Stocks Slightly Lower into Afternoon on Disorderly Euro Decline, Rising Sovereign Debt Angst, Increasing Financial Sector Pessimism

Broad Market Tone:

• Advance/Decline Line: Lower
  
• Sector Performance: Most Sectors Declining
  
• Volume: Slightly Below Average
  
• Market Leading Stocks: Outperforming
  

Equity Investor Angst:

• VIX 32.76 +2.25%
  
• ISE Sentiment Index 113.0 +22.83%
  
• Total Put/Call .90 -27.42%
  
• NYSE Arms 1.29 -42.46%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 120.68 bps +3.41%
  
• European Financial Sector CDS Index 159.96 bps +7.51%
  
• Western Europe Sovereign Debt CDS Index 132.50 bps +.38%
  
• Emerging Market CDS Index 279.92 bps +.76%
  
• 2-Year Swap Spread 45.0 -1 bp
  
• TED Spread 39.0 unch.
  

Economic Gauges:

• 3-Month T-Bill Yield .15% unch.
  
• Yield Curve 249.0 -2 bps
  
• China Import Iron Ore Spot $144.0/Metric Tonne -.83%
  
• Citi US Economic Surprise Index +18.10 -3.6 points
  
• 10-Year TIPS Spread 2.0% -3 bps
  

Overseas Futures:

• Nikkei Futures: Indicating -26 open in Japan
• DAX Futures: Indicating -30 open in Germany

Portfolio:

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

BOTTOM LINE: Today's overall market action is bearish as the S&P 500 trades near session lows despite some more positive economic data and a bounce in the euro. On the positive side, Gold, Software, Telecom, Drug, Retail, Food and Tobacco stocks are slightly higher on the day. Oil continues to trade very poorly, despite a significant escalation in Middle-East tensions, a bounce in the euro, the recent plunge in oil spec longs and today's positive economic reports. Several key stocks, such as (AAPL), are trading very well today. On the negative side, Gaming, Homebuilding, Construction, Networking, Disk Drive, Paper, Steel, Oil Service, Energy and Coal shares are under significant pressure, falling 2.0%+. Cyclicals and Small-Caps are underperforming. The Spain sovereign cds is jumping +10.3% to 235.95 bps, the Portugal sovereign cds is surging +11.3% to 340.30, the UK sovereign cds is rising +5.1% to 84.4 bps and the Russian sovereign cds is gaining +6.5% to 183.42 bps. Underneath the surface, the market's action is more bearish than the major averages indicate. Energy-related stocks are crashing in many cases and breadth is very poor. A test of recent market lows is looking increasingly more likely. I expect US stocks to trade mixed-to-lower into the close from current levels on rising sovereign debt angst, technical selling, rising energy sector pessimism, tax hike worries and regulatory fears.