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

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Medical longs and Biotech longs. 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 .36% and is very high at 25.0. The ISE Sentiment Index is below average at 124.0 and the total put/call is slightly below average at .73. Finally, the NYSE Arms has been running low most of the day, hitting .35 at its intraday trough, and is currently .42. The Euro Financial Sector Credit Default Swap Index is rising 4.28% today to 79.61 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 .96% to 112.95 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling .51% to 29 basis points. The TED spread is now down 437 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising 4.50% to 43.56 basis points. The Libor-OIS spread is falling 1.29% to 27 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is up 6 basis points to 1.94%, which is down 72 basis points since July 7th. The 3-month T-Bill is yielding .17%, which is unch. today. Today’s overall action marks another healthy consolidation day, in my opinion. Many market leading stocks have displayed relative strength throughout the day. It is a large positive to see resilience in the major averages, despite rolling pullbacks in select groups. This is a healthy technical development. Moreover, as long as (IYR)/(XLF) remain so strong a meaningful broad market correction is highly unlikely. Cyclicals are also showing relative strength again today. I still believe energy prices and long-term rates will remain rangebound, which is also a large broad market positive. On the negative side, healthcare-related stocks are very weak today on continuing healthcare reform worries and energy-related stocks are displaying meaningful weakness despite oil's recent rise. Nikkei futures indicate an +93 open in Japan and DAX futures indicate an +40 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on short-covering, investment manager performance anxiety, less economic fear, diminishing commercial real estate pessimism, technical buying and more earnings optimism.