Stocks Reversing Lower into Final Hour on Oil Spill Concerns, Rising Economic Fear, Tax Hike Worries

Broad Market Tone:

• Advance/Decline Line: Slightly Higher
  
• Sector Performance: Mixed
  
• Volume: About Average
  
• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• VIX 32.81 -2.61%
  
• ISE Sentiment Index 84.0 -30.0%
  
• Total Put/Call .94 -18.97%
  
• NYSE Arms 1.17 +140.0%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 126.73 bps -3.07%
  
• European Financial Sector CDS Index 175.28 bps -4.24%
  
• Western Europe Sovereign Debt CDS Index 141.17 bps -1.63%
  
• Emerging Market CDS Index 300.91 bps -.44%
  
• 2-Year Swap Spread 40.0 -3 bps
  
• TED Spread 45.0 +2 bs
  

Economic Gauges:

• 3-Month T-Bill Yield .09% -1 bp
  
• Yield Curve 245.0 +2 bps
  
• China Import Iron Ore Spot $144.70/Metric Tonne -1.30%
  
• Citi US Economic Surprise Index +1.20 -1.4 points
  
• 10-Year TIPS Spread 1.94% +1 bp
  

Overseas Futures:

• Nikkei Futures: Indicating +46 open in Japan
• DAX Futures: Indicating -46 open in Germany

Portfolio:

• Slightly Higher: On gains in my Medical, Retail and Biotech long positions
  
• Disclosed Trades: Added to my (IWM)/(QQQQ) hedges and added to my (EEM) short
  
• Market Exposure: Moved to 50% Net Long

BOTTOM LINE: Today's overall market action is bearish as the S&P 500 reverses morning gains and trades near session lows despite another bounce in the euro and gains in most overseas equity markets. On the positive side, Airline, Construction, Paper and Ag stocks are especially strong, rising 1.0%+. Copper is bouncing another +1.4% today. The Spain sovereign cds is falling -9.4% to 244.65 bps, the Hungary sovereign cds is dropping -9.6% to 345.0 bps and the Portugal sovereign cds is falling -10.9% to 313.35 bps. On the negative side, Education, Homebuilding, Utility, Gold, Energy, Disk Drive, I-Banking, Bank, Semi and Internet shares are falling more than -.5%. Action in the tech sector is a bit worrisome again with several market leaders under meaningful pressure today, which is a large broad market negative. (XLF) has underperformed throughout most of the day. The Eurozone Investment Grade CDS Index is rising another +1.3% today to 132.17 bps, despite the rise in the euro and European stocks. As well, the TED spread continues to grind to new 52-week highs, which is also a big negative. I suspect the oil spill/(BP) issues and US housing worries are the main culprits spurring today's afternoon weakness. MBA weekly home purchase applications fell to the lowest level since the week of December 27th, 1996 this week. I would expect to see overseas markets come under pressure tonight given our reversal lower, which could further pressure US stocks in the morning. I expect US stocks to trade modestly lower into the close from current levels on technical selling, more shorting, rising economic fear, oil spill concerns and tax hike worries.