Stocks Slightly Lower into Final Hour on Profit-Taking, More Shorting

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Technology longs, Biotech longs and Medical longs. 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 about even, most sectors are declining and volume is heavy. Investor anxiety is high. Today’s overall market action is neutral. The VIX is rising .17% and is high at 23.74. The ISE Sentiment Index is slightly below average at 136.0 and the total put/call is around average at .79. Finally, the NYSE Arms has been running above average most of the day, hitting 1.36 at its intraday peak, and is currently 1.19. The Euro Financial Sector Credit Default Swap Index is falling .04% today to 70.66 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 rising 1.50% to 101.50 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is unch. at 20 basis points. The TED spread is now down 443 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising .92% to 34.13 basis points. The Libor-OIS spread is falling 1 basis point to 10 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 7 basis points to 1.81%, which is down 86 basis points since July 7th. The 3-month T-Bill is yielding .09%, which is unch. today. Market leading stocks are substantially outperforming the major averages today. The bears have been unable to gain any traction from mid-day profit-taking. Defense, Alt Energy, Steel, Internet, Computer Service, Medical, Biotech, Construction, REIT, Restaurant, Gaming, Education and Airline shares are all higher on the day. It is noteworthy that (C) and (BAC) have been strong throughout the day. Today’s overall action does not indicate to me that this is the beginning of the much anticipated correction. Despite recent gains, AAII Bulls just slightly outnumber bears. The AAII % Bulls rose to 42.0 this week, while the % Bears declined to 40.0. Nikkei futures indicate an unch. open in Japan and DAX futures indicate a -11 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on diminishing economic fear, short-covering, declining healthcare reform worries, lower long-term rates, technical buying and investment manager performance anxiety.