Stocks Slightly Lower into Final Hour on Profit-Taking, Rising US Housing Concerns, More Shorting

Broad Market Tone:

• Advance/Decline Line: Slightly Higher
  
• Sector Performance: Mixed
  
• Volume: Light
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 18.87 -8.88%
  
• ISE Sentiment Index 131.0 -16.56%
  
• Total Put/Call .79 -7.06%
  
• NYSE Arms 1.52 +57.67%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 95.80 bps -1.25%
  
• European Financial Sector CDS Index 100.83 bps -8.21%
  
• Western Europe Sovereign Debt CDS Index 148.33 bps -1.11%
  
• Emerging Market CDS Index 198.70 bps +.04%
  
• 2-Year Swap Spread 17.0 unch.
  
• TED Spread 17.0 unch.
  

Economic Gauges:

• 3-Month T-Bill Yield .11% unch.
  
• Yield Curve 204.0 unch.
  
• China Import Iron Ore Spot $147.90/Metric Tonne +1.79%
  
• Citi US Economic Surprise Index +1.20 +3.0 points.
  
• 10-Year TIPS Spread 1.98% unch.
  

Overseas Futures:

• Nikkei Futures: Indicating +57 open in Japan
• DAX Futures: Indicating +10 open in Germany

Portfolio:

• Slightly Higher: On gains in my Tech, Ag and Retail long positions
  
• Disclosed Trades: None
  
• Market Exposure: 100% Net Long

BOTTOM LINE: Today's overall market action is mildly bearish as the S&P 500 trades near session lows despite overseas gains and falling sovereign debt angst. On the positive side, Gaming, HMO, Disk Drive, Semi, Computer Ag, Alt Energy and Coal shares are especially strong, rising 1.0%+. Small-caps are outperforming. Gaming sector leaders (LVS) and (WYNN) continue to soar. The S&P GSCI Ag Spot index is jumping again, rising +1.56% today, lumber is gaining +.90% and copper is rising +.32%. The Spain sovereign cds is falling -2.31% to 213.65 bps, the Portugal sovereign cds is losing -2.67% to 388.08 bps, the US sovereign cds is declining -5.2% to 44.02 bps and the UK sovereign cds is declining -3.74% to 58.31 bps. The -17.4% plunge over the last 5 days in the Euro Financial Sector CDS Index is a major positive. On the negative side, Airline and I-Banking shares are under mild pressure, falling more than .5%. (XLF) has been underperforming throughout the day. Gold is rising +.4%. As a result of rising QE2 expectations, total commodity net speculative longs(.CCLOSH Index on Bloomberg) are at a new record +1,525,795 contracts, which is up from +499,416 in mid-June and eclipses the record set during the peak of the commodity bubble in Feb. 2008, which was +1,370,021 contracts. This leaves most commodities vulnerable to any meaningful US dollar reversal higher. However, if the Fed succeeds in re-inflating the commodity bubble it will have dramatically negative consequences for the US economy and stocks longer-term. Today's light volume mild pullback should be seen as a healthy consolidation of recent gains. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, falling sovereign debt angst, buyout speculation and tax policy/election optimism.