Stocks Lower into Final Hour on Surging Euro Sovereign Debt Angst, China Inflation Worries, US Municipal Debt Concerns

Broad Market Tone:

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

Equity Investor Angst:

• VIX 22.79 +5.85%
  
• ISE Sentiment Index 98.0 +12.64%
  
• Total Put/Call .97 -3.45%
  
• NYSE Arms .82 +7.95%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 98.90 bps +.91%
  
• European Financial Sector CDS Index 150.08 bps +7.60%
  
• Western Europe Sovereign Debt CDS Index 195.17 bps +2.36%
  
• Emerging Market CDS Index 246.23 bps +5.16%
  
• 2-Year Swap Spread 29.0 +3 bps
  
• TED Spread 15.0 +1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .15% unch.
  
• Yield Curve 235.0 +2 bps
  
• China Import Iron Ore Spot $167.80/Metric Tonne +.66%
  
• Citi US Economic Surprise Index +22.40 +3.0 points
  
• 10-Year TIPS Spread 2.09% -4 basis points
  

Overseas Futures:

• Nikkei Futures: Indicating +27 open in Japan
• DAX Futures: Indicating +34 open in Germany

Portfolio:

• Slightly Lower: On losses in my Biotech and Technology 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 just mildly bearish as the S&P 500 trades slightly lower, despite rising eurozone sovereign debt angst and China inflation fears. On the positive side, Food, Homebuilding, Restaurant, Retail, Wireless, Telecom, Gold, Oil Service and Energy shares are especially strong, rising more than .5%. (XLF) has held up well throughout the day despite euro bank weakness and worries over WikiLeaks. The 10-year yield is falling -2 bps to 2.80%. The euro currency continues to trade very poorly. Copper is rising +1.29% despite euro weakness. Weekly retail sales rose +3.2% this week versus a +2.6% gain the prior week. This is the best showing since the first week of June. On the negative side, Education, Alt Energy and Internet shares are under meaningful pressure, falling more than 2.0%. Tech sector stocks are relatively weak today. The Spain sovereign cds is climbing +4.19% to 365.04 bps, the Japan sovereign cds is rising +9.6% to 70.76 bps, the Belgium sovereign cds is gaining +10.8% to 202.61 bps and the Italy sovereign cds is rising +8.61% to 268.21 bps. Moreover, the US Municipal CDS Index is surging +4.92% to 200.0 bps and other key cds indices continue their recent sharp moves higher. While the euro financial sector cds index has soared of late, it is still below levels seen during May/June. Given the ongoing jump in eurozone debt angst, recent equity gains, China inflation fears, insider trading scandals, rising Korean peninsula tensions and financial sector Basel III concerns, the broad market continues to remain resilient, which is a big positive. However, the situation in Europe is getting very close to the point that any further deterioration will have a significantly negative impact on global indices. I expect US stocks to trade mixed-to-lower into the close from current levels on rising euro sovereign debt angst, US municipal debt worries and China inflation fears.