Stocks Mixed into Final Hour as Falling Credit Angst, Short-Covering, Less Economic Fear Offset Rising Long-Term Rates, More Hawkish Fed Commentary

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Technology longs, Defense longs and Commodity shorts. 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 slightly lower, most sectors are declining and volume is heavy. Investor anxiety is high. Today’s overall market action is mildly bearish. The VIX is falling 2.29% and is very high at 29.54. The ISE Sentiment Index is below average at 128.0 and the total put/call is slightly below average at .78. Finally, the NYSE Arms has been running high most of the day, hitting 1.56 at its intraday peak, and is currently 1.17. The Euro Financial Sector Credit Default Swap Index is falling 4.04% today to 101.67 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 4.88% to 117.34 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling 6.58% to 46 basis points. The TED spread is now down 417 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising 8.49% to 49.36 basis points. The Libor-OIS spread is falling 5.06% to 39 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 9 basis point to 2.02%, which is down 62 basis points since July 7th. The 3-month T-Bill is yielding .17%, which is up 4 basis points today. Considering recent stock gains, the rise is long-term rates, rising Fed rate hike odds and today’s Fed commentary, the market is proving very resilient. However, stocks are likely to trade mixed in the short-run until rates and energy prices stabilize. Nikkei futures indicate an +77 open in Japan and DAX futures indicate a -7 open in Germany on Monday. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, falling credit market angst, less economic fear and investment manager performance anxiety.