Stocks Slightly Lower into Final Hour on Growing Mideast Unrest, Emerging Markets Inflation Worries, More Shorting, Tech Sector Weakness

Broad Market Tone:

• Advance/Decline Line: Lower
  
• Sector Performance: Most Sectors Declining
  
• Volume: Around Average
  
• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• VIX 20.08 +1.31%
  
• ISE Sentiment Index 118.0 -13.87%
  
• Total Put/Call .82 -6.82%
  
• NYSE Arms 1.07 +16.05%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 84.57 +.86%
  
• European Financial Sector CDS Index 120.42 +5.60%
  
• Western Europe Sovereign Debt CDS Index 176.83 bps +.95%
  
• Emerging Market CDS Index 206.87 +1.85%
  
• 2-Year Swap Spread 18.0 -2 bps
  
• TED Spread 22.0 +2 bps
  

Economic Gauges:

• 3-Month T-Bill Yield .09% -1bp
  
• Yield Curve 278.0 -5bps
  
• China Import Iron Ore Spot $171.60/Metric Tonne -.69%
  
• Citi US Economic Surprise Index +88.40 -2.8 points
  
• 10-Year TIPS Spread 2.52% -5 bps
  

Overseas Futures:

• Nikkei Futures: Indicating -14 open in Japan
• DAX Futures: Indicating +10 open in Germany

Portfolio:

• Slightly Lower: On losses in my Tech and Medical longs
  
• Disclosed Trades: Added (IWM)/(QQQQ) hedges and added to my (EEM) short
  
• Market Exposure: Moved to 75% Net Long

BOTTOM LINE: Today's overall market action is mildly bearish as the S&P 500 trades slightly lower, despite some positive economic data, lower food/energy prices and falling long-term rates. On the positive side, HMO and Computer Service shares are especially strong, rising 1.0%+. The Saudi sovereign cds is falling -2.43% to 125.68 bps and the Israeli sovereign cds is falling -1.37% to 150.49 bps. Moreover, the US Muni CDS Index is falling -3.05% to 151.97 bps. The UBS-Bloomberg Ag Spot Index is down -1.36% and oil is down -.47%. The 10-year yield is dropping -7 bps to 3.47%. On the negative side, Airline, Wireless, Networking, Disk Drive, Semi, Steel, Ag, Oil Service, Alt Energy and Coal shares are under meaningful pressure, falling more than 1.0%. Cyclicals are relatively weak. Tech is also underperforming again with (SMH) breaking down through its 50-day moving average on volume. Copper is breaking down from a multi-month trading range to the lowest level since Dec. The UK sovereign cds is rising +3.57% to 57.76 bps, the Belgium sovereign cds is gaining +3.41% to 166.50 bps, the Italy sovereign cds is climbing +3.69% to 180.17 and the Spain sovereign cds is surging +5.02% to 252.84 bps. The European Financial Sector CDS Index is trading like it has bottomed, which is a big negative. The avg. US price for a gallon of gas is unch. today at $3.53/gallon. It is up .41/gallon in 20 days. Equity investor complacency regarding the deteriorating situation in the Mideast remains high. Speculation by funds in oil is at very extreme levels and likely caps significant near-term upside in the commodity barring any new developments in the region. Equity leadership quality is lacking again today. However, the bears remain unable to gain any significant traction despite a number of potential downside catalysts. Broad market action has become very whippy and random. I will wait for a clearer picture of market direction before further shifting exposure. I expect US stocks to trade mixed-to-lower into the close from current levels on growing Mideast unrest, emerging markets inflation worries, more shorting, tech/commodity sector weakness and profit-taking.