Stocks Lower into Final Hour on Rising Economic Pessimism, Forced Selling, Greater Financial Sector Concerns, More Shorting

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Technology longs and Retail longs. I added to my (IWM)/(QQQQ) hedges and added to my (EEM) short this morning, thus leaving the Portfolio 50% net long. The tone of the market is negative as the advance/decline line is lower, almost every sector is declining and volume is above average. Investor anxiety is above average. Today’s overall market action is very bearish. The VIX is rising 2.67% and is elevated at 51.45. The ISE Sentiment Index is low at 89.0 and the total put/call is about average at .89. Finally, the NYSE Arms has been running low most of the day, hitting .35 at its intraday trough, and is currently .99. The Euro Financial Sector Credit Default Swap Index is soaring 16.81% today to 194.33 basis points. This index is making another new record high. The North American Investment Grade Credit Default Swap Index is falling 1.36% to 247.93 basis points. This index is still below its Dec. 5^th record high of 285.99. The TED spread is rising .24% to 110 basis points. The TED spread is now down 353 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising 3.97% to 78.50 basis points. The Libor-OIS spread is rising .41% to 104.0 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is dropping 4 basis points to .84%, which is down 180 basis points since July 7th. 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 yielding .19%, which is down 1 basis point today. Market-leading stocks are under significant pressure today, sharply underperforming the broad market. This is likely the result of forced selling. As well, financials are continuing their freefall. Some gauges of investor angst still remain stubbornly low given the carnage that is taking place. Nikkei futures indicate a -173 open in Japan and DAX futures indicate a -34 open in Germany on Monday. I expect US stocks to trade mixed-to-lower into the close from current levels on more economic pessimism, more shorting, higher energy prices, rising financial sector pessimism and tax hike worries.