Stocks Slightly Lower into Final Hour on Rising Long-Term Rates, Eurozone Debt Worries, China Inflation Concerns, Profit-Taking

Broad Market Tone:

• Advance/Decline Line: Lower
  
• Sector Performance: Almost Every Sector Declining
  
• Volume: Slightly Below Average
  
• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• VIX 18.10 +2.78%
  
• ISE Sentiment Index 117.0 -22.0%
  
• Total Put/Call .64 -28.09%
  
• NYSE Arms 1.52 +42.93%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 86.24 bps +.29%
  
• European Financial Sector CDS Index 140.12 bps +5.85%
  
• Western Europe Sovereign Debt CDS Index 181.0 bps -1.72%
  
• Emerging Market CDS Index 217.68 bps +3.63%
  
• 2-Year Swap Spread 25.0 +3 bps
  
• TED Spread 17.0 -1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .13% unch.
  
• Yield Curve 285.0 +2 bps
  
• China Import Iron Ore Spot $168.50/Metric Tonne +.60%
  
• Citi US Economic Surprise Index +14.3 +3.3 points
  
• 10-Year TIPS Spread 2.32% +10 bps
  

Overseas Futures:

• Nikkei Futures: Indicating +45 open in Japan
• DAX Futures: Indicating -17 open in Germany

Portfolio:

• Slightly Lower: On losses in my Tech long positions
  
• Disclosed Trades: None
  
• Market Exposure: 75% Net Long

BOTTOM LINE: Today's overall market action is bearish as the S&P 500 trades lower despite mostly positive economic data and less tax policy uncertainty. On the positive side, Hospital, Drug and Biotech shares are higher on the day. Healthcare-related stocks continue to trade very well. The Italy sovereign cds is dropping -3.03% to 198.13 bps and the Portugal sovereign cds is falling -3.25% to 435.92 bps. Gold is falling -.82%. On the negative side, Airline, Gaming, REIT, Homebuilding, Construction, Wireless, Disk Drive, Semi, Computer, Steel, Oil Service, Coal and Utility shares are under meaningful pressure, falling more than 1.0%. (XLF)/(IYR) have underperformed again throughout the day. The Greece sovereign cds is climbing +2.35% to 951.74 bps and the China sovereign cds is jumping 3.33% to 69.08 bps. The jumps in the Emerging Markets CDS Index and the Euro Financial Sector CDS Index are big negatives. As well, the Illinois Municipal CDS continues to move higher, rising another +2.11% to 315.0 bps. Copper is dropping -2.54%. Short/intermediate-term gauges of investor sentiment remain overly bullish, which is a big negative. The 10-year yield continues to rise too much, gaining another +5 bps to 3.52%. Late-day weakness has become common of late, which is also a negative. The Hang Seng Index, which fell -2% last night, appears to be rolling over again after another failure at its 50-day. Moreover, Spain's IBEX 35 is displaying meaningful technical weakness. The major averages are masking more material weakness in some key stocks and sectors. However, so far the bears have been unable to gain any significant traction after another sharp reversal lower in stocks. I expect US stocks to trade modestly lower into the close from current levels on China inflation worries, profit-taking, more shorting, higher long-term rates, technical selling and ongoing eurozone debt fears.