Stocks Lower into Final Hour on Mid-East Financial Worries, Profit-Taking, More Shorting

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Technology longs, Financial longs and Retail longs. I added (IWM)/(QQQQ) hedges and added to my (EEM) short today, 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 falling and volume is very light. Investor anxiety is very high. Today’s overall market action is bearish. The VIX is rising +19.68% and is high at 24.51. The ISE Sentiment Index is low at 90.0 and the total put/call is high at 1.02. Finally, the NYSE Arms has been running extraordinarily high most of the day, hitting 10.0 at its intraday peak, and is currently 4.0. The Euro Financial Sector Credit Default Swap Index is falling -.12% to 76.37 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 +2.84% to 105.25 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is rising +2 basis points to 24 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 rising +17.89% to 34.19 basis points. The Libor-OIS spread is unch. at 12 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is down -4 basis points to 2.11%, which is down -54 basis points since July 7th. The 3-month T-Bill is yielding .02%, which is down -2 basis points today. Many market leading stocks are substantially outperforming the broad market. Healthcare-related, Airline, Education, Retail and Telecom shares are holding up pretty well also. I am hearing Black Friday sales are likely to exceed expectations. The rebound in European shares and muted reaction in the North Amer. Inv. Grade CDS Index are also big positives. The extraordinarily high NYSE Arms reading on light volume is a positive. On the negative side, the market’s severe negative reaction to news that was out early Wed. morning is somewhat puzzling. I suspect the yen’s recent accelerating strength and rising overcapacity worries out of China are also big culprits. Asian shares have been trading poorly for a few days now. I will closely monitor the market’s internal reaction to next week’s likely positive news before further shifting exposure. Nikkei futures indicate an +114 open in Japan and DAX futures indicate a -3 open in Germany on Monday. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, bargain hunting, lower energy prices, falling long-term rates, less financial sector fear, retail sector optimism and seasonal strength.