Stocks Slightly Lower into Final Hour on Healthcare Reform Concerns, Profit-Taking, Higher Energy Prices

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Technology longs and Retail longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is mildly negative as the advance/decline line is slightly lower, sector performance is mostly negative and volume is below average. Investor anxiety is high. Today’s overall market action is neutral. The VIX is falling -.61% and is high at 22.87. The ISE Sentiment Index is low at 101.0 and the total put/call is around average at .81. Finally, the NYSE Arms has been running above average most of the day, hitting 2.06 at its intraday peak, and is currently .86. The Euro Financial Sector Credit Default Swap Index is rising +1.96% today to 70.33 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 falling -.88% to 101.0 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is up 1 basis point to 22 basis points. The TED spread is now down 442 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is -.34% to 36.63 basis points. The Libor-OIS spread is unch. at 13 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is up +2 basis points to 1.86%, which is down 79 basis points since July 7th. The 3-month T-Bill is yielding .06%, which is unch. today. Cyclical shares are outperforming again today. Retail, Homebuilding, Telecom, Steel and Gold shares are especially strong, rising 1.0%+. Healthcare-related stocks are the only sources of meaningful weakness, falling on reform worries. Overall, today’s action should be viewed as another healthy light volume consolidation. Weekly retail sales jumped +.6% versus a -2.2% decline the prior week and up from a -4.3% decline the last week of August. This is a big positive and if this trend continues it would likely indicate further improvement in broad economic data over the coming months. Nikkei futures indicate a -6 open in Japan and DAX futures indicate an +21 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on diminishing economic fear, short-covering, lower long-term rates, takeover speculation, investment manager performance anxiety and earnings optimism.