Stocks Lower into Final Hour on Profit-Taking, Earnings Jitters

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Medical longs, Biotech longs and Technology longs. I exited my (ILMN) long and added to a few other longs 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 slightly below average. Investor anxiety is very high. Today’s overall market action is mildly bearish. The VIX is falling -1.34% and is high at 22.11. The ISE Sentiment Index is around average at 137.0 and the total put/call is around average at .85. Finally, the NYSE Arms has been running below average most of the day, hitting .34 at its intraday trough, and is currently .72. The Euro Financial Sector Credit Default Swap Index is rising +4.73% to 67.07 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 -.95% to 99.25 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 440 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is falling -.63% to 29.69 basis points. The Libor-OIS spread is unch. at 13 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising +4 basis points to 2.20%, which is down -45 basis points since July 7th. The 3-month T-Bill is yielding .03%, which is down -2 basis points today. (XLF)/(IYR) have traded well throughout the day. (BAC) is especially strong, rising +3.5%. Oil tanker, telecom, bank, i-bank, ag, drug, reit and restaurant stocks are all higher on the day. The bears were once again unable to gain meaningful traction after this morning’s weakness. The S&P 500 is holding above the key 1,100 level and today’s overall action appears to be another healthy consolidation of recent gains. On the negative side, tech has been a drag throughout the day. Small-caps continue to underperform. Unless the bears can mount an assault on the financials, another surge higher in the broad market is still likely before week’s end. Nikkei futures indicate an unch. open in Japan and DAX futures indicate an +12 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on short-covering, earnings optimism, seasonal strength and technical buying.