Stocks Falling into Final Hour on Rising Financial Sector Pessimism, Economic Fears, More Shorting

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Medical longs, Biotech longs and Financial longs. I have not traded today, thus leaving the Portfolio 75% net long. The tone of the market is negative as the advance/decline line is substantially lower, most sectors are declining and volume is below average. Investor anxiety is very high. Today’s overall market action is bearish. The VIX is rising +9.06% and is high at 22.40. The ISE Sentiment Index is around average at 150.0 and the total put/call is above average at .92. Finally, the NYSE Arms has been running very high most of the day, hitting 6.81 at its intraday peak, and is currently 2.57. The Euro Financial Sector Credit Default Swap Index is rising +5.12% to 71.58 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 +1.22% to 91.44 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is up +1 basis point to 22 basis points. The TED spread is now down 443 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is falling -2.97% to 34.75 basis points. The Libor-OIS spread is up +1 basis point to 10 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is down -5 basis points to 2.26%, which is down -39 basis points since July 7th. The 3-month T-Bill is yielding .04%, which is up +1 basis point today. Oil Service, Energy, Gaming, Restaurant, REIT, Utility, Computer Hardware and Disk Drive share are substantially outperforming today. The S&P 500 is holding around near-term support at 1,100. The NYSE Arms is very high again on below average volume. On the negative side, (XLF) has been heavy throughout the day. Credit default swaps are rising across the board, with the US sovereign debt cds jumping 19.4% to 42 basis points. Small-cap and cyclical shares are also displaying relative weakness. I am seeing some interesting divergences such as (IYR) trading near session highs with (XLF) at session lows. Asia will likely come under pressure again tonight, which could lead to more weakness here on the open. Nikkei futures indicate an -3 open in Japan and DAX futures indicate a -10 open in Germany tomorrow. I expect US stocks to trade mixed-to-lower into the close from current levels on financial sector pessimism, emerging market worries, more shorting and economic fears.