Stocks Lower into Final Hour on Profit-Taking, Earnings Disappointments, Economic Concerns

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Technology longs, Medical longs and Defense 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 about average. Investor anxiety is high. Today’s overall market action is mildly negative. The VIX is falling -1.89% and is high at 21.31. The ISE Sentiment Index is below average at 126.0 and the total put/call is around average at .76. Finally, the NYSE Arms has been running very high most of the day, hitting 3.19 at its intraday peak, and is currently 1.50. The Euro Financial Sector Credit Default Swap Index is rising +3.16% today to 67.33 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 +2.36% to 99.03 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 +1.63% to 39.06 basis points. The Libor-OIS spread is down -1 basis point to 12 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is down 1 basis point to 1.98%, which is down 67 basis points since July 7th. The 3-month T-Bill is yielding .06%, which is up 1 basis point today. Large-cap Growth stocks are relatively firm today, led by (GOOG). The Transports are only .3% lower on the day despite profit-taking in other cyclicals. Moreover, Defense, Utility, Oil Tanker, Gold, Internet, Medical, Retail, Restaurant, Road & Rail and Food stocks are all higher on the day. On the negative side, Bank, Steel, Computer Service and Semi shares are all posting 2%+ losses. One of my longs, (GOOG), is breaking to a new 52-week high today on volume. I still favor the shares for both the short and long-run. Overall, today’s broad market losses aren’t too bad considering recent gains and the news today. I continue to believe we are just consolidating gains before another push higher commences. Nikkei futures indicate a -35 open in Japan and DAX futures indicate an +26 open in Germany on Monday. I expect US stocks to trade modestly higher into the close from current levels on short-covering, takeover speculation, investment manager performance anxiety, lower long-term rates and earnings optimism.