Stocks Dropping Substantially into Final Hour on Soaring Eurozone Debt Angst, Global Growth Fears, Rising Financial Sector Pessimism, Profit-Taking

Broad Market Tone:

• Advance/Decline Line: Substantially Lower
  
• Sector Performance: Every Sector Declining
  
• Volume: Above Average
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 34.33 +14.59%
  
• ISE Sentiment Index 59.0 -22.37%
  
• Total Put/Call 1.32 +4.76%
  
• NYSE Arms 1.77 -15.73%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 129.15 +8.05%
  
• European Financial Sector CDS Index 243.69 +16.06%
  
• Western Europe Sovereign Debt CDS Index 342.0 +6.38%
  
• Emerging Market CDS Index 297.25 +7.74%
  
• 2-Year Swap Spread 34.0 +3 bps
  
• TED Spread 45.0 +1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .00% +2 bps
  
• Yield Curve 179.0 -13 bps
  
• China Import Iron Ore Spot $119.30/Metric Tonne +.76%
  
• Citi US Economic Surprise Index 14.50 -3.5 points
  
• 10-Year TIPS Spread 2.05 -6 bps
  

Overseas Futures:

• Nikkei Futures: Indicating -105 open in Japan
• DAX Futures: Indicating +28 open in Germany

Portfolio:

• Slightly Lower: On losses in my Tech and Medical sector longs
  
• Disclosed Trades: Added to my (IWM)/(QQQ) hedges and added to my (EEM) short
  
• Market Exposure: Moved to 25% Net Long

BOTTOM LINE: Today's overall market action is very bearish, as the S&P 500 trades substantially lower with volume on more Eurozone debt angst, profit-taking, rising global growth worries, rising financial sector pessimism, technical selling and more shorting. On the positive side, Retail shares are holding up relatively well. The UBS-Bloomberg Ag Spot Index is down -.84% and oil is down -.76%. Weekly retail sales rose +4.7% versus a +4.5% gain the prior week. On the negative side, Defense, Coal, Alt Energy, Oil Service, Ag, Networking, Bank, I-Banking, Medical, Insurance, Homebuilding and REIT shares are under significant pressure, falling more than -3.0%. Cyclial and small-cap shares are underperforming. (XLF) has traded poorly throughout the day. Gold is flat, lumber is falling -1.66% and copper is dropping -3.03%. The 10-year yield is falling -10 bps to 2.02%. Major European equity indices plunged 3-6% today. Italian shares dropped -6.8% and are now down -26.0% ytd. The Germany sovereign cds is jumping +12.99% to 95.66 bps, the France sovereign cds is surging +9.75% to 193.17 bps, the Spain sovereign cds is climbing +15.7% to 392.33 bps, the Italy sovereign cds is rising +14.25% to 507.67 bps, the China sovereign cds is jumping +12.42% to 141.54 bps, the Belgium sovereign cds is gaining +12.2% to 302.0 bps, the Brazil sovereign cds is jumping +13.82% to 157.67 bps,, the Russia sovereign cds is gaining +11.4% to 221.67 bps, the Japan sovereign cds is gaining +15.07% to 114.09 bps, the Portugal sovereign cds is gaining +11.0% to 1,076.67 bps, the Ireland sovereign cds is surging +10.9% to 768.33 and the UK sovereign cds is gaining +10.9% to 91.17 bps. Moreover, the European Investment Grade CDS Index is gaining +14.08% to 162.25 bps and the Emerging Markets Sovereign CDS Index is jumping +8.4% to 258.67 bps. Rice is still close to its multi-year high, rising +30.0% in about 4 months. The Italian/German 10-year yield spread surged another +35.41 bps today to 442.20 bps, which is a another new all-time high. The TED spread continues to hit new cycle highs and is at the highest since June 2010. The Libor-OIS spread is still very near the widest since July 2010. The 2-Year Euro Swap spread is making a new cycle high today, which is also noteworthy considering the recent strong equity advance. The 3-Month Euro Basis Swap is plunging -16.17 bps to -108.05 bps, which is also a large negative. China Iron Ore Spot has plunged -37.5% since February 16th and -33.8% since Sept. 7th. I continue to believe investor complacency regarding the intermediate-term situation in Europe, and thus the global economy, is still fairly high, notwithstanding the recent pullback. The belief that hedgie performance-chasing, a "kick the can" European debt "solution" and seasonality would continue to boost stocks substantially into year-end has likely left too many funds leaning the wrong way again. If the Greek government does in fact collapse, the odds of global recession next year rise again on the ensuing uncertainty, in my opinion. As well, recent events in Italy are worrisome as the situation continues to deteriorate rapidly. I expect US stocks to trade mixed-to-lower into the close from current levels on rising financial sector pessimism, rising European debt angst, global growth fears, profit-taking, more shorting and technical selling.