Stocks Sharply Lower into Final Hour on Global Growth Worries and Earnings Concerns

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Medical longs and Internet longs. I added to my (IWM)/(QQQQ) hedges and to my (EEM) short today, thus leaving the Portfolio 50% net long. The tone of the market is very negative as the advance/decline line is substantially lower, every sector is declining and volume is above average. Investor anxiety is historically elevated. Today’s overall market action is very bearish. The VIX is rising 26.0% and is historically elevated at 66.96. The ISE Sentiment Index is low at 100.0 and the total put/call is high at 1.19. Finally, the NYSE Arms has been running very high most of the day, hitting 4.77 at its intraday peak, and is currently 4.16. The Euro Financial Sector Credit Default Swap Index is rising 14.0% today to 110.97 basis points. This index is up from a low of 52.66 on May 5^th, but down significantly from 157.81 on Sept. 16^th. The North American Investment Grade Credit Default Swap Index is gaining 2.4% to 191.30 basis points. The TED spread is plunging another 9.1% to 251 basis points. The TED spread is now down 213 basis points in less than two weeks. The 2-year swap spread is rising 1.64% to 108.75 basis points. The Libor-OIS spread is dropping 9.53% to 252 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 8basis points to 1.03%, which is down 160 basis points in under four months and at the lowest level since April 1999. The market is pricing in a severe global recession as the most economically sensitive stocks continue to fall the hardest. On top of the slowdown in exports to developed countries, the collapse in commodity prices will further pressure economic growth in emerging markets. I continue to favor stocks that can grow earnings, notwithstanding a severe global slowdown. Small to mid-cap medical technology stocks remain my favorite group. I plan to cover some of my hedges into the close. Nikkei futures indicate a -500 open in Japan and DAX futures indicate a -104 open in Germany tomorrow. I expect US stocks to trade mixed-to-lower into the close from current levels on more shorting, global growth worries and earnings concerns.