Stocks Reversing Lower into Final Hour on Rising Economic Fear, More Shorting, Technical Selling, Increasing Sovereign Debt Angst

Broad Market Tone:

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

Equity Investor Angst:

• VIX 26.21 +7.24%
  
• ISE Sentiment Index 87.0 -20.91%
  
• Total Put/Call .97 +21.25%
  
• NYSE Arms 1.91 +263.93%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 112.25 bps -.58%
  
• European Financial Sector CDS Index 131.08 bps +.56%
  
• Western Europe Sovereign Debt CDS Index 154.33 bps -.21%
  
• Emerging Market CDS Index 260.81 bps +.74%
  
• 2-Year Swap Spread 17.0 unch.
  
• TED Spread 17.0 +1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .13% -1 bp
  
• Yield Curve 205.0 -4 bps
  
• China Import Iron Ore Spot $142.90/Metric Tonne n/a
  
• Citi US Economic Surprise Index -59.60 unch.
  
• 10-Year TIPS Spread 1.57% -7 bps
  

Overseas Futures:

• Nikkei Futures: Indicating -119 open in Japan
• DAX Futures: Indicating -5 open in Germany

Portfolio:

• Lower: On losses in my Tech, Medical, Retail and Biotech 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 very bearish as the S&P 500 reverses lower on light volume despite strength in Asian shares and Friday's US stock reversal higher. On the positive side, Disk Drive and Education stocks are especially strong, rising .75%+. Copper is rising +1.03%, Lumber is gaining +1.66% and the S&P GSCI Ag Spot Index is gaining +.69%. On the negative side, HMO, Bank, Gaming, Homebuilding, I-Banking, Semi, Paper, Oil Tanker and Coal shares are especially weak, falling more than 2%. Small-caps and cyclicals are underperforming. The US sovereign cds is rising +2.67% today to 48.9 bps and is up +4.13% over the last 5 days. The Portugal sovereign cds is rising +1.96% to 338.81 bps and the Greece sovereign cds is gaining another +1.60% to 948.71 bps. Overall, key cds indices continue their recent worrisome trend higher. The euro continues to trade very poorly. I still believe the currency has much further downside over the long-term term. I am surprised at the extent of today's weakness after Friday's reversal higher. Broad market action is even worse than the major averages suggest. However, volume is very light. I will add further downside protection on any convincing break below S&P 500 1,040. I expect US stocks to trade modestly lower into the close from current levels on rising economic fear, more shorting, technical selling, china worries and rising sovereign debt angst.