Stocks Cutting Losses into Final Hour on Falling Sovereign Debt Agnst, Euro Bounce, Short-Covering, Bargain-Hunting

Broad Market Tone:

• Advance/Decline Line: Lower
  
• Sector Performance: Most Sectors Declining
  
• Volume: Above Average
  
• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• VIX 33.87 -1.94%
  
• ISE Sentiment Index 100.0 +2.04%
  
• Total Put/Call 1.25 +21.36%
  
• NYSE Arms 1.03 -33.45%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 126.20 bps +5.64%
  
• European Financial Sector CDS Index 150.63 bps +1.54%
  
• Western Europe Sovereign Debt CDS Index 152.50 bps -6.73%
  
• Emerging Market CDS Index 276.48 bps +1.50%
  
• 2-Year Swap Spread 36.0 unch.
  
• TED Spread 37.0 +1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .17% unch.
  
• Yield Curve 232.0 -1 bp
  
• China Import Iron Ore Spot $134.80/Metric Tonne -2.95%
  
• Citi US Economic Surprise Index -43.60 -7.7 points
  
• 10-Year TIPS Spread 1.77% -8 bps
  

Overseas Futures:

• Nikkei Futures: Indicating -21 open in Japan
• DAX Futures: Indicating +40 open in Germany

Portfolio:

• Slightly Higher: On gains in my Technology/Retail long positions and ETF hedges
  
• Disclosed Trades: Covered some of my (IWM)/(QQQQ) hedges and covered some of my (EEM) short
  
• Market Exposure: Moved to 75% Net Long

BOTTOM LINE: Today's overall market action is mildly bearish as the S&P 500 trades modestly lower despite a bounce in the euro, the market's oversold state and falling sovereign debt angst. On the positive side, Oil Service, Restaurant, Retail, Gaming and Steel stocks are relatively strong, rising .5%+. The S&P GSCI Ag Spot Index is jumping another +2.2%, putting in its best two-day showing in many months. The Spain sovereign cds is falling another -7.1% to 246.59 bps, which is a large positive. The AAII % Bulls fell to 24.7 this week, while the % Bears rose to 42.0, which is also a positive. Tech shares are outperforming solidly, with the MS Tech Index rising +.3%. The large -3.66% decline in gold is also a positive. The On the negative side, Construction, HMO, Hospital and Biotech shares are under meaningful pressure, falling 1.0%+. Market leaders continue their recent underperformance and breadth is poor for just mild index losses, which is a negative. The 10-year yield appears to be stabilizing, despite more poor economic data, which is a positive. I would be surprised to see tomorrow's jobs report spark too negative a reaction in US stocks, given how pessimistic investors have become on the data. The sharp decline in gold, combined with the rise in the euro/decline in sovereign debt cds, could indicate a bounce in stocks has begun and this morning's lows will hold for a bit. However, I want to see further declines in broad credit angst gauges before becoming more aggressive on the long side. I expect US stocks to trade modestly higher into the close from current levels on falling sovereign debt angst, short-covering, bargain-hunting and the bounce in the euro.