Stocks Slightly Lower into Final Hour on Profit-Taking, Higher Long-Term Rates, Rising Energy Prices

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Financial longs and Medical longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is slightly negative as the advance/decline line is about even, most sectors are falling and volume is very light. Investor anxiety is very high. Today’s overall market action is mildly bearish. The VIX is rising +4.91% and is high at 20.94. The ISE Sentiment Index is low at 94.0 and the total put/call is around average at .87. Finally, the NYSE Arms has been running high most of the day, hitting 1.37 at its intraday peak, and is currently 1.12. The Euro Financial Sector Credit Default Swap Index is rising +.42% to 62.17 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 +2.05% to 85.55 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is unch. at 21 basis points. The TED spread is now down 444 basis points since its all-time high of 463 basis points on October 10^th of last year. The 2-year swap spread is falling -6.28% to 27.88 basis points. The Libor-OIS spread is up +1 basis point to 9 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is up +1 basis point to 2.41%, which is down -24 basis points since July 7^th of last year. The 3-month T-Bill is yielding .05%, which is up +1 basis point today. Oil Service, Gold, Airline, Gaming, Homebuilding, Financial, Disk Drive, Ag and Alt Energy shares are higher on the day. Gauges of investor angst are fairly high again today given just mild market weakness, which is a positive. I still suspect terrorism jitters are holding stocks back a bit ahead of tonight’s festivities. The UK sovereign debt cds is falling -2.1%, which is another positive. US scrap steel is up another 2.2% over the last five days. The Bloomberg Financial Conditions Index rose again this week to .09, which is the best level since the week of July 20^th, 2007. (XLF) is trading well today. Despite terrorism and rising oil worries, airlines haven’t given back much of their recent gains and are outperforming again today, rising +.4%. On the negative side, cyclicals are relatively weak and the market mostly ignored today’s positive economic report again. Nikkei futures indicate an +174 open in Japan and DAX futures indicate an +2 open in Germany on Monday. I expect US stocks to trade modestly higher into the close from current levels on short-covering, less economic fear, technical buying, year-end window dressing, less financial sector pessimism and seasonal strength.