Stocks Slightly Lower into Final Hour on Profit-Taking, Eurozone Sovereign Debt Angst, Rising QE2 Concerns

Broad Market Tone:

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

Equity Investor Angst:

• VIX 18.42 +.88%
  
• ISE Sentiment Index 166.0 +8.50%
  
• Total Put/Call .72 +5.88%
  
• NYSE Arms 1.0 +42.92%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 87.25 bps +2.32%
  
• European Financial Sector CDS Index 109.17 bps +7.34%
  
• Western Europe Sovereign Debt CDS Index 171.0 bps +3.22%
  
• Emerging Market CDS Index 194.05 bps +2.13%
  
• 2-Year Swap Spread 18.0 +3 bps
  
• TED Spread 18.0 +1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .11% -1 bp
  
• Yield Curve 215.0 -2 bps
  
• China Import Iron Ore Spot $157.20/Metric Tonne +2.61%
  
• Citi US Economic Surprise Index +32.60 +6.6 points
  
• 10-Year TIPS Spread 2.11% +1 bp
  

Overseas Futures:

• Nikkei Futures: Indicating +17 open in Japan
• DAX Futures: Indicating +21 open in Germany

Portfolio:

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

BOTTOM LINE: Today's overall market action is mildly bullish as the S&P 500 trades just slightly lower despite recent sharp equity gains, euro sovereign debt concerns and rising QE2 ramification worries. On the positive side, Coal, Oil Service, Gold, HMO, Construction and Education shares are especially strong, rising 1.0%+. Cyclicals and small-caps are outperforming again. The California Municipal CDS is falling -2.01% to 257.23 bps, which is a positive. The 10-year yield is rising +2 bps to 2.55%. The Citi US Economic Surprise Index is now at the best level since April 15th. On the negative side, Insurance, Airline and Utility shares are under pressure, falling more than 1.0%. (XLF)/(IYR) are trading a bit heavy today. The Citi Eurozone Economic Surprise Index is falling -11.3 points today to +26.30, which is its lowest levels since July 21st. The Spain sovereign cds is gaining +6.46% to 264.53 bps, the Portugal sovereign cds is rising +3.52% to 458.93 bps and the Ireland sovereign cds is rising +1.98% to 597.11 bps. The Western Europe Sovereign CDS Index is near its record high set May 7th at 174.12 bps, which is a large negative. Other key credit default swap indices are beginning to rise too much, as well. The divergence between the US/Eurozone Economic Surprise Indices, rising eurzone sovereign debt worries and overly bullish trader expectations regarding the euro currency could provide the catalysts for more euro weakness. The equity market continues to remain very resilient, despite potential headwinds, which remains a large positive. I expect US stocks to trade mixed-to-higher into the close from current levels on less economic fear, buyout speculation, investment manager performance angst, short-covering and earnings optimism.