Stocks Sharply Lower into Final Hour on Rising Economic Fear, Increasing Sovereign Debt Angst, More Shorting, Technical Selling

Broad Market Tone:

• Advance/Decline Line: Substantially Lower
  
• Sector Performance: Every Sector Declining
  
• Volume: Around Average
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 35.39 +20.13%
  
• ISE Sentiment Index 86.0 -1.15%
  
• Total Put/Call .91 -4.21%
  
• NYSE Arms 11.51 +1,016.36%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 122.51 bps +4.89%
  
• European Financial Sector CDS Index 169.62 bps +9.94%
  
• Western Europe Sovereign Debt CDS Index 150.67 bps +.44%
  
• Emerging Market CDS Index 290.38 bps +6.69%
  
• 2-Year Swap Spread 47.0 +3 bp
  
• TED Spread 42.0 +1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .12% -1 bp
  
• Yield Curve 248.0 -7 bps
  
• China Import Iron Ore Spot $147.50/Metric Tonne +.20%
  
• Citi US Economic Surprise Index +8.20 -6.6 points
  
• 10-Year TIPS Spread 1.97% -11 bps
  

Overseas Futures:

• Nikkei Futures: Indicating -306 open in Japan
• DAX Futures: Indicating -40 open in Germany

Portfolio:

• Slightly Lower: On losses in my Biotech, Medical, Retail and Technology 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 very bearish as the S&P 500 trades at the low end of its trading range over the last 2 weeks after failing at its 200-day moving average. On the positive side, HMO and Education stocks are holding up relatively well. On the negative side, Airline, Road&Rail, Gaming, REIT, Coal, Alt Energy, Steel, Semi, Disk Drive, Networking, Bank, Homebuilding and Construction shares are under significant pressure, falling more than 4.0%. (XLF) and (IYR) have been very heavy throughout the day. Copper continues to trade very poorly, as it breaks to the lowest level since October of last year. As well, the S&P GSCI Ag Spot Index is falling to the lowest level since Sept. of last year. As I cautioned recently, the euro has begun another disorderly move lower. The Portugal sovereign cds is rising +5.4% to 349.16 bps, the Greece sovereign cds is jumping 6.8% to 806.25 bps, the Hungary sovereign cds is soaring +19.4% to 350.80 bps and the Russia sovereign cds is gaining +8.8% to 199.2 bps. The total put/call was .6 on this morning's gap down open, which was very low given the damage. Moreover, today's decline is on only mediocre volume and is a bit too orderly to indicate some sort of capitulation. The 10-year yield is falling -16 bps and trades like another move lower in yield has begun as investors start to price in the possibility of a full blown global double dip. Over the coming months, an end to inventory rebuilding, less govt stimuli, the effects of the oil spill, renewed housing concerns, the decline in stocks, negative election rhetoric, tax hike worries and census firings will likely result is a further slowdown in gauges of economic activity. However, much will depend on developed Europe and China, as to whether or not a double dip global recession occurs. Asian indices will likely come under serious pressure Sunday night/Monday morning, which could lead to further losses in US stocks Monday morning. I expect US stocks to trade mixed-to-lower into the close from current levels on rising economic pessimism, more shorting, technical selling, rising financial sector pessimism, increasing sovereign debt angst and disorderly euro decline worries.