Stocks Slightly Lower into Final Hour on Profit-Taking, Economic Concerns, Earnings Jitters, Terrorism Worries, Fed Commentary

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Medical longs and Biotech longs. I have not traded today, thus leaving the Portfolio 75% net long. The tone of the market is mildly negative as the advance/decline line is lower, most sectors are declining and volume is above average. Investor anxiety is very high. Today’s overall market action is neutral. The VIX is rising 1.0% and is very high at 25.20. The ISE Sentiment Index is around average at 133.0 and the total put/call is above average at .97. Finally, the NYSE Arms has been running high most of the day, hitting 1.84 at its intraday peak, and is currently 1.44. The Euro Financial Sector Credit Default Swap Index is rising 1.74% today to 65.0 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 3.46% to 98.0 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling 1 basis point to 19 basis points. The TED spread is now down 444 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising 1.28% to 29.63 basis points. The Libor-OIS spread is unch. at 11 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 1 basis point to 1.75%, which is down 92 basis points since July 7th. The 3-month T-Bill is yielding .09%, which is unch. today. Considering the news today, the bears inability to gain any real traction is very surprising. As well, the NYSE Arms has been high with above average index volume for the second day in a row, indicating the bears are expending quite a bit of energy for just a mild pullback. Many market leading stocks are higher or just slightly lower on the day. A number of sectors are gaining, with Airline, Restaurant, REIT, Drug and Gaming shares substantially outperforming on the upside. Despite (RIMM)’s large decline, networking, computer service and internet shares are hugging the flat-line. As well, (AAPL) is barely down on the (RIMM) news, which is a positive. (IYR) has been trading well throughout the day, which is always a big positive. One of my longs, (ISRG), is soaring 6.8% today, which is a high volume breakout. I still favor the shares for both the short and long-run. If the bears are unable to mount a more vigorous attack early next week, I expect to see another round of short-covering and another quick move higher in the major averages. Nikkei futures indicate a -50 open in Japan and DAX futures indicate a +5 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, lower long-term rates and bargain-hunting.