Stocks Lower into Final Hour on Bank Nationalization Fears, Tech Sector Earnings Worries and Higher Energy Prices

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Internet longs, Education longs and Computer longs. I added to my (IWM)/(QQQQ) hedges and added to my (EEM) short today, thus leaving the Portfolio 50% net long. The tone of the market is negative as the advance/decline line is lower, sector performance is mostly negative and volume is below average. Investor anxiety is high. Today’s overall market action is bearish. The VIX is falling 3.78% and is very high at 46.62. The ISE Sentiment Index is extremely low at 49.0 and the total put/call is above average at 1.07. Finally, the NYSE Arms has been running above average most of the day, hitting 1.51 at its intraday peak, and is currently 1.05. The Euro Financial Sector Credit Default Swap Index is falling .83% today to 136.0 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 falling 3.69% to 206.42 basis points. The TED spread is rising .36% to 95 basis points. The TED spread is now down 372 basis points in about four months. The 2-year swap spread is falling 3.96% to 63.63 basis points. The Libor-OIS spread is rising 2.27% to 100.0 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 1 basis point to 1.16%, which is down 154 basis points in about seven months. The 10-year TIPS spread bottomed at .65% in October 1998 during the Asian financial crisis and at 1.24% in October 2001 during the technology bubble-bursting meltdown. The 3-month T-Bill is yielding .30%, which is down 2 basis points today. Worries over impending financial sector nationalizations are high again today and, as I said earlier in the week, the longer the new administration waits to release its new rescue plan details the more likely that scenario becomes. The broad market is weaker than the major averages suggest today. Homebuilding, education, insurance, bank, semi, computer and gold stocks are all falling more than 3%. On the positive side, the ISE Sentiment Index is hitting the lowest level since November 12^th today and the total put/call ratio is above average again. Credit angst is lower today. One of my longs, (GME), is 7% higher today after boosting its earnings forecast. This retailer is relatively insulated from many of the headwinds affecting the sector. I still see significant upside in the stock from current levels. Nikkei futures indicate an +8 open in Japan and DAX futures indicate a -35 open in Germany tomorrow. I expect US stocks to trade mixed-to-lower into the close from current levels on rising financial sector pessimism, higher energy prices and more shorting.