Stocks Sharply Lower into Final Hour on Global Growth Concerns, Credit Market Angst, Earnings Worries

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Medical longs and Biotech longs. I added to my (IWM)/(QQQQ) hedges and then covered some of them today, thus leaving the Portfolio 75% net long. The tone of the market is very negative as the advance/decline line is substantially lower, most sectors are declining and volume is heavy. Investor anxiety is historically elevated. Today’s overall market action is bearish. The VIX is rising 15.2% and is historically elevated at 78.26. The ISE Sentiment Index is low at 113.0 and the total put/call is very high at 1.29. Finally, the NYSE Arms has been running very high most of the day, hitting 10.3 at its intraday peak, and is currently 1.07. The Euro Financial Sector Credit Default Swap Index is rising 4.3% today to 119.08 basis points. This index is up from a low of 52.66 on May 5^th, but down from 157.81 on Sept. 16^th. The North American Investment Grade Credit Default Swap Index is gaining 6.3% to 224.36 basis points. The TED spread is rising 3.2% to 265 basis points. The TED spread is now down 199 basis points in about two weeks. The 2-year swap spread is rising 6.8% to 125.25 basis points. The Libor-OIS spread is rising 1.9% to 258 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 22 basis points to .72%, which is down 191 basis points in about four months and at the lowest level since Bloomberg records began in August 1998. While stocks are meaningfully lower again today, the action is likely very frustrating to the many bears given the plunges in overseas markets. I wouldn’t be surprised to see some more short-covering into the close. As well, the odds of another significant global response by Monday are likely pretty high. The NYSE Arms hit an extraordinarily high level this morning, a spike that had been missing from prior capitulatory-type sell-offs. Nikkei futures indicate an +41 open in Japan and DAX futures indicate an +70 open in Germany on Monday. I expect US stocks to trade higher into the close from current levels on short-covering, lower commodity prices and bargain-hunting.