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

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Biotech longs, Medical longs, Computer longs and Emerging Market/Commodity shorts. 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 lower, most sectors are declining and volume is above average. Investor anxiety is high. Today’s overall market action is mildly bearish. The VIX is rising 5.02% and is very high at 38.70. The ISE Sentiment Index is low at 89.0 and the total put/call is slightly below average at .79. Finally, the NYSE Arms has been running high most of the day, hitting 1.54 at its intraday peak, and is currently 1.51. The Euro Financial Sector Credit Default Swap Index is rising 1.13% today to 154.0 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 .81% to 176.01 basis points. This index is also well below its Dec. 5th record high of 285.99. The TED spread is falling 1.30% 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 falling 3.64% to 59.50 basis points. The Libor-OIS spread is falling 2.47% to 86 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is down 3 basis points to 1.47%, which is down 117 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 .09%, which is unch. today. Market-leading stocks are outperforming the major averages substantially again today. Many are actually rising. Defense, utility, semi, wireless, medical equipment, biotech, hospital, drug and hmo shares are all higher on the day. Considering the declines in bank/real estate shares and rising economic fear related to the swine flu, today’s mild headline losses are a big positive. I still expect US stocks to rise later this week. Nikkei futures indicate an +60 open in Japan and DAX futures indicate a -15 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 rising economic fear.