Stocks Lower into Final Hour on Healthy Consolidation of Recent Gains

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Financial longs and Semi longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is negative as the advance/decline line is substantially lower, sector performance is mostly negative and volume is below average. Investor anxiety is above average. Today’s overall market action is mildly bearish. The VIX is rising 5.59% and is very high at 41.93. The ISE Sentiment Index is below average at 124.0 and the total put/call is above average at .98. Finally, the NYSE Arms has been running around average most of the day, hitting 1.45 at its intraday peak, and is currently .94. The Euro Financial Sector Credit Default Swap Index is dropping another 4.71% today to 154.33 basis points. This index is down from its record March 10th high of 208.75. The North American Investment Grade Credit Default Swap Index is falling 1.75% to 190.40 basis points. This index is still below its Dec. 5^th record high of 285.99. The TED spread is rising 1.16% to 97 basis points. The TED spread is now down 366 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is up 5.7% to 60.25 basis points. The Libor-OIS spread is falling .06% to 94 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is up 5 basis points to 1.46%, which is down 118 basis points since July 7th. 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 .19%, which is down 1 basis point today. Today’s broad market action appears to me to be another healthy low volume consolidation of recent gains. The weakest groups today have had the sharpest gains over the last few weeks. As well, many market-leading stocks are just slightly lower or even higher on the day. The euro financial sector CDS is falling today to its lowest level since March 3^rd and challenging its 50-day moving average, which is also a big positive. I continue to believe any near-term weakness will be relatively mild, before another surge higher in US stocks begins. Nikkei futures indicate a -2.0 open in Japan and DAX futures indicate an +4.0 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on short-covering, bargain-hunting, declining credit market angst and lower energy prices.