Stocks Falling into Final Hour on Financial Sector Worries, Economic Concerns, Healthcare Reform Fears, Higher Long-Term Rates

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Biotech longs and Financial longs. I added (IWM)/(QQQQ) hedges and added to my (EEM) short this morning, thus leaving the Portfolio 75% net long. The tone of the market is very negative as the advance/decline line is substantially lower, almost every sector is declining and volume is slightly above average. Investor anxiety is high. Today’s overall market action is bearish. The VIX is rising +10.69% and is high at 24.72. The ISE Sentiment Index is below average at 114.0 and the total put/call is around average at .89. Finally, the NYSE Arms has been running very high most of the day, hitting 2.83 at its intraday peak, and is currently 2.23. The Euro Financial Sector Credit Default Swap Index is rising +.10% today to 61.83 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 -.05% to 99.70 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is unch. at 23 basis points. The TED spread is now down 441 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising +3.77% to 37.88 basis points. The Libor-OIS spread is up +1 basis point to 12 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is unch. at 2.0%, which is down 65 basis points since July 7th. The 3-month T-Bill is yielding .05%, which is unch. today. Cyclicals are especially weak today, falling -2.2%. Moreover, (XLF) has been very heavy throughout the day. As well, commodity-related stocks are very weak on today’s US Dollar reversal higher. “Growth” stocks are substantially outperforming “value” shares for the second day in a row. I suspect the dollar will strengthen further in the near-term and growth will continue to outperform value. On the positive side, Road & Rail, Retail, REIT, Medical, Computer Service and Internet stocks are either just slightly down or higher on the day. A number of key market leaders are also substantially outperforming the broad market. It is also a positive that CDS indices remain a bit heavy. Asian shares will likely come under pressure tonight, which could lead to further weakness in the US tomorrow morning. Nikkei futures indicate a -142 open in Japan and DAX futures indicate an +2 open in Germany tomorrow. I expect US stocks to trade mixed-to-lower into the close from current levels on economic worries, more shorting, higher long-term rates, healthcare reform worries, profit-taking and financial sector pessimism.