Stocks Slightly Lower into Final Hour on Profit-Taking

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Medical longs, Biotech longs and Financial longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is neutral as the advance/decline line is about even, sector performance is mixed and volume is about average. Investor anxiety is very high. Today’s overall market action is mildly bullish. The VIX is rising 6.37% and is high at 24.47. The ISE Sentiment Index is about average at 152.0 and the total put/call is slightly below average at .77. Finally, the NYSE Arms has been running above average most of the day, hitting 1.44 at its intraday peak, and is currently 1.03. The Euro Financial Sector Credit Default Swap Index is dropping another 2.75% today to 77.66 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 4.57% to 115.80 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling 2.67% 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 down 5.03 at 41.31 basis points. The Libor-OIS spread is rising .46% to 30 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 1 basis point to 1.89%, which is down 75 basis points since July 7th. The 3-month T-Bill is yielding .18%, which is unch. today. Homebuilding, Financial, Insurance, Construction, Disk Drive and Oil Tanker shares are all posting meaningful gains today. The MS Cyclical Index is rising another 1.3%. The Euro Financial Sector Credit Default Swap Index is continuing its recent plunge, falling to the lowest level since August 13^th, 2008, which remains a large positive. Moreover, the North Amer. Investment Grade CDS Index is falling today to the lowest level since June 18^th, 2008. While it is a slight negative that the market didn’t respond more positively to the new home sales report, the major averages are short-term technically extended. As well, the bears have been unable to gain any downside traction despite relative weakness in some Nasdaq leaders. Subdued US stock sentiment, the recent surge in Nasdaq short interest, plunging credit market angst, improving economic data, high levels of investor performance anxiety, elevated levels of sideline cash, diminishing odds for draconian healthcare reform/cap-and-trade measures and range-bound energy prices/long-term rates should help US stocks to consolidate recent gains in a healthy fashion, setting the stage for another surge higher. Nikkei futures indicate an +57 open in Japan and DAX futures indicate an +11 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, diminishing government healthcare reform worries, less economic fear and earnings optimism.