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

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, most sectors are declining and volume is above average. Investor anxiety is high. Today’s overall market action is mildly bearish. The VIX is rising 4.26% and is very high at 25.96. The ISE Sentiment Index is below average at 135.0 and the total put/call is above average at .93. Finally, the NYSE Arms has been running low most of the day, hitting .31 at its intraday trough, and is currently .58. The Euro Financial Sector Credit Default Swap Index is rising 2.24% today to 81.50 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 1.73% to 111.0 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is rising 1.49% to 30 basis points. The TED spread is now down 436 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising 3.95% to 44.44 basis points. The Libor-OIS spread is falling .28% to 27 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is down 4 basis points to 1.90%, which is down 76 basis points since July 7th. The 3-month T-Bill is yielding .17%, which is unch. today. Today’s action has been pretty sloppy overall. The bears continue to lack conviction. Retail and internet shares are actually higher on the day. One of my longs, (GOOG), continues to trade very well even on market pullbacks, which bodes well for further gains. It is noteworthy that oil is slightly higher today despite US dollar strength, equity weakness and another plunge in nat gas. There have been rumors of large upward revisions to prior months’ job losses. However, I expect the change in non-farm payrolls for July to come in around or better than estimates of 328K. Moreover, I believe the unemployment rate could unexpectedly drop. Nikkei futures indicate an +22 open in Japan and DAX futures indicate a -10 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 and diminishing commercial real estate pessimism.