Stocks Slightly Lower into Final Hour on Rising Sovereign Debt Angst, Increasing Economic Fear, Tech Sector Weakness

Broad Market Tone:

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

Equity Investor Angst:

• VIX 27.03 -.66%
  
• ISE Sentiment Index 94.0 +14.63%
  
• Total Put/Call .93 -4.12%
  
• NYSE Arms 1.12 -72.80%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 113.75 bps +1.34%
  
• European Financial Sector CDS Index 132.02 bps +1.28%
  
• Western Europe Sovereign Debt CDS Index 155.0 bps +.43%
  
• Emerging Market CDS Index 263.73 bps +.32%
  
• 2-Year Swap Spread 18.0 +1 bp
  
• TED Spread 17.0 unch.
  

Economic Gauges:

• 3-Month T-Bill Yield .13% unch.
  
• Yield Curve 199.0 -6 bps
  
• China Import Iron Ore Spot $141.50/Metric Tonne -.98%
  
• Citi US Economic Surprise Index -53.10 +5.5 points
  
• 10-Year TIPS Spread 1.55% -2 bps
  

Overseas Futures:

• Nikkei Futures: Indicating +1 open in Japan
• DAX Futures: Indicating -32 open in Germany

Portfolio:

• Slightly Lower: On losses in my Tech and Medical long positions
  
• Disclosed Trades: None
  
• Market Exposure: 75% Net Long

BOTTOM LINE: Today's overall market action is bearish as the S&P 500 moves back near session lows despite a morning reversal higher off S&P 500 1,040, a firmer euro and better action in beaten-up bank stocks. On the positive side, Coal, Gold, Paper, Telecom, Insurance, REIT and Airline stocks are relatively strong, rising .50%+. (XLF) and (IYR) have outperformed throughout the day. Oil trades as if another meaningful break lower is in the offing over the coming weeks. Weekly retail sales rose +2.8% this week versus a +2.7% gain the prior week. On the negative side, Education, Networking, Disk Drive, Computer, Gaming, HMO, Medical and Oil Service shares are especially weak, falling more than 1.25%. Technology sector shares are heavy. The 10-year yield is falling another -6 bps to 2.47%, which is back near its recent lows, which is a big negative. Copper is falling -1.9% and Lumber is down -3.3% today. The Hungary sovereign cds is rising +4.21% to 368.59 bps, the Greece sovereign cds is gaining another +2.13% to 957.16 bps, the Ireland sovereign cds is rising +2.43% to 341.0 bps and the Japan sovereign cds is gaining +2.94% to 69.52 bps. Overall, key cds indices continue their recent worrisome trend higher. Broad market action is worse than the major averages suggest again today. However, volume remains light and the bears were unable to break the market convincingly lower so far this afternoon. If the bears are unable to break the S&P 500 below 1,040 by tomorrow's close, I suspect we could see a surge in short-covering into week's end. I expect US stocks to trade modestly higher into the close from current levels on short-covering, bargain-hunting and technical buying.