Stocks Slightly Lower into Final Hour on Rising Eurozone Debt Angst, Increasing Financial Sector Pessimism, Insider Trading Scandals

Broad Market Tone:

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

Equity Investor Angst:

• VIX 18.96 +5.04%
  
• ISE Sentiment Index 100.0 -20.63%
  
• Total Put/Call n/a
  
• NYSE Arms 1.55 +55.0%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 91.91 bps +.98%
  
• European Financial Sector CDS Index 131.33 bps +23.90%
  
• Western Europe Sovereign Debt CDS Index 168.33 bps +3.27%
  
• Emerging Market CDS Index 221.18 bps +1.16%
  
• 2-Year Swap Spread 18.0 +1 bp
  
• TED Spread 16.0 +1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .12% -1 bp
  
• Yield Curve 233.0 -4 bps
  
• China Import Iron Ore Spot $164.40/Metric Tonne +.98%
  
• Citi US Economic Surprise Index +29.70 unch.
  
• 10-Year TIPS Spread 2.13% unch.
  

Overseas Futures:

• Nikkei Futures: Indicating -35 open in Japan
• DAX Futures: Indicating +16 open in Germany

Portfolio:

• Slightly Higher: On gains in my Retail, Biotech and Technology 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 China inflation concerns, rising financial sector pessimism and increasing euro sovereign debt angst. On the positive side, Gaming, HMO, Disk Drive and Gold shares are especially strong, rising more than 1.0%. Cyclical and small-cap shares are substantially outperforming. (IYR) is bucking (XLF) weakness. Tech shares have also been relatively strong throughout the day. The 10-year yield is falling -7 bps to 2.8%. On the negative side, Homebuilding, Bank, Road&Rail, I-Banking and Steel shares are under pressure, falling more than 1.0%. (XLF) has substantially underperformed throughout the day. Copper is falling -1.74% and Gold is gaining +.76%. The Greece sovereign cds is jumping +5.69% to 1,039.14 bps, the Portugal sovereign cds is surging +9.68% to 453.97 bps, the Spain sovereign cds is climbing +7.73% to 282.08 bps, the UK sovereign cds is rising +3.81% to 62.52 bps and the Ireland sovereign cds is gaining +3.29% to 522.29 bps. While the huge jump in the euro financial sector cds index is very troubling, it is still only at the upper end of the trading range it has been in since early July. Given the jump in eurozone debt angst, recent equity gains, China inflation fears, insider trading scandals and financial sector Basel III concerns, the broad market remains impressively resilient. Some market-leading growth stocks trade very well. As has been the case for most of the year, those companies that can post relatively strong earnings growth in most economic environments are seeing p/e multiple expansion and continue to hugely outperform the S&P 500. If the market can continue to consolidate recent gains in a healthy fashion during this period of heightened eurozone debt angst, any calming of fears should produce another upside surge in stocks. I expect US stocks to trade mixed-to-higher into the close from current levels on technical buying, short-covering, tech sector optimism, seasonal strength and bargain-hunting.