Stocks Reversing Lower into Final Hour on Rising Financial Sector Pessimism, Technical Selling, More Shorting

Broad Market Tone:

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

Equity Investor Angst:

• VIX 27.19 +1.84%
  
• ISE Sentiment Index 111.0 -11.20%
  
• Total Put/Call .94 -6.93%
  
• NYSE Arms 1.42 +46.58%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 112.26 bps -1.58%
  
• European Financial Sector CDS Index 131.53 bps +3.61%
  
• Western Europe Sovereign Debt CDS Index 152.66 bps +.98%
  
• Emerging Market CDS Index 254.92 bps +3.09%
  
• 2-Year Swap Spread 16.0 -3 bps
  
• TED Spread 15.0 unch.
  

Economic Gauges:

• 3-Month T-Bill Yield .15% unch.
  
• Yield Curve 198.0 -2 bps
  
• China Import Iron Ore Spot $143.70/Metric Tonne -1.24%
  
• Citi US Economic Surprise Index -62.80 +1.5 points
  
• 10-Year TIPS Spread 1.57% +2 bps
  

Overseas Futures:

• Nikkei Futures: Indicating -71 open in Japan
• DAX Futures: Indicating -37 open in Germany

Portfolio:

• Slightly Lower: On losses in my Tech and Biotech long positions
  
• Disclosed Trades: Added (IWM)/(QQQQ) hedges and 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 reverses lower despite gains in European equities, a bounce in the euro and a decline in initial jobless claims. On the positive side, Road & Rail, Oil Tanker, Defense, Gold, Restaurant, Education and Ag stocks are rising on the day. The AAII % Bulls plunged to 20.7% this week, while the % Bears jumped to 49.5, which is a big positive. Copper is rising +2.55% and the S&P GSCI Ag Spot Index is gaining +1.11%. On the negative side, Homebuilding, Hospital, I-Banking, Disk Drive, Semi and Coal shares are under pressure, falling more than 1.5%. The Portugal sovereign cds is rising +4.73% to 328.24 bps and the Japan sovereign cds is gaining +3.05% to 67.37 bps. The 10-year yield is falling -5 bps to session lows. The ongoing rise in the European Financial Sector CDS Index remains a big concern. Today's action is especially disappointing for the bulls given yesterday's reversal higher and today's news, however volume was anemic on today's reversal lower. Uncertainty over the content of Bernanke's speech tomorrow is high. I will closely monitor the euro's reaction to his remarks before further shifting market exposure. I expect US stocks to trade modestly higher into the close from current levels on short-covering, bargain-hunting, less economic fear and buyout speculation.