Stocks Sharply Lower into Final Hour on Credit Market Angst, Economic Pessimism

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Internet longs, Biotech longs and Medical longs. I added to my (IWM)/(QQQQ) hedges and added to my (EEM) short today, thus leaving the Portfolio 50% net long. The overall tone of the market is bearish as the advance/decline line is substantially lower, sector performance is mostly negative and volume is above average. Investor anxiety is elevated. Today’s overall market action is very bearish. The VIX is hitting a very high 29.6. The ISE Sentiment Index is a very low 77.0 and the total put/call is a high 1.39 again today. Finally, the NYSE Arms is a high 1.54. The TED spread is rising 9 basis points to 159 basis points. The 3-month T-bill yield is falling another 12 basis points to 1.32%, which is also a negative. Overall, credit market angst is rising again today. As well, airline, homebuilding, construction, biotech, i-banking, steel, gold, coal, alternative energy and oil tanker stocks are all down 3%+. It is looking increasingly likely that the emerging markets’ mania is ending. This would have very positive implications for the US dollar and negative implications for commodities over the intermediate-term. On the positive side today, restaurant, food, gaming, tobacco, HMO, computer service, disk drive, software and utility shares are higher or just mildly lower today. I am starting to see signs of capitulatory-type action, which could finally set the stage for at the very least a tradable rally. Nikkei futures indicate a -100 open in Japan and DAX futures indicate a -14 open in Germany tomorrow. I expect US stocks to trade mixed into the close from current levels as short-covering and rising rate cut odds offset increasing credit market angst and economic worries.