Stocks Lower into Final Hour on Rising Eurozone Debt Angst, Global Growth Worries, Emerging Markets Inflation Fears, Financial Sector Pessimism

Broad Market Tone:

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

Equity Investor Angst:

• VIX 37.39 +10.29%
  
• ISE Sentiment Index 122.0 +32.61%
  
• Total Put/Call 1.28 -11.11%
  
• NYSE Arms 1.52 -57.87%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 129.50 +4.10%
  
• European Financial Sector CDS Index 261.26 +1.04%
  
• Western Europe Sovereign Debt CDS Index 315.17 +2.16%
  
• Emerging Market CDS Index 281.08 +4.6%
  
• 2-Year Swap Spread 32.0 +1 bp
  
• TED Spread 32.0 +1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .02% unch.
  
• Yield Curve 178.0 -1 bp
  
• China Import Iron Ore Spot $180.90/Metric Tonne +.22%
  
• Citi US Economic Surprise Index -55.10 +2.6 points
  
• 10-Year TIPS Spread 1.94% -9 bps
  

Overseas Futures:

• Nikkei Futures: Indicating +75 open in Japan
• DAX Futures: Indicating +39 open in Germany

Portfolio:

• Slightly Higher: On gains in my Retail/Biotech sector longs, Index hedges and Emerging Markets shorts
  
• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges and some of my (EEM) short
  
• Market Exposure: Moved to 75% Net Long

BOTTOM LINE: Today's overall market action is bearish, as the S&P 500 trades back near the low-end of its recent range on rising Eurozone debt angst, more financial sector pessimism, more shorting, emerging markets inflation fears and global growth worries. On the positive side, Biotech shares are higher on the day. Oil is down -.8%, Gold is down -.3%, Lumber is rising +2.25% and the UBS-Bloomberg Ag Spot Index is down -1.57%. On the negative side, Coal, Alt Energy, Oil Service, Steel, Networking, Bank, I-Bank, Insurance, Homebuilding and Airline shares are under significant pressure, falling more than -2.5%. (XLF) has traded very poorly throughout the day. The Transports are also heavy. Copper is down -1.7%. Rice is still near a multi-year high and has risen +35.5% in about 9 weeks. The average US price for a gallon of gas is +.01/gallon today to $3.66/gallon. It is up .52/gallon in about 7 months. The Russia sovereign cds is gaining +2.77% to 206.67 bps, the Brazil sovereign cds is jumping +6.8% to 163.41 bps, the Greece sovereign cds is gaining +2.39% to 2,559.42 bps, the Portugal sovereign cds is gaining +1.68% to 1,053 bps and the Belgium sovereign cds is rising +5.23% to 288.17 bps. The US Muni CDS Index is jumping +4.65% to 181.89 bps. Moreover, the European Investment Grade CDS Index is rising +1.99% to 165.31 bps. The Italy and Belgium sovereign cds are making new record highs again today. The Greece, Germany, Spain and France sovereign cds are still near their recent all-time highs. The Eurozone Financial Sector and Western European Sovereign CDS Indices are also making new all-time highs today. The 3-Month Euro Basis Swap dropped another -3.06 bps to -99.69 bps, which is another new cycle low. The Citi Eurozone Economic Surprise Index has plunged -109.2 points in about 4 weeks to -103.10. The UBS-Bloomberg Ag Spot Index is still near its recent record high, which is also a large negative. The China Blended Corporate Spread Index is jumping +24.0 bps to a new multi-year high at 637.0 bps. The Nikkei took out its recent lows overnight, falling -2.21%, and is now down -16.0% ytd. Germany's DAX also continues to trade very poorly as it fell another -1.0% today and is now down -24.9% ytd, near a 2-year low. Italian shares also made new cycle lows today, falling another -1.99%, and are down -30.3% ytd. As well, the euro currency remains very heavy. Gauges of eurozone debt angst remain very elevated and continue to trend higher, which is a large concern. Today's equity rebound off the morning lows was on light volume and poor breadth. Given the amount and nature of the negative news over the holiday weekend, today's rebound was impressive, nonetheless. Growth stock leaders traded well throughout the day. I still believe a full test of the recent lows is an increasing possibility over the coming weeks unless the rapidly deteriorating situation in Europe improves materially. I expect US stocks to trade mixed-to-higher into the close from current levels on technical buying, short-covering, falling food/energy prices, bargain-hunting and better US economic data.