Stocks Lower into Final Hour on Profit-Taking, Cyclical Sell-Off

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Technology longs, Medical longs, Biotech longs and Commodity/Emerging Market shorts. I added to a Commodity short and added to a Retail long today, thus leaving the Portfolio 100% net long. The tone of the market is negative as the advance/decline line is lower, almost every sector is declining and volume is above average. Investor anxiety is very high. Today’s overall market action is bearish. The VIX is rising 6.48% and is very high at 31.55. The ISE Sentiment Index is low at 105.0 and the total put/call is above average at .95. Finally, the NYSE Arms has been running very high most of the day, hitting 2.98 at its intraday peak, and is currently 2.78. The Euro Financial Sector Credit Default Swap Index is rising 1.17% today to 104.0 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 rising 1.96% to 126.92 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling 2.0% to 51 basis points. The TED spread is now down 412 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is plunging 7.73% to 41.06 basis points. The Libor-OIS spread is falling 3.25% to 43 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 7 basis points to 1.92%, which is down 72 basis points since July 7th. The 3-month T-Bill is yielding .13%, which is unch. today. The most cyclical stocks are catching the brunt of the selling today. The US dollar has likely put in another tradable low, which is pressuring commodities. I also suspect economic data will not surprise as much on the upside this month due to the recent rise in gas prices, auto plant/dealer shutdowns and jump in interest rates. However, many market leaders are just slightly lower or even higher on the day. As well, investor angst is jumping, which is a positive. Considering the losses in the major averages and the (XHB), the (XLF) and (IYR) are holding up well. As well, education, biotech, software, medical and retail shares are holding firm. Nikkei futures indicate a -161 open in Japan and DAX futures indicate a -18 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, bargain-hunting, lower energy prices and lower long-term rates.