Stocks Mostly Lower into Final Hour on Higher Energy Prices, Rising Long-Term Rates, More Shorting

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Biotech longs, Medical longs, Retail longs and Technology longs. I added (IWM)/(QQQQ) hedges today, thus leaving the Portfolio 75% net long. The tone of the market is mildly positive as the advance/decline line is about even, sector performance is mostly positive and volume is about average. Investor anxiety is very high. Today’s overall market action is mildly bullish. The VIX is falling -5.59% and is very high at 27.21. The ISE Sentiment Index is below average at 111.0 and the total put/call is around average at .78. Finally, the NYSE Arms has been running around average most of the day, hitting 1.25 at its intraday peak, and is currently 1.04. The Euro Financial Sector Credit Default Swap Index is falling -1.48% 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 falling -3.76% to 104.03 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 falling -1.04% to 35.75 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 +7 basis points to 2.12%, which is down 53 basis points since July 7th. The 3-month T-Bill is yielding .04%, which is unch. today. The market’s reaction to today’s news is disappointing. Economically sensitive stocks are substantially underperforming. (XLF) has been heavy since its morning high. Bank, Education, Hospital, Disk Drive, Oil Service, Alt Energy and REIT shares are especially weak falling -1.0%+. On the positive side, a number of sectors are posting meaningful gains. Homebuilding, HMO, Steel and Paper stocks are surging 2%+. A number of market leaders are substantially outperforming, as well. Today’s overall action likely indicates more mixed-to-negative broad market performance near-term. Nikkei futures indicate an +50 open in Japan and DAX futures indicate a -19 open in Germany tomorrow. I expect US stocks to trade mixed-to-lower into the close from current levels on more shorting, rising long-term rates, rising energy prices and financial sector pessimism.