Stocks Sharply Lower into Final Hour, Weighed Down by Global Growth Concerns, Financial Sector Pessimism and Profit-Taking

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Internet longs and Medical longs. I added (IWM)/(QQQQ) hedges and added to my (EEM) short this morning, thus leaving the Portfolio 75% net long. The tone of the market is very bearish as the advance/decline line is substantially lower, every sector is declining and volume is below average. Investor anxiety is extraordinarily high. Today’s overall market action is very bearish. The VIX is rising 18.83% and is very elevated at 67.68. The ISE Sentiment Index is below average at 118.0 and the total put/call is above average at .94. Finally, the NYSE Arms has been running extremely high most of the day, hitting 7.32 at its intraday peak, and is currently 6.28. The Euro Financial Sector Credit Default Swap Index is rising 8.14% today to 117.66 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 up 9.16% to 260.67 basis points. The TED spread is rising .14% to 218 basis points. The TED spread is now down 246 basis points in about seven weeks. The 2-year swap spread is down 1.83% to 107.50 basis points. The Libor-OIS spread is rising 1.97% to 182 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is dropping 2 basis points to .33%, which is down 229 basis points in under five months and at the lowest level since Bloomberg record-keeping began in August 1998. The 10-year TIPS spread bottomed at .65% in October 1998 during the Asian financial crisis and at 1.24% in October 2001 during the technology bubble-bursting meltdown. The 3-month T-Bill is now yielding .04%. A below average volume day, combined with an extremely high NYSE Arms reading, usually indicates the bears are running short on firepower. I wouldn’t expect to see too much further downside from here before the year-end rally resumes. Nikkei futures indicate a -575 open in Japan and DAX futures indicate a -40 open in Germany tomorrow. I expect US stocks to trade mixed-to-lower into the close from current levels on financial sector pessimism, more shorting, profit-taking and global growth worries.