Stocks Lower into Final Hour on Rising Economic Fear, Increasing Sovereign Debt Worries, Technical Selling, Financial Sector Pessimism

Broad Market Tone:

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

Equity Investor Angst:

• VIX 27.36 +6.66%
  
• ISE Sentiment Index 104.0 -10.34%
  
• Total Put/Call .96 +39.13%
  
• NYSE Arms 1.76 +43.08%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 112.07 bps +2.62%
  
• European Financial Sector CDS Index 125.20 bps +6.59%
  
• Western Europe Sovereign Debt CDS Index 144.0 bps +1.34%
  
• Emerging Market CDS Index 241.90 bps +2.88%
  
• 2-Year Swap Spread 18.0 +1 bp
  
• TED Spread 16.0 -1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .15% unch.
  
• Yield Curve 202.0 -8 bps
  
• China Import Iron Ore Spot $147.40/Metric Tonne -.07%
  
• Citi US Economic Surprise Index -57.80 +1.8 points
  
• 10-Year TIPS Spread 1.51% -6 bps
  

Overseas Futures:

• Nikkei Futures: Indicating -105 open in Japan
• DAX Futures: Indicating +4 open in Germany

Portfolio:

• Slightly Lower: On losses in my Medical and Tech long positions
  
• Disclosed Trades: Added to my (IWM)/(QQQQ) hedges and added to my (EEM) short
  
• Market Exposure: 50% Net Long

BOTTOM LINE: Today's overall market action is bearish as the S&P 500 is trading near session lows and bonds are trading near session highs after a morning reversal higher in stocks faltered. On the positive side, Utility, Oil Service, Telecom, Homebuilding, REIT and Education stocks are relatively strong, rising on the day. Given the housing data, the moves higher in (XHB) and (IYR) are noteworthy. Equity investor angst is pretty high. Weekly retail sales rose +2.7% this week, which was at the low end of their range over the last 3 months. On the negative side, Gaming, Medical Equipment, Disk Drive, Computer Hardware, Oil Tanker and Coal shares are especially weak, falling more than 2.0%. Cylicals are underperforming. The 10-year yield is plunging another -11 bps to 2.49%. Copper is dropping -1.96%. The European Investment Grade CDS Index is rising +4.09% to 108.0 bps. The China sovereign cds is rising +3.36% to 83.64 bps, the Greece sovereign cds is gaining +3.75% to 939.09 bps and the Russia sovereign cds is rising +5.95% to 171.92 bps. The Greece sovereign cds is now just about 100 basis points off its record high set during the peak of the debt crisis in May/June, haven risen 252 bps in less than one month. Moreover, the ongoing rise in key cds indices remains a big concern. I am also seeing some technical deterioration in leading stocks that is concerning. Tomorrow's economic data will likely also disappoint, however stocks are oversold short-term and angst is high, so I will be looking for signs of budding strength tomorrow afternoon. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, bargain-hunting and buyout speculation.