at the lowest level since Bloomberg record-keeping began in August 1998. The 10-year TIPS spread bottomed at .65% in October 1998 during the Asian financial crisis and at 1.24% in October 2001 during the technology bubble-bursting meltdown. The 3-month T-Bill is yielding -.01%, which is down 2 basis points today. Today’s action, while mildly disappointing, isn’t too bad considering recent gains. The 5.8% rise in semis, despite several earnings shortfall announcements, bodes well for tech shares. I suspect we will get some more weakness early tomorrow, before stabilizing later in the afternoon. Nikkei futures indicate a -5 open in Japan and DAX futures indicate a -69 open in Germany tomorrow. I expect US stocks to trade mixed-to-lower into the close from current levels on profit-taking, more shorting and global growth worries.