Stocks Slightly Lower into Final Hour on Rising Euro Sovereign Debt Worries, Profit-Taking, More Shorting, US Muni Concerns

Broad Market Tone:

• Advance/Decline Line: About Even
  
• Sector Performance: Most Sectors Declining
  
• Volume: Slightly Below Average
  
• Market Leading Stocks: Outperforming
  

Equity Investor Angst:

• VIX 17.80 +3.85%
  
• ISE Sentiment Index 145.0 +54.26%
  
• Total Put/Call .78 -14.29%
  
• NYSE Arms 1.24 +7.13%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 90.11 +1.03%
  
• European Financial Sector CDS Index 189.82 bps +8.91%
  
• Western Europe Sovereign Debt CDS Index 217.50 bps +3.65%
  
• Emerging Market CDS Index 208.10 +1.28%
  
• 2-Year Swap Spread 26.0 +2 bps
  
• TED Spread 17.0 unch.
  

Economic Gauges:

• 3-Month T-Bill Yield .13% unch.
  
• Yield Curve 273.0 unch.
  
• China Import Iron Ore Spot $173.40/Metric Tonne +.46%
  
• Citi US Economic Surprise Index +35.80 +.7 point
  
• 10-Year TIPS Spread 2.35% unch.
  

Overseas Futures:

• Nikkei Futures: Indicating -81 open in Japan
• DAX Futures: Indicating +24 open in Germany

Portfolio:

• Higher: On gains in my Medical, Retail and Tech long positions
  
• Disclosed Trades: None
  
• Market Exposure: 75% Net Long

BOTTOM LINE: Today's overall market action is mildly bullish as the S&P 500 trades just slightly lower despite some significant equity weakness overseas, recent stock gains and rising euro sovereign debt angst. On the positive side, Road & Rail, Disk Drive, Semi and Alt Energy shares are especially strong, rising more than 1.0%. The Transport Index is strongly outperforming again. Small-caps are also relatively strong. The 10-year yield is falling -2 bps to 3.30%. On the negative side, Education, Airline, Homebuilding, Telecom, Paper, Steel, Oil Service, Oil Tanker, Defense and Utility shares are under meaningful pressure, falling more than .75%. Copper is down -.27% despite the bounce in the euro. As well, Lumber is falling -3.1%. The Belgium sovereign cds is rising +2.17% to 252.13 bps, the Spain sovereign cds is gaining +2.32% to 360.60 bps, the Ireland sovereign cds is soaring +7.16% to 667.58 bps, the Portugal sovereign cds is gaining +2.42% to 546.17 bps, the Russia sovereign cds is rising +2.52% to 150.89 bps and the China sovereign cds is rising +7.88% to 80.0 bps. Moreover, the Eurozone Investment Grade CDS Index is jumping another +3.53% to 96.82 bps and the US Muni CDS Index is jumping +6.91% to 242.20, which is the highest level since July 9th of last year. The Euro Financial Sector CDS Index is now very near its all-time high of 200.80 bps, set May 7th of last year. The Western Europe Sovereign CDS Index is making another new record high. The Citi Latin America Economic Surprise Index is falling -4.4 points today to -38.90, which is the lowest since May of 2009. The Indonesian Jakarta Composite, which had been a global leader, fell -4.2% last night and is breaking down technically on inflation worries, which could be another red flag. Investor sentiment gauges are still registering too much short-term complacency, which is also a negative. The bears still show no ability to gain meaningful traction despite potential negative catalysts, which is a major positive. The European sovereign debt auctions later this week remain a key focus for investors. I expect US stocks to trade mixed-to-lower into the close from current levels on rising euro sovereign debt angst, increasing US muni worries, more shorting and profit-taking.