Stocks Falling Sharply on Volume into Final Hour on Rising Sovereign Debt Fear, Financial Sector Pessimism, Tax Hike Worries, More Shorting

Broad Market Tone:

• Advance/Decline Line: Substantially Lower
  
• Sector Performance: Almost Every Sector Declining
  
• Volume: Heavy
  
• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• VIX 21.22 +21.47%
  
• ISE Sentiment Index 103.0 -39.05%
  
• Total Put/Call .88 +33.33%
  
• NYSE Arms 2.63 +84.33%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 93.27 bps +4.70%
  
• European Financial Sector CDS Index 117.30 bps +16.36%
  
• Western Europe Sovereign Debt CDS Index 110.50 bps +1.22%
  
• Emerging Market CDS Index 228.47 bps +6.16%
  
• 2-Year Swap Spread 23.0 +3 bps
  
• TED Spread 19.0 +2 bps
  

Economic Gauges:

• 3-Month T-Bill Yield .14% -1 bp
  
• Yield Curve 272.0 -3 bps
  
• China Import Iron Ore Spot $182.10/Metric Tonne unch.
  
• Citi US Economic Surprise Index +22.90 +3.2 points
  
• 10-Year TIPS Spread 2.34% -1 bp
  

Overseas Futures:

• Nikkei Futures: Indicating -292 open in Japan
• DAX Futures: Indicating -10 open in Germany

Portfolio:

• Lower: On losses in my Retail, Financial and Tech long positions
  
• Disclosed Trades: Added (IWM)/(QQQQ) hedges, added to my (EEM) short, took profits in existing longs
  
• Market Exposure: Moved to 50% Net Long

BOTTOM LINE: Today's overall market action is very bearish as equities trade meaningfully lower on rising sovereign debt angst and increasing financial sector pessimism. On the positive side, Hospital, Education and Gold stocks are relatively strong, rising slightly. Long-term rates are breaking down, with the 10-year yield falling -12 bps. On the negative side, Airline, Homebuilding, Insurance, Disk Drive, Semi, Paper, Steel, Oil Service, Oil Tanker and Coal shares are under meaningful pressure, falling 3.0%+. The Greece sovereign cds is rising another +11.68% today to 833.40 bps and the Portugal sovereign cds is jumping +22.43% to 377.87 bps. Russia and China sovereign cds are also up substantially, rising +10.3% and +8.6%, respectively. The 2-Year swap spread is breaking convincingly up through its 50-day moving average for the first time since December. The TED spread has already broken convincingly through its 50-day a few days ago and is now right at its 200-day. Another big jump in the euro financial sector cds index also bares close monitoring. This index is now at the highest level since June 2009. Investor perceptions towards what is happening in Europe seem too sanguine to me. Weekly retail sales decelerated further this week, rising +2.7%, which is down from a +3.9% gain the week of April 6th. I suspect that the real economies of Europe, which are barely growing, may begin a mild contraction over the coming months as a result of current events. As well, fears over a potential hard-landing in several key emerging economies will likely intensify. This will likely result in a further pullback in US stocks from current levels. The most cyclical global companies that have had massive run-ups on hopes of a v-shaped recovery and that are very crowded longs are most at risk. I expect US stocks to trade modestly lower into the close from current levels on profit-taking, China hard-landing worries, rising financial sector pessimism, increasing sovereign debt fear, tax hike concerns and more shorting.