Stocks Lower into Final Hour on More Shorting, Profit-taking, Rising Energy Prices

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Medical longs, Retail longs and Biotech longs. I have not 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, most sectors are declining and volume is heavy. Investor anxiety is about average. Today’s overall market action is neutral. The VIX is rising 8.06% and is very high at 43.27. The ISE Sentiment Index is above average at 180.0 and the total put/call is below average at .69. Finally, the NYSE Arms has been running around average most of the day, hitting 1.47 at its intraday peak, and is currently 1.39. The Euro Financial Sector Credit Default Swap Index is plunging 9.6% today to 170.0 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 falling 4.95% to 226.36 basis points. This index is still below its Dec. 5^th record high of 285.99. The TED spread is falling 5.0% to 104 basis points. The TED spread is now down 359 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is down 2.32% at 63.25 basis points. The Libor-OIS spread is falling 6.04% to 100.0 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 8 basis points to 1.33%, which is down 131 basis points since July 7th. 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 .19%, which is down 2 basis points today. It is a huge positive to see most gauges of credit market angst down significantly today. As well, despite the profit-taking in financials, the broad market is holding up very well considering recent gains. Today’s action, as a whole, appears to be a healthy consolidation of recent gains before another surge higher. On the negative side, the market is extended short-term and gauges of short-term investor angst are relatively low. Nikkei futures indicate a -25 open in Japan and DAX futures indicate a -1 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on declining credit market angst, less economic fear and bargain-hunting.