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

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Medical longs, Biotech longs, Financial longs and Commodity/Emerging Market shorts. I added to my (ILMN) long and took profits in another long today, thus leaving the Portfolio 100% net long. The tone of the market is mildly negative as the advance/decline line is slightly lower, sector performance is mixed and volume is about average. Investor anxiety is high. Today’s overall market action is neutral. The VIX is rising 4.04% and is very high at 25.26. The ISE Sentiment Index is slightly above average at 164.0 and the total put/call is slightly below average at .79. Finally, the NYSE Arms has been running around average most of the day, hitting 1.59 at its intraday peak, and is currently .72. The Euro Financial Sector Credit Default Swap Index is rising 3.89% today to 78.27 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 1.46% to 117.49 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling .63% 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 rising .31% to 40.94 basis points. The Libor-OIS spread is rising .34% to 30 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 4 basis points to 1.85%, which is down 79 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. Disk Drive, Biotech, Hospital, HMO, Education and Airline stocks are all posting significant gains today. As I said last week, the US Dollar continues to trade as if it has begun a tradable rally, which should hold commodity prices in check. Gold is breaking below its 50-day moving average today and looks poised for a move back towards $880-$900. One of my longs, (DISCA), is breaking to a new 52-week high today on news of a joint venture in China with Bidu(BIDU). The short interest ratio for (DISCA) has moved from .84 at the beginning of the year to a near-record 3.61 currently. The stock is still very attractive at current levels, in my opinion. Nikkei futures indicate a -67 open in Japan and DAX futures indicate an +39 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, lower energy prices and earnings optimism.