Stocks Lower into Final Hour on Rising Economic Concerns, More Shorting, Profit-Taking

BOTTOM LINE: The Portfolio is mixed into the final hour as losses in my Technology longs and Medical longs offset gains in my Index hedges and Commodity/Emerging Market shorts. I have not traded today, thus leaving the Portfolio 75% net long. The tone of the market is negative as the advance/decline line is lower, most sectors are declining and volume is below average. Investor anxiety is high. Today’s overall market action is mildly bearish. The VIX is rising 6.55% and is high at 29.78. The ISE Sentiment Index is around average at 137.0 and the total put/call is about average at .83. Finally, the NYSE Arms has been running high most of the day, hitting 1.78 at its intraday peak, and is currently 1.30. The Euro Financial Sector Credit Default Swap Index is rising 2.41% today to 109.0 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 2.29% to 140.78 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling 2.37% to 40 basis points. The TED spread is now down 424 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising 2.13% to 39.63 basis points. The Libor-OIS spread is down 4.37% to 34 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 4 basis points to 1.62%, which is down 102 basis points since July 7th. The 3-month T-Bill is yielding .15%, which is unch. today. The broad market is weaker than the major averages. Small-cap and the most economically sensitive shares are significantly underperforming. Despite a flat US dollar, increasingly hawkish rhetoric regarding Iran, Nigerian pipeline attacks and a better-than-expected ISM Non-manufacturing report, crude oil is falling another 4%. While this is a short-term negative as it pressures energy related names and boosts economic worries, a significant fall in oil from current inflated levels would be a large broad market positive. As well, it is a large positive to see long-term rates remain subdued despite this week’s coming supply. Finally, many market leading stocks are performing much better today than the broad market. Nikkei futures indicate an +80 open in Japan and DAX futures indicate an +14 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, lower energy prices, stable long-term rates and bargain hunting.