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

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Retail longs and Technology longs. I added (IWM)/(QQQQ) hedges this morning, thus leaving the Portfolio 75% net long. The tone of the market is very negative as the advance/decline line is substantially lower, almost every sector is declining and volume is below average. Investor anxiety is above average. Today’s overall market action is bearish. The VIX is rising .22% and is very high at 41.02. The ISE Sentiment Index is slightly below average at 131.0 and the total put/call is about average at .89. Finally, the NYSE Arms has been running above average most of the day, hitting 2.52 at its intraday peak, and is currently .84. The Euro Financial Sector Credit Default Swap Index is dropping .09% today to 156.33 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 rising .82% to 191.97 basis points. This index is still below its Dec. 5^th record high of 285.99. The TED spread is falling 1.3% to 96 basis points. The TED spread is now down 367 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is up .42% to 59.75 basis points. The Libor-OIS spread is falling .11% to 94 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 10 basis points to 1.36%, which is down 128 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 unch. today. Healthcare-related stocks are relatively strong today, with HMO and Medical Equipment shares actually higher on the day. The US sovereign debt credit default swap index is plunging 12.3% to 57.0 basis points, which is a multi-month low and a big positive. As well, weekly retail sales fell .8% this week, which is up from a 1.1% decline the prior week and up from a 2.3% decline the week of Feb. 3^rd. Weekly retail sales are now at levels last seen during the week of Dec. 9, which is a positive. On the negative side, investor angst isn’t as high as I would like to see given today’s losses. As well, (IYR) is under meaningful pressure and trades “heavy.” This pullback in the broad market looks like it could go a bit further before another move higher commences. Nikkei futures indicate a -37.0 open in Japan and DAX futures indicate a -22.0 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on short-covering, bargain-hunting and lower energy prices.