Stocks Mostly Lower into Final Hour on Profit-Taking, More Shorting, Rising Economic Worries

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Technology longs and Financial longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is mixed as the advance/decline line is slightly lower, most sectors are rising and volume is around average. Investor anxiety is very high. Today’s overall market action is mildly bullish. The VIX is falling -2.77% and is high at 25.28. The ISE Sentiment Index is below average at 101.0 and the total put/call is high at 1.0. Finally, the NYSE Arms has been running above average most of the day, hitting 1.75 at its intraday peak, and is currently 1.16. The Euro Financial Sector Credit Default Swap Index is falling -3.02% to 91.39 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 -1.96% to 102.40 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is down -1 basis point to 15 basis points. The TED spread is now down 448 basis points since its all-time high of 463 basis points on October 10^th, 2008. The 2-year swap spread is rising +1.66% to 29.10 basis points. The Libor-OIS spread is unch. at 10 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is unch. at 2.28%, which is down -37 basis points since July 7^th, 2008. The 3-month T-Bill is yielding .10%, which is up +1 basis point today. Cyclicals are underperforming today. Airline, HMO, Disk Drive and Steel shares are also relatively weak. As well, tech stock leaders are underperforming. On the positive side, I-Banking, Bank, Education, Construction, Semi and Ag shares are rising .50%+. The Western Europe Sovereign CDS Index is dropping another -4.56% today to 94.83 bps. As well, the US Sovereign CDS is falling another -9.43% to 48.0 bps, which is also a large positive. I’m a surprised the euro isn’t following through on yesterday’s gains. The Bloomberg Global Confidence Index fell to 54.89 from 66.60 in January. Overall investor sentiment has deteriorated meaningfully during this pullback, which is a large positive. However, I suspect it is still too early for stocks to resume their intermediate-term uptrend. Nikkei futures indicate an +97 open in Japan and DAX futures indicate an +4 open in Germany tomorrow. I expect US stocks to trade mixed-to-lower into the close from current levels on profit-taking, rising economic worries, more shorting, rising long-term rates and increasing energy prices.