Stocks Slightly Lower into Final Hour on Rising Sovereign Debt Angst, Profit-Taking, China Hard-Landing Fears

Broad Market Tone:

• Advance/Decline Line: Slightly Lower
  
• Sector Performance: Most Declining
  
• Volume: Heavy
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 16.56 +5.28%
  
• ISE Sentiment Index 139.0 +.72%
  
• Total Put/Call .89 -2.20%
  
• NYSE Arms 1.81 +87.64%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 86.71 bps +1.06%
  
• European Financial Sector CDS Index 88.51 bps +5.85%
  
• Western Europe Sovereign Debt CDS Index 99.08 bps +9.08%
  
• Emerging Market CDS Index 207.30 bps +.53%
  
• 2-Year Swap Spread 15.0 bps unch.
  
• TED Spread 17.0 unch.
  

Economic Gauges:

• 3-Month T-Bill Yield .14% unch.
  
• Yield Curve 274.0 bps -5 bps
  
• China Import Iron Ore Spot $186.50/Metric Tonne +3.15%
  
• Citi US Economic Surprise Index +22.80 -.7 point
  
• 10-Year TIPS Spread 2.35% unch.
  

Overseas Futures:

• Nikkei Futures: Indicating -70 open in Japan
• DAX Futures: Indicating +10 open in Germany

Portfolio:

• Higher: On gains in my Retail, Financial and Tech long positions
  
• Disclosed Trades: None
  
• Market Exposure: 75% Net Long

BOTTOM LINE: Today's overall market action is neutral as equities trade mixed despite financial sector weakness, morning profit-taking and ongoing worries over European sovereign debt. On the positive side, Education, REIT, Homebuilding, I-Banking, Disk Drive, Computer, Paper and Defense stocks are especially strong, rising 1.0%+. Small-Caps are outperforming again. (IYR) has outperformed throughout most of the day. The euro is trading near session lows and continues to trade poorly. Long-term rates continue to grind lower. On the negative side, Airline, HMO, Hospital, Drug, Biotech and Semi shares are under meaningful pressure, falling 1.25%+. The Greece 10-year/bund spread is gaining +9.0% to 509 basis points. The Greece sovereign cds is rising another +4.4% today and the Portugal sovereign cds is jumping +13.21%. Investor angst gauges are still registering near-term complacency. Tech shares are underperforming despite (AAPL)'s stellar report. However, (AAPL) is surging to session highs on volume, which should help boost the sector. The broad market continues to trade very well in the face of mounting headwinds, which is a large positive. While (AAPL) is extended near-term, I would add to my long position on any meaningful market-related pullback in the shares from current levels. I still see significant intermediate-term upside in the stock. I expect US stocks to trade modestly higher into the close from current levels on short-covering, lower long-term rates and earnings optimism.