Stocks Plunging into Final Hour on Rising Global Debt Angst, US Tax Hike Worries, Global Growth Concerns, Financial Sector Pessimism

Broad Market Tone:

• Advance/Decline Line: Substantially Lower
  
• Sector Performance: Every Sector Declining
  
• Volume: Heavy
  
• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• VIX 42.70 +14.63%
  
• ISE Sentiment Index 87.0 +3.57%
  
• Total Put/Call 1.22 -2.40%
  
• NYSE Arms 3.31 -16.29%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 144.50 +7.85%
  
• European Financial Sector CDS Index 285.41 +9.30%
  
• Western Europe Sovereign Debt CDS Index 353.93 +1.39%
  
• Emerging Market CDS Index 370.0 +7.54%
  
• 2-Year Swap Spread 32.0 +2 bps
  
• TED Spread 36.0 +1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .00% unch.
  
• Yield Curve 152.0 -14 bps
  
• China Import Iron Ore Spot $175.70/Metric Tonne -.57%
  
• Citi US Economic Surprise Index -41.0 unch.
  
• 10-Year TIPS Spread 1.72 -16 basis points
  

Overseas Futures:

• Nikkei Futures: Indicating -245 open in Japan
• DAX Futures: Indicating -11 open in Germany

Portfolio:

• Slightly Lower: On losses in my Biotech, Medical, Tech and Retail sector longs
  
• Disclosed Trades: Added to my (IWM)/(QQQ) hedges, added to my EEM short and then covered some of them
  
• Market Exposure: 50% Net Long

BOTTOM LINE: Today's overall market action is very bearish, as the S&P 500 breaks down through its recent support and is 16.0 points away from its Aug. 9th lows on rising Eurozone debt angst, US tax hike concerns, yesterday's disappointing FOMC commentary, rising financial sector pessimism, emerging markets inflation fears, margin selling, more shorting and global growth worries. On the positive side, Road & Rail shares are holding up relatively well, falling less than -2.0%. Oil is falling -6.0%, the UBS-Bloomberg Ag Spot Index is down -3.8% and Gold is down -3.9%. On the negative side, Coal, Alt Energy, Energy, Oil Service, Ag, Steel, Paper, Computer, Networking, Construction, Homebuilding and Education shares are under significant pressure, plunging more than -5.0%. Cyclicals are substantially underperforming again. The Morgan Stanley Cyclicals Index(CYC) is gapping substantially below its August 23rd low and is down -32.7% from its May 2nd high. The 10-year yield is falling too rapidly again, declining -14 bps to 1.71%. Copper is plunging -9.0% and Lumber is down -1.3%. Rice is still very near its multi-year high, rising +30.0% in about 11 weeks. The average US price for a gallon of gas is -.01/gallon today to $3.56/gallon. It is up .42/gallon in about 7 months. The Germany sovereign cds is gaining +5.19% to 104.67 bps, the Russia sovereign cds is soaring +23.0% to 289.0 bps, the Hungary sovereign cds is gaining +8.42% to 480.55 bps, the US sovereign cds is gaining +6.92% to 55.28 bps, the Israel sovereign cds is gaining +10.3% to 209.10 bps, the China sovereign cds is gaining +5.99% to 149.83 bps, the Japan sovereign cds is jumping +11.0% to 140.63 bps, the UK sovereign cds is gaining +8.20% to 94.85 bps, the France sovereign cds is surging +6.40% to 202.50 bps, the Italy sovereign cds is rising +2.62% to 536.67 bps, the Belgium sovereign cds is gaining +5.36% to 294.33 bps, the Brazil sovereign cds is gaining +16.0% to 214.82 bps and the Spain sovereign cds is jumping +1.53% to 438.33 bps. The Germany, France, Spain and Italy sovereign cds made new record highs today. The China sovereign cds is braking to the highest level since April 2009. The Brazil sovereign cds is surging to the highest since June 2009. The Russia sovereign cds is breaking out to the highest since Sept. 2009. The Western Europe Sovereign CDS Index and European Financial Sector CDS Index are again making all-time highs. The 2-Year Euro Swap Spread is breaking to the highest since December 2008. The TED spread is at the highest level since July 2010 despite Europe's recent efforts. The China Blended Corporate Spread Index is continuing its parabolic move higher, rising another +61.0 bps to 754.0 bps, which is the highest since March 2009. The Emerging Markets Currency VIX continues to surge, rising another 15.2% to 19.07. Hong Kong shares fell another -4.85% overnight and broke down through their recent lows, falling -22.2% ytd. Indonesian equities, which had been Asia's best performers, plunged -8.9% and are now down -9.02% ytd. As well, the major European equity indices fell -4.0 to -5.0% today and are right back to their recent lows. Various credit gauges continue to indicate intense global recession fears. Asia is rapidly becoming another large problem. The S&P 500 bounced right near its August low on rumors of a global response to the European debt crisis. I believe the situation in Europe must at least stabilize very soon or a full test and likely break of the August lows is likely. Moreover, given many hedge funds' affinity for commodities, more margin selling is likely over the coming days unless a game-changing solution to the current crisis is forthcoming. Commodities, in general, still have massive downside risk over the intermediate-term, in my opinion. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, technical buying, lower energy/food prices, a bounce in the euro and bargain-hunting.