Stocks Mixed into Final Hour as Lower Long-Term Rates and Tech Sector Strength Offset Rising Financial Sector Pessimism, China Bubble Fears

BOTTOM LINE: The Portfolio is slightly higher the final hour on gains in my Technology longs and Biotech longs. I have not traded today, thus leaving the Portfolio 75% 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 high. Today’s overall market action is mixed. The VIX is falling 2.09% and is very high at 28.53. The ISE Sentiment Index is around average at 139.0 and the total put/call is slightly above average at .89. Finally, the NYSE Arms has been running above average most of the day, hitting 2.44 at its intraday peak, and is currently .68. The Euro Financial Sector Credit Default Swap Index is rising 6.21% today to 90.0 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 1.66% to 122.79 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling 2.62% to 20 basis points. The TED spread is now down 446 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is down 9.25% to 34.94 basis points. The Libor-OIS spread is falling 1.19% to 15 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 5 basis points to 1.61%, which is down 105 basis points since July 7th. The 3-month T-Bill is yielding .13%, which is unch. today. Considering the worse-than-expected economic data today and yesterday’s swoon, today’s action is a bit more constructive. The bears were unable to capitalize on morning weakness and market leading stocks are substantially outperforming. Moreover, the tech sector trades pretty well. On the negative side, the Euro financial sector cds index is surging and (XLF), (IYR) and (XHB) trade “heavy,” despite yesterday’s heavy losses. Oil has been unable to bounce today despite a weaker US dollar and better inventory data. As well, the ongoing strength in bonds could become a concern. Tomorrow’s economic data could also further boost bonds. Nikkei futures indicate a -25 open in Japan and DAX futures indicate a -11 open in Germany tomorrow. I expect US stocks to trade mixed-to-lower into the close from current levels on more shorting, profit-taking, rising financial sector pessimism, technical selling and China bubble worries.