Stocks Sharply Lower into Final Hour on Rising Energy Prices, Increasing Financial Sector Pessimism, More Economic Fear and Profit-Taking

Broad Market Tone:

• Advance/Decline Line: Substantially Lower
  
• Sector Performance: Most Rising
  
• Volume: Above Average
  
• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• VIX 21.21 +15.02%
  
• ISE Sentiment Index 100.0 -20.63%
  
• Total Put/Call .94 +30.56%
  
• NYSE Arms 1.62 +104.06%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 90.27 bps +.4%
  
• European Financial Sector CDS Index 99.58 bps -5.08%
  
• Western Europe Sovereign Debt CDS Index 116.0 bps -5.18%
  
• Emerging Market CDS Index 222.52 bps +1.14%
  
• 2-Year Swap Spread 24.0 +6 bps
  
• TED Spread 19.0 +1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .16% unch.
  
• Yield Curve 270.0 -3 bps
  
• China Import Iron Ore Spot $172.90/Metric Tonne unch.
  
• Citi US Economic Surprise Index +20.30 +2.0 points
  
• 10-Year TIPS Spread 2.40% -4 bps
  

Overseas Futures:

• Nikkei Futures: Indicating -77 open in Japan
• DAX Futures: Indicating -27 open in Germany

Portfolio:

• Lower: On losses in my Financial, Retail and Tech long positions
  
• Disclosed Trades: Added (IWM), (QQQQ) hedges, added to my (EEM) short
  
• Market Exposure: Moved to 75% Net Long

BOTTOM LINE: Today's overall market action is very bearish as equities trade near session lows on good volume. On the positive side, Gold, Ag, Oil Tanker and Utility stocks are relatively strong, posting gains for the day. The declines in the euro financial sector cds index and western europe sovereign debt cds index are positives. On the negative side, REIT, Construction, HMO, Disk Drive, Semi and Computer shares are under meaningful pressure, falling 2.5%+. (IYR) has been heavy throughout the day. The Greece sovereign debt cds is jumping 6.2% today to 729.50 bps, despite optimism over the prospects for an imminent bailout. The Shanghai Composite was unable to bounce last night with most of the rest of Asia and continues to hover near its 52-week low, which is a red flag for the global economy. The 10-year yield is down another 6 basis points. While a pullback from recent levels is welcome, investors are likely getting a bit worried that yields are falling too much. While much of the focus today is on (GS) and the rest of the financials, the technology sector(Morgan Stanley Tech Index: MSH) has been heavy for about 10 days and is close to breaking down through its 50-day moving average, which is another red flag. Finally, oil is now trading as if another spike higher is coming this summer, which could become another significant headwind for the global economy. I expect US stocks to trade modestly lower into the close from current levels on profit-taking, tax hike worries, increasing financial sector pessimism, rising economic fear and more shorting.