Stocks Lower into Final Hour on Profit-taking

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Technology longs and Financial longs. I added (IWM)/(QQQQ) hedges this morning, thus leaving the Portfolio 75% net long. The tone of the market is negative as the advance/decline line is lower, most sectors are declining and volume is about average. Investor anxiety is about average. Today’s overall market action is mildly bearish. The VIX is falling .32% and is very high at 37.69. The ISE Sentiment Index is above average at 196.0 and the total put/call is slightly below average at .74. Finally, the NYSE Arms has been running low most of the day, hitting .20 at its intraday trough, and is currently .84. The Euro Financial Sector Credit Default Swap Index is falling 6.99% today to 146.67 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 2.16% to 176.55 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is rising .61% to 97 basis points. The TED spread is now down 366 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is down .86% to 56.75 basis points. The Libor-OIS spread is rising .50% to 94 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is down 4 basis points to 1.31%, which is down 133 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 .15%, which is down 3 basis points today. The ongoing decline in gauges of credit market angst remains a major broad market positive. Moreover, the US sovereign credit default swap index is plunging another -9.8% today to 46.0 basis points, which is another big positive. Breadth isn’t that bad considering the losses in the major averages. As well, an unusual number of stocks are rising on volume today. Education, Hospital, Medical Equipment, Semi and Energy-related stocks are all gaining on the day. “Growth” stocks are once again significantly outperforming “value” shares. Mid-cap growth stocks are now +4.40% higher for the year, while small-cap value shares are -12.23% lower. I continue to expect this trend to remain in tact throughout the year. Shares of (GS) are under pressure today, but the stock has had a massive run off the lows and profit-taking on their earnings report should have been expected. I still expect US stocks to finish the week on a more positive note. Nikkei futures indicate an +53 open in Japan and DAX futures indicate a -26 open in Germany on Monday. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, bargain-hunting and declining credit market angst.