Stocks Mostly Lower into Final Hour on Rising Credit Market Angst, Rescue Package Worries, Global Growth Concerns

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Internet longs, Medical longs, Biotech longs, Computer longs and Commodity/Emerging Market shorts. I haven’t traded today, thus leaving the Portfolio 100% net long. The tone of the market is mildly negative as the advance/decline line is slightly lower, sector performance is mixed and volume is below average. Investor anxiety is high. Today’s overall market action is mildly bearish. The VIX is falling .95% and is very high at 35.40. The ISE Sentiment Index is very low at 86.0 and the total put/call is above average at 1.01. Finally, the NYSE Arms has been running above average most of the day and is currently .94. The Euro Financial Sector Credit Default Swap Index is rising +7.03% today to 115.67 basis points. This index is up from a low of 52.66 on May 5^th, but down from 157.81 on Sept. 16^th. The North American Investment Grade Credit Default Swap Index is +2.03% to 161.75 basis points. The TED spread is rising 21.1% to 3.03 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is down another 11 basis point to 1.75%, which is down 87 basis points in about 10 weeks and at the lowest level since July 2003, when deflation was the concern. The rise in the US dollar is a positive, given recent worries over the rescue plan and rising expectations for a Fed rate cut in October. Fed fund futures now imply a 78.0% chance for a 25 basis point cut on Oct. 29, up from 58.0% yesterday. The continuing rise in gauges of credit market angst is a large negative. If these don’t reverse over the next few days, equities will likely come under pressure again. Nikkei futures indicate a -195 open in Japan and DAX futures indicate an +45 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, lower commodity prices and bargain-hunting.