Stocks Lower into Final Hour on Profit-taking, New Shorting

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Computer longs, Retail longs, Internet longs and Medical longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is neutral as the advance/decline line is slightly higher, sector performance is mixed and volume is below average. Investor anxiety is above average. Today’s overall market action is mildly bullish. The VIX is rising .05% and is very high at 39.24. The ISE Sentiment Index is below average at 121.0 and the total put/call is slightly below average at .83. Finally, the NYSE Arms has been running high most of the day, hitting 1.88 at its intraday peak, and is currently 1.28. The Euro Financial Sector Credit Default Swap Index is falling 5.73% today to 106.10 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 rising .33% to 200.67 basis points. The TED spread is up .66% to 134 basis points. The TED spread is now down 332 basis points in about three months. The 2-year swap spread is up 2.98% to 77.75 basis points. The Libor-OIS spread is rising .22% to 123 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is unch. at .13%, which is down 248 basis points in about six 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 .08%, which is unch. today. The broad market is performing better today than the major averages suggest. Market leading stocks are especially strong with many posting 2%+ gains. As well, despite more weak economic data, the most economically sensitive shares are top-performers again. The homebuilders are notably very strong, rising 6.4% today. The sell-off in long-term Treasuries remains a positive development. The US dollar continues to trade very well and looks poised for further gains despite being extended short-term. The AAII % Bulls plunged to 24.0%, with the % Bears surging to 54.67% last week, which bodes well for an extension of recent US stock gains after a brief period of consolidation. Nikkei futures indicate an +200 open in Japan and DAX futures indicate an +6 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on bargain-hunting, less economic pessimism, seasonal strength, less forced selling and short-covering.