Stocks Falling into Final Hour on Rising Economic Fear, Financial Sector Pessimism, More Shorting, Profit-Taking

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Biotech 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 heavy. Investor anxiety is very high. Today’s overall market action is bearish. The VIX is rising 8.43% and is high at 27.77. The ISE Sentiment Index is low at 101.0 and the total put/call is above average at .96. Finally, the NYSE Arms has been running very high most of the day, hitting 3.83 at its intraday peak, and is currently 3.03. The Euro Financial Sector Credit Default Swap Index is rising 9.78% today to 72.50 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 5.68% to 105.66 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is unch. at 19 basis points. The TED spread is now down 446 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising .92% to 34.31 basis points. The Libor-OIS spread is rising 2 basis points to 12 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is down 1 basis point to 1.73%, which is down 94 basis points since July 7th. The 3-month T-Bill is yielding .09%, which is down 3 basis points today. The MS Cyclical Index is underperforming, falling 3.05%, on some weaker-than-expected economic data. Airline, Gaming, Bank, Gold, Alt Energy, REIT, Homebuilding, Semi, Steel and Coal shares are especially weak, falling -3.75%+. I am getting a short-term technical buy signal on the Euro Financial Sector CDS Index, which is a negative. As well, the AAII % Bulls rose to 44.0 this week, while the % Bears fell to 35.0. The breakdown in the 10-year yield, while positive for the housing market, is worrying traders in the short-run. On the positive side, many market leading stocks are holding up relatively well. The Business Insider has an interesting article about how Apple’s iPhone will continue to gain share of the enterprise smartphone market (largely a non-consensus view at this stage). It is also noteworthy that the Retail sector is just .38% lower on the day and is near session highs despite the market’s move to session lows. I suspect non-farm payrolls will be slightly worse-than-expected, but the unemployment rate will likely come in at or better-than-estimates tomorrow. I will closely monitor the market’s reaction to this report. Nikkei futures indicate a -103 open in Japan and DAX futures indicate a -2 open in Germany tomorrow. I expect US stocks to trade mixed-to-lower into the close from current levels on rising economic worries, more short-selling, profit-taking and financial sector pessimism.