Stocks Dropping into Final Hour on Rising Economic Fear, Technical Selling, More Shorting, Increasing Financial Sector Pessimism

Broad Market Tone:

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

Equity Investor Angst:

• VIX 26.29 +7.16%
  
• ISE Sentiment Index 68.0 -32.0%
  
• Total Put/Call 1.0 -16.17%
  
• NYSE Arms 2.31 +1.85.73%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 107.59 bps +2.17%
  
• European Financial Sector CDS Index 113.17 bps +3.14%
  
• Western Europe Sovereign Debt CDS Index 137.0 bps +1.93%
  
• Emerging Market CDS Index 230.25 bps +1.18%
  
• 2-Year Swap Spread 18.0 unch.
  
• TED Spread 19.0 -1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .15% unch.
  
• Yield Curve 210.0 -4 bps
  
• China Import Iron Ore Spot $147.0/Metric Tonne -.41%
  
• Citi US Economic Surprise Index -59.0 -6.0 points
  
• 10-Year TIPS Spread 1.59% -1 bp
  

Overseas Futures:

• Nikkei Futures: Indicating -162 open in Japan
• DAX Futures: Indicating -3 open in Germany

Portfolio:

• Lower: On losses in my Retail, Biotech and Medical long positions
  
• Disclosed Trades: Added (IWM)/(QQQQ) hedges, added to my (EEM) short
  
• Market Exposure: Moved to 75% Net Long

BOTTOM LINE: Today's overall market action is bearish as the S&P 500 is trading back below its 50-day moving average on a pick-up in volume. On the positive side, Education, Restaurant, Computer Service, Computer Hardware, Software and Internet stocks are holding up relatively well, falling less than 1.0%. Tech shares have outperformed throughout the day. Lumber is rising another +1.88% and the S&P GSCI Ag Spot Index is rising +.68%. The UK sovereign cds is falling -6.27% to 64.65 bps. The AAII % Bulls fell to 30.1% this week, while the % Bears rose to 42.47%, which is also a positive. On the negative side, Airline, Road&Rail, HMO, Oil Tanker and Alt Energy shares are substantially lower on the day, falling more than 2.5%. (XLF) has been heavy throughout the day. The European Investment Grade CDS Index is rising +3.37% to 104.0 bps. Gold continues to trade well. The 10-year yield is falling another -6 bps to 2.57%, which is back to the lows hit 3 days ago. Given the extent of today's bad news, I am somewhat surprised the major averages aren't down more. Tech stocks have led the broad market off its lows. As I said yesterday, (HPQ)'s earnings report after the close has taken on added significance. If HP can maintain its forward guidance, which will be hard to accomplish given the current environment, tech stocks should build on today's afternoon rally tomorrow. However, a guidance cut will likely mean further broad market weakness. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, bargain-hunting and buyout speculation.