Stocks Substantially Lower into Final Hour on Rising Sovereign Debt Worries, Increasing Economic Fear, China Hard-Landing Concerns, Tax Hike Worries

Broad Market Tone:

• Advance/Decline Line: Substantially Lower
  
• Sector Performance: Every Sector Declining
  
• Volume: Slightly Above Average
  
• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• VIX 34.15 +17.93%
  
• ISE Sentiment Index 79.0 -28.83%
  
• Total Put/Call 1.06 +37.66%
  
• NYSE Arms 4.43 +258.25%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 120.78 bps +5.60%
  
• European Financial Sector CDS Index 159.67 bps +9.18%
  
• Western Europe Sovereign Debt CDS Index 161.0 bps +2.88%
  
• Emerging Market CDS Index 267.67 bps +5.83%
  
• 2-Year Swap Spread 35.0 unch.
  
• TED Spread 39.0 -1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .14% +1 bp
  
• Yield Curve 235.0 -5 bps
  
• China Import Iron Ore Spot $139.40/Metric Tonne -.21%
  
• Citi US Economic Surprise Index -36.40 -11.6 points
  
• 10-Year TIPS Spread 1.88% -3 bps
  

Overseas Futures:

• Nikkei Futures: Indicating -185 open in Japan
• DAX Futures: Indicating +11 open in Germany

Portfolio:

• Lower: On losses in my Medical, Retail, Biotech 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 substantially lower, to the lowest level since November of last year, as it breaks key technical support. On the positive side, Drug and Telecom stocks are relatively strong, falling less than 2.0%. Weekly retail sales rose +3.0% this week versus a +3.1% gain the prior week and down from a +3.9% increase the first week of April. On the negative side, Gaming, Airline, Construction, Wireless, Internet, Steel, Paper, Oil Tanker, Alt Energy and Coal shares are under significant pressure, falling 5.0%+. The large rise in the European Financial Sector CDS Index is a big concern. The China sovereign cds is jumping +5.5% to 91.81 bps. Moreover, the Russia sovereign cds is jumping another +5.7% to 201.14 bps and the Hungary sovereign cds is surging +6.1% to 352.63 bps. As well, the European Investment Grade CDS Index is rising +7.5% to 128.37 bps, which is also a large negative. The 10-year yield continues to fall too much and is breaking to session lows to below the key 3% level. The fact that in today's very poor Consumer Confidence reading the percentage of people who said they intend to buy a car dropped to the lowest since records began in 1967 is stunning, considering the state of the automobile industry/financing/consumer psyche during the last meltdown. The overall reading was led down by a -32.68% plunge in consumer confidence in the Southeast Central region, which was likely affected by the oil spill. Economic data tomorrow may also surprise on the downside. The Citi US Economic surprise index has completely broken down, which usually means economists will be revising their expectations down soon. The market is very worried by the policies in the US and Europe. Raising taxes and cutting government spending during a bad economic environment will lead to further economic decline and less tax revenues, further raising the risks of default. Raising taxes and increasing spending will eventually lead to the same result, but it just takes longer. The market wants to see government spending cuts and tax cuts, in my opinion. The global economy is perilously close to entering another vicious downwards cycle. I expect US stocks to trade mixed-to-lower into the close from current levels on rising sovereign debt angst, China hard-landing concerns, increasing economic fear, tax hike worries, regulatory fears and oil spill concerns.