Stocks Slightly Lower into Final Hour on Profit-Taking, More Shorting

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Technology longs and Medical longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is negative as the advance/decline line is lower, most sectors are declining and volume is above average. Investor anxiety is very high. Today’s overall market action is mildly bearish. The VIX is rising 2.55% and is high at 24.15. The ISE Sentiment Index is low at 107.0 and the total put/call is slightly above average at .86. Finally, the NYSE Arms has been running above average most of the day, hitting 1.29 at its intraday peak, and is currently 1.27. The Euro Financial Sector Credit Default Swap Index is falling 4.48% today to 74.33 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 3.73% to 108.02 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is rising 1.45% to 16 basis points. The TED spread is now down 447 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is falling 4.98% to 31.0 basis points. The Libor-OIS spread is falling 6.70% to 12 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 1 basis point to 1.76%, which is down 91 basis points since July 7th. The 3-month T-Bill is yielding .13%, which is down 1 basis point today. The Transports are jumping another 2.0% on an earnings boost from (FDX), which is a large broad market positive. Defense, Hospital and Oil Service shares are also outperforming substantially, rising 1%+. While the major averages have seen some selling today into good news, the S&P 500 is holding above the 1,035 level that was breached yesterday and the bears have been unable to gain any meaningful traction. I continue to hear analysts and pundits say that investors are overly complacent and way too bullish, notwithstanding data that suggests otherwise. The latest Greenwich Alternative Investments Market Sentiment Indicator for September shows that ONLY 13% OF MACRO HEDGE FUND MANAGERS ARE BULLISH ON THE S&P 500, WHILE 66% ARE BEARISH. This is a large positive. Today’s market action is indicative of just another temporary pause before another push higher in stocks next week. One of my longs, (GOOG), continues to trade well. I suspect the shares will begin another meaningful surge higher during 4Q. Nikkei futures indicate an +6 open in Japan and DAX futures indicate a -6 open in Germany on Monday. I expect US stocks to trade modestly higher into the close from current levels on diminishing economic fear, short-covering, technical buying, falling long-term rates and investment manager performance anxiety.