Stocks Sharply Lower into Final Hour on China Bubble Worries, Profit-Taking, More Shorting, Technical Selling

BOTTOM LINE: The Portfolio is slightly lower the final hour on losses in my Technology longs, Financial 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 negative as the advance/decline line is substantially lower, every sector is declining and volume is above average. Investor anxiety is high. Today’s overall market action is very bearish. The VIX is rising 9.46% and is very high at 28.47. The ISE Sentiment Index is below average at 115.0 and the total put/call is above average at .93. Finally, the NYSE Arms has been running very high most of the day, hitting 3.98 at its intraday peak, and is currently 2.74. The Euro Financial Sector Credit Default Swap Index is rising 3.32% today to 84.33 basis points. This index is down from its record March 10th high of 208.75. The North American Investment Grade Credit Default Swap Index is rising 1.26% to 120.78 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling 6.86% to 21 basis points. The TED spread is now down 445 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising 9.29% to 37.56 basis points. The Libor-OIS spread is falling another 7.24% to 15 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is up 1 basis point to 1.66%, which is down 100 basis points since July 7th. The 3-month T-Bill is yielding .13%, which is unch. today. Considering today’s positive economic news, the action in the most economically sensitive shares is worrisome. As well, (IYR)/(XLF) have been very heavy throughout the day. The US dollar is trading as if another tradable move higher has begun in the currency, which could further pressure commodities. On the positive side, most tech sector leaders are holding up relatively well. Road & Rail and Retail shares are also substantially outperforming. I would expect to see Asia come under pressure again tonight. I will closely watch the market's reaction to the ADP employment report, released tomorrow morning, which should be around expectations. Nikkei futures indicate a -200 open in Japan and DAX futures indicate a -3 open in Germany tomorrow. I expect US stocks to trade mixed-to-lower into the close from current levels on more shorting, profit-taking, technical selling and China bubble worries.