Stocks Lower into Final Hour on Healthcare Reform Worries, Budget Deficit Concerns, Profit-Taking

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Medical longs, Biotech longs, Defense longs and Commodity/Emerging Market 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, sector performance is mixed and volume is about average. Investor anxiety is high. Today’s overall market action is mildly bearish. The VIX is rising 4.28% and is very high at 26.06. The ISE Sentiment Index is below average at 106.0 and the total put/call is slightly above average at .89. Finally, the NYSE Arms has been running around average most of the day, hitting 1.64 at its intraday peak, and is currently .93. The Euro Financial Sector Credit Default Swap Index is falling 2.40% today to 79.33 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 1.27% to 116.0 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling .56% to 31 basis points. The TED spread is now down 435 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is plunging 13.17% to 35.44 basis points. The Libor-OIS spread is falling .94% to 29 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 1 basis point to 1.84%, which is down 80 basis points since July 7th. The 3-month T-Bill is yielding .18%, which is unch. today. The bears remain unable to gain any meaningful downside traction despite potential catalysts and the market’s overbought technical state. Defense, software, telecom, I-Bank, medical, biotech, hospital, retail, education and airline stocks are all higher on the day. The only real significant weakness today is seen in commodity-related shares. The decline in commodity prices is a short-term broad market negative, but a huge positive intermediate/long-term for the majority of US stocks. Nikkei futures indicate an +12 open in Japan and DAX futures indicate an +3 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, investment manager performance anxiety, less economic fear, lower energy prices and earnings optimism.