Stocks Slightly Lower into Final Hour on Healthy Consolidation of Recent Gains

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Financial longs, Retail longs and Medical longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is mildly negative as the advance/decline line is lower, sector performance is mixed and volume is above average. Investor anxiety is above average. Today’s overall market action is neutral. The VIX is falling .46% and is very high at 34.37. The ISE Sentiment Index is slightly above average at 165.0 and the total put/call is slightly below average at .71. Finally, the NYSE Arms has been running below average most of the day, hitting .34 at its intraday trough, and is currently .67. The Euro Financial Sector Credit Default Swap Index is falling 2.19% today to 142.23 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 2.01% to 156.69 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling another 3.35% to 80 basis points. The TED spread is now down 383 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is plunging 13.66% to 51.38 basis points. The Libor-OIS spread is falling 1.15% to 78 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is up 1 basis point to 1.44%, which is down 120 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 up 1 basis point today. Gauges of credit market angst continue to meaningfully improve. The 2-year swap spread is at the lowest level since early January and appears headed for a technical breakdown, which is a major positive. Weekly retail sales rose .5% this week, which was the fourth consecutive weekly gain. Weekly retail sales have averaged a +.6% gain over the last 4 weeks versus a -1.1% average decline the prior 4 weeks. Many market leading stocks are rising again today. As well, Gaming, Airline, HMO and Hospital stocks are surging 4%+ today. Goldman Sachs said, “US banks are attractive” this afternoon. The firm also raised its rating on (BAC) and (COF) credit to Outperform. The (XLF) is cutting losses. Overall, today’s broad market action appears like a healthy consolidation before another push higher. Nikkei futures indicate an +328 open in Japan and DAX futures indicate an +16 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on less economic fear, short-covering, technical buying, investment manager performance anxiety and diminishing credit market angst.