Stocks Lower into Final Hour on Profit-Taking, Global Economic Worries, Financial Sector Pessimism

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Biotech longs and Financial 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 substantially lower, most sectors are declining and volume is above average. Investor anxiety is high. Today’s overall market action is bearish. The VIX is rising +7.54% and is high at 22.24. The ISE Sentiment Index is around average at 140.0 and the total put/call is around average at .81. Finally, the NYSE Arms has been running high most of the day, hitting 1.91 at its intraday peak, and is currently 1.89. The Euro Financial Sector Credit Default Swap Index is falling -2.47% today to 62.0 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 falling -.8% to 99.75 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 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 +2.10% to 36.50 basis points. The Libor-OIS spread is down -2 basis points to 11 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is up +3 basis points to 2.0%, which is down 65 basis points since July 7th. The 3-month T-Bill is yielding .05%, which is up +1 basis point today. Cyclicals are substantially underperforming today. The Transports are falling 3.7% and breaking slightly below their 50-day moving average. “Value” stocks have been outperforming “Growth” shares over the last several months. I suspect growth shares are now due for a period of outperformance as sluggish global growth worries take hold and v-shaped recovery hopes fade. On the positive side today, CDS indexes are not confirming stock weakness. Software, Retail, Internet and Medical shares are all higher or just slightly lower on the day. Market leading growth stocks are substantially outperforming the major averages. The massive surge higher in (AMZN) shares on enormous volume has to give many bears pause. As well, (MSFT) is breaking to a new 52-week high on the biggest volume in several years. Microsoft could become a large tailwind for the major averages. Nikkei futures indicate a -42 open in Japan and DAX futures indicate an +6 open in Germany on Monday. I expect US stocks to trade mixed-to-lower into the close from current levels on economic worries, more shorting, profit-taking and financial sector pessimism.