Stocks Slightly Lower into Final Hour on Profit-Taking, China Inflation Worries, European Equity Weakness

Broad Market Tone:

• Advance/Decline Line: Higher
  
• Sector Performance: Most Sectors Rising
  
• Volume: Light
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 17.58 +1.74%
  
• ISE Sentiment Index 98.0 -9.26%
  
• Total Put/Call .69 -10.39%
  
• NYSE Arms 1.01 -2.76%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 85.15 -.36%
  
• European Financial Sector CDS Index 159.19 bps +4.16%
  
• Western Europe Sovereign Debt CDS Index 204.83 bps +1.28%
  
• Emerging Market CDS Index 200.21 -1.68%
  
• 2-Year Swap Spread 19.0 unch.
  
• TED Spread 19.0 +1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .11% -1 bp
  
• Yield Curve 271.0 +1 bp
  
• China Import Iron Ore Spot $170.10/Metric Tonne -.06%
  
• Citi US Economic Surprise Index +14.70 +8.4 points
  
• 10-Year TIPS Spread 2.29% +1 bp
  

Overseas Futures:

• Nikkei Futures: Indicating -28 open in Japan
• DAX Futures: Indicating +13 open in Germany

Portfolio:

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

BOTTOM LINE: Today's overall market action is mildly bullish as the S&P 500 trades just slightly lower despite recent stock gains, rising euro sovereign debt angst, weakness in European equities and China inflation worries. On the positive side, Education, Hospital, Disk Drive, Steel, Ag and Coal shares are especially strong, rising more than 1.0%. Small-Caps are also outperforming. Oil is lower despite a year-end short-covering rally in the euro and better US economic data. Moreover, the 10-year yield is stable despite the better economic data. Copper is rising another +1.46%. The AAII % Bulls fell to 51.61 this week, while the % Bears rose to 20.05, which is also a positive. On the negative side, Tobacco shares are under mild pressure, falling more than .5%. The Greece sovereign cds is climbing +2.97% to 1,065.30 bps. The Euro Financial Sector CDS Index remains at the highest level since mid-June and the Western Europe Sovereign CDS Index is making another new record high, which is a big negative. The broad market continues to trade in a healthy fashion as it grinds slowly higher and then consolidates. I expect US stocks to trade mixed-to-higher into the close from current levels on seasonal strength, short-covering, technical buying, stable long-term rates, more economic optimism, buyout speculation and investment manager performance angst.