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

BOTTOM LINE: The Portfolio is about even into the final hour as gains in my Medical longs and Biotech longs offset losses in my Technology longs and Financial 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, most sectors are declining and volume is about average. Investor anxiety is high. Today’s overall market action is neutral. The VIX is falling .78% and is high at 24.21. The ISE Sentiment Index is below average at 122.0 and the total put/call is around average at .83. Finally, the NYSE Arms has been running very high most of the day, hitting 2.24 at its intraday peak, and is currently 1.80. The Euro Financial Sector Credit Default Swap Index is plunging 9.59% today to 87.17 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 3.52% to 122.07 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling 5.89% to 32 basis points. The TED spread is now down 434 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is falling .14% to 43.06 basis points. The Libor-OIS spread is rising .36% to 31 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 8 basis points to 1.79%, which is down 85 basis points since July 7th. The 3-month T-Bill is yielding .18%, which is up 1 basis point today. Today appears to be another healthy consolidation day after recent outsized market gains. Credit Default Swaps continue to plunge across the board, which is a huge positive. The Euro Financial Sector Credit Default Swap Index is dropping today to the lowest level since Oct. 15, 2008. One of my largest longs, (AAPL), reports after the close today. The stock has had a big run off its lows. However, its short interest ratio is at the upper end of its historical range. As well, there has been much talk in the trading community of a “sell the news” reaction on the report. Finally, there are a number of significant catalysts for the shares over the coming months. Thus, I expect the initial negative stock reaction to its typical conservative earnings guidance to prove short-term and relatively mild in nature. Nikkei futures indicate an +50 open in Japan and DAX futures indicate an +2 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, lower long-term rates and earnings optimism.