Stocks Falling into Final Hour on Political Fears, China Bubble Worries, European Sovereign Debt Concerns

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Technology longs and Financial longs. I added to my (IWM)/(QQQQ) hedges, added to my (EEM) short and took some profits in select longs this morning, thus leaving the Portfolio 50% 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 heavy. Investor anxiety is very high. Today’s overall market action is very bearish. The VIX is rising +16.93% and is high at 26.09. The ISE Sentiment Index is low at 108.0 and the total put/call is high at 1.06. Finally, the NYSE Arms has been running high most of the day, hitting 1.80 at its intraday peak, and is currently 1.46. The Euro Financial Sector Credit Default Swap Index is rising 11.34% to 77.81 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 +6.07% to 92.26 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is down -1 basis point to 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 +4.96% to 30.44 basis points. The Libor-OIS spread is down -1 basis point to 10 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is down -3 basis points to 2.29%, which is down -36 basis points since July 7^th, 2008. The 3-month T-Bill is yielding .05%, which is up +1 basis point today. Large-cap tech shares are substantially underperforming today. I-Bank, Bank, Alt Energy, Oil Service and Steel shares are also weak, falling 2.50%+. Sovereign debt, new bank regulation/taxation and China bubble worries are weighing on the major averages again today. Moreover, the rising uncertainty over the outcome of Fed Chairman Bernanke's Senate confirmation is weighing on the averages. The 2-year swap spread is breaking out technically. As well, sovereign debt cds indices are hitting new highs today. The euro financial sector cds index is at the upper end of its 5-month trading range. On the positive side, Education, Restaurant, Retail, Construction, HMO, Biotech, Medical and Telecom stocks are holding up pretty well. Investor fear is spiking. There is much political and macro uncertainty right now. One of my longs, (ISRG), is surging 11% today to another new 52-week high on heavy volume. While the stock is short-term overbought, it still has substantial upside over the intermediate/long-term. Another one of my longs, (GOOG), is under pressure today, despite a good earnings report. This stock will be a good candidate to add long once the market stabilizes, in my opinion. If, over the weekend, it becomes apparent that Bernanke won’t be confirmed, another down market open Monday is likely. While I disagree with some of his decisions, his replacement would likely be less appealing to investors. Nikkei futures indicate a -180 open in Japan and DAX futures indicate a -102 open in Germany on Monday. I expect US stocks to trade mixed-to-lower into the close from current levels on rising political angst, china bubble worries, European sovereign debt worries and profit-taking.