Stocks Sharply Lower into Final Hour on Financial Sector Political Fears, China Bubble Worries, Sovereign Debt Concerns, Profit-Taking

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Biotech longs and Technology longs. I added to my (IWM)/(QQQQ) hedges and added to my (EEM) short this morning and then covered some of those positions this afternoon, thus leaving the Portfolio 75% net long. The tone of the market is very negative as the advance/decline line is substantially lower, most sectors are falling and volume is above average. Investor anxiety is very high. Today’s overall market action is bearish. The VIX is rising +14.61% and is above average at 21.41. The ISE Sentiment Index is low at 94.0 and the total put/call is slightly above average at .89. Finally, the NYSE Arms has been running high most of the day, hitting 1.97 at its intraday peak, and is currently 1.85. The Euro Financial Sector Credit Default Swap Index is falling -7.62% to 70.48 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 +.55% to 86.98 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 21 basis points. The TED spread is now down 442 basis points since its all-time high of 463 basis points on October 10^th, 2008. The 2-year swap spread is rising +5.97% to 28.35 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 -4 basis points to 2.32%, which is down -33 basis points since July 7^th, 2008. The 3-month T-Bill is yielding .04%, which is down -1 basis point today. The most cyclical shares are substantially underperforming today. Homebuilding, HMO, Paper, Steel, Gold, Oil Tanker and Coal shares are especially weak, falling 2.50%+. Sovereign debt, new bank regulation/taxation and China bubble worries are weighing on the major averages again today. On the positive side, Disk Drive, Bank, I-Bank, Restaurant and Education stocks are all higher on the day. Road & Rail shares are holding up relatively well. The MS Tech Index is just -.5% lower on the day. Considering the major political/financial backing the big banks/hedge funds gave the Obama administration and other key Democrats in the last election cycle, today’s sell-off related to new bank regulatory fears may be overdone. However, sovereign debt and China bubble fears will persist. Google(GOOG) reports after the close today. Its short interest ratio is at a new record 2.31. Recent fears over its mobile plans and its future in China have weighed on the shares, taking out some of the optimism ahead of what should be a very good quarter. I suspect GOOG shares will trade above current levels by tomorrow’s close, barring another substantial market decline. I still see significant upside over the intermediate/long-term in GOOG’s stock. Nikkei futures indicate a -263 open in Japan and DAX futures indicate a -26 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, lower energy prices, bargain-hunting and tech sector optimism.