Stocks Falling into Final Hour on China Bubble Fears, European Sovereign Debt Worries, Profit-Taking

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Biotech longs and Technology longs. I added (IWM)/(QQQQ) hedges and added to my (EEM) short today, thus leaving the Portfolio 75% net long. The tone of the market is very negative as the advance/decline line is substantially lower, almost every sector is falling and volume is slightly above average. Investor anxiety is high. Today’s overall market action is bearish. The VIX is rising +7.79% and is around average at 18.96. The ISE Sentiment Index is below average at 114.0 and the total put/call is above average at .91. Finally, the NYSE Arms has been running high most of the day, hitting 1.96 at its intraday peak, and is currently 1.25. The Euro Financial Sector Credit Default Swap Index is rising +8.15% to 75.73 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 +1.80% to 86.50 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is unch. at 20 basis points. The TED spread is now down 443 basis points since its all-time high of 463 basis points on October 10^th, 2008. The 2-year swap spread is rising +5.31% to 27.75 basis points. The Libor-OIS spread is unch. at 11 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is down -2 basis points to 2.36%, which is down -29 basis points since July 7^th, 2008. The 3-month T-Bill is yielding .04%, which is down -1 basis point today. Small-cap and cyclical shares are underperforming today. Hospital, Road & Rail, Disk Drive, Steel, Gold, Oil Tanker and Oil Service shares are especially weak, falling 2.50%+. Sovereign debt and China bubble worries are surfacing again today. The Western Europe Sovereign CDS Index is jumping another 3.76% to another high at 81.45 bps. China releases their GDP tonight, which could further heighten bubble worries. On the positive side, (XLF) has traded well throughout the day. The Bank Index(BKX) is rising 1.46%. The US dollar is rallying again today on optimism over the potential for less US government spending and Greek sovereign debt worries. This will likely continue to pressure gold prices. One of my longs, (CREE), is soaring 17.6%. While the stock is overbought short-term, I still see substantial upside in the shares over the intermediate-term. Nikkei futures indicate a -77 open in Japan and DAX futures indicate an +31 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, less financial sector pessimism, diminishing political angst, falling long-term rates and lower energy prices.