Stocks Falling into Final Hour on Tax Hike Worries, Rising US Municipal Debt Angst, China Hard-Landing Concerns, Eurozone Debt Worries

Broad Market Tone:

• Advance/Decline Line: Substantially Lower
  
• Sector Performance: Every Sector Declining
  
• Volume: Around Average
  
• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• VIX 22.71 +12.43%
  
• ISE Sentiment Index 124.0 -22.98%
  
• Total Put/Call .94 +18.99%
  
• NYSE Arms 1.75 +87.27%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 95.78 bps +4.37%
  
• European Financial Sector CDS Index 107.17 bps -5.16%
  
• Western Europe Sovereign Debt CDS Index 162.67 bps -1.81%
  
• Emerging Market CDS Index 225.83 bps +6.10%
  
• 2-Year Swap Spread 20.0 unch.
  
• TED Spread 15.0 unch.
  

Economic Gauges:

• 3-Month T-Bill Yield .13% unch.
  
• Yield Curve 234.0 -5 bps
  
• China Import Iron Ore Spot $163.10/Metric Tonne +1.43%
  
• Citi US Economic Surprise Index +29.20 +.7 point
  
• 10-Year TIPS Spread 2.03% -6 bps
  

Overseas Futures:

• Nikkei Futures: Indicating -100 open in Japan
• DAX Futures: Indicating +5 open in Germany

Portfolio:

• Slightly Lower: On losses in my Medical, Tech and Biotech long positions
  
• Disclosed Trades: Added to my (IWM)/(QQQQ) hedges and then covered them
  
• Market Exposure: 75% Net Long

BOTTOM LINE: Today's overall market action is very bearish as the S&P 500 trades near session lows despite a decline in euro sovereign debt angst. On the positive side, Education and Retail Shares are holding up relatively well, falling less than 1%. The declines in the euro financial sector and western europe sovereign cds are positives. Weekly retail sales rose +2.7% this week versus a +2.6% gain the prior week. The 10-year yield is falling -12 bps to 2.84%. On the negative side, Gaming, REIT, Paper, Steel, Gold, Alt Energy, Coal, Restaurant, Construction, Bank, Disk Drive and Energy shares are under meaningful pressure, falling more than -2.75%. (XLF) and especially (IYR) have underperformed throughout the day. (IYR) is breaking convincingly below its 50-day moving average and looks poised to test the 200-day. Cyclical and small-cap shares are also underperforming. Copper is plunging -5.18% and the S&P GSCI Ag Spot Index is dropping -4.8%. Shanghai copper inventories are up another +9.2% today and have surged +28.9% over the last 5 days. Moreover, the Shanghai Composite has decline -8% over the last 5 days and is poised to test its 200-day. The Illinois and California municipal cds are up another +2.3% and +1.83%, respectively. The US Muni CDS Index is rising +3.95% to 197.50 bps. The Greece sovereign cds is jumping +8.1% to 957.75 bps, the Russian sovereign cds is climbing +5.63% to 151.28 bps and the Hungary sovereign cds is rising +3.72% to 318.55 bps. The euro currency continues to trade poorly. The S&P 500 Implied Correlation Index is surging +18.6% to 63.74. Bloomberg TV is reporting that Democratic Senator Dick Durbin is saying that he is not optimistic that tax cuts will be extended now, which would be a major new negative. Overall investor angst is still a bit too bullish given recent headwinds and the market's overbought technical state, which is also a negative. I expect US stocks to trade mixed-to-lower into the close from current levels on rising US municipal debt angst, tax hike worries, profit-taking, more shorting, eurozone debt concerns and China hard-landing fears.