Stocks Lower into Final Hour on Rising Sovereign Debt Angst, Profit-Taking, REIT Sector Earnings Jitters, Commodity Weakness

Broad Market Tone:

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

Equity Investor Angst:

• VIX 21.40 +5.79%
  
• ISE Sentiment Index 71.0 -14.46%
  
• Total Put/Call .85 -7.61%
  
• NYSE Arms .81 -11.54%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 94.72 bps +1.28%
  
• European Financial Sector CDS Index 94.0 bps +3.45%
  
• Western Europe Sovereign Debt CDS Index 142.50 bps +2.89%
  
• Emerging Market CDS Index 207.48 bps +1.15%
  
• 2-Year Swap Spread 16.0 -1 bp
  
• TED Spread 16.0 -1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .13% +1 bp
  
• Yield Curve 231.0 +6 bps
  
• China Import Iron Ore Spot $149.80/Metric Tonne -.07%
  
• Citi US Economic Surprise Index -1.70 +2 points
  
• 10-Year TIPS Spread 2.16% -3 bps
  

Overseas Futures:

• Nikkei Futures: Indicating +3 open in Japan
• DAX Futures: Indicating +30 open in Germany

Portfolio:

• Slightly Lower: On losses in my Medical and Retail long positions
  
• Disclosed Trades: None
  
• Market Exposure: 100% Net Long

BOTTOM LINE: Today's overall market action is mildly bearish as the S&P 500 trades just modestly lower despite today's headwinds. On the positive side, Paper, Internet, Software, Computer, Semi, Disk Drive, Computer Service, Bank, I-Banking, Biotech, Education and Airline shares are all higher on the day. "Growth" shares are outperforming "value" shares again. The SOX Index is jumping +2.87% and looks poised to break out of its 6 month trading range, which is a major positive. The XAL Index is hitting another 52-week high today. (XLF) has traded well today considering (IYR) weakness and pessimism towards bank shares. Lumber is rising +1.62% despite overall commodity weakness. The 10-year yield is rising +8 bps to 2.72%. There is an unusual number of stocks rising on volume today given the losses in the major averages. The Libor-OIS, TED and 2-Year swap spreads are down despite today's jump in sovereign debt angst. On the negative side, Restaurant, Road & Rail, Gold and Construction shares are under pressure, falling more than 1.5%. The Greece sovereign cds is jumping +12.25% to 765.78 bps, the Ireland sovereign cds is rising +3.55% to 438.48 bps, the China sovereign cds is rising +5.42% to 58.70 bps and the Portugal sovereign cds is gaining +3.59% to 347.56 bps. The Emerging Markets Sovereign CDS Index is rising +4.66% to 190.98 bps. While today's sovereign cds jumps are concerning, it is too early to anticipate another meaningful move higher is underway. The broad market continues to consolidate recent gains on below average volume, which is healthy. The bears still show no ability to gain meaningful traction despite today's potential downside catalysts. Action in the shares of (BRCM) and (FFIV) should give the tech bears pause. I expect US stocks to trade modestly higher into the close from current levels on tax policy/election optimism, less economic fear, tech sector optimism, short-covering, buyout speculation, less financial sector pessimism and earnings optimism.