Stocks Reversing Lower into Final Hour on Eurozone Debt Angst, Less Dovish Fed Commentary, Less Tech Sector Optimism, Rising Energy Prices

Broad Market Tone:

• Advance/Decline Line: Lower
  
• Sector Performance: Most Declining
  
• Volume: Below Average
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 17.59 -2.06%
  
• ISE Sentiment Index 148.0 +39.62%
  
• Total Put/Call 1.01 +29.49%
  
• NYSE Arms 1.0 +15.95%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 93.64 -.34%
  
• European Financial Sector CDS Index 167.50 -.37%
  
• Western Europe Sovereign Debt CDS Index 348.04 +.69%
  
• Emerging Market CDS Index 249.85 -.34%
  
• 2-Year Swap Spread 26.0 -2.5 bps
  
• TED Spread 40.75 +1.75 bps
  
• 3-Month EUR/USD Cross-Currency Basis Swap -67.0 -.5 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .08% -2 bps
  
• Yield Curve 169.0 +4 bps
  
• China Import Iron Ore Spot $143.0/Metric Tonne unch.
  
• Citi US Economic Surprise Index 49.90 +2.3 points
  
• 10-Year TIPS Spread 2.28 +1 bp
  

Overseas Futures:

• Nikkei Futures: Indicating +71 open in Japan
• DAX Futures: Indicating +23 open in Germany

Portfolio:

• Slightly Lower: On losses in my Retail, Medical and Tech sector longs
  
• Disclosed Trades: Added to my (IWM)/(QQQ) hedges
  
• Market Exposure: Moved to 50% Net Long

BOTTOM LINE: Today's overall market action is bearish, as the S&P 500 reverses opening gains on Eurozone debt angst, less dovish-than-expected Bernanke commentary, rising energy prices, less tech sector optimism, global growth fears, technical selling and profit-taking. On the positive side, Homebuilding shares are especially strong, rising more than +2.0%. Gold is plunging -4.2%. Major Asian indices rose around +.75% overnight, with the exception of Shanghai which fell -.95%. The Germany sovereign cds is falling -2.6% to 78.33 bps, the UK sovereign cds is falling -1.4% to 68.93 bps, the Italy sovereign cds is falling -1.5% to 380.90 bps and the France sovereign cds is dropping -1.5% to 176.12 bps. On the negative side, Coal, Alt Energy, Steel, Semi, Networking and Construction shares are under meaningful pressure, falling more than -1.5%. Small-caps are relatively weak. Tech shares have also traded poorly throughout the day. Oil is rising +.22%, Lumber is falling -.61% and Copper is falling -1.13%. The 10Y T-Note Yield at 1.98% remains a concern considering the recent stock rally, falling Eurozone debt angst and improvement in US economic data. Despite the recent positive US economic data, the Philly Fed/ADS Real-Time Business Conditions Index has declined -6.04% over the last 6 days and continues to trend lower from its peak in mid-December. As well, the ATA For-Hire Truck Tonnage SA Index fell -4.0% in January. While this is off of a surge in 4Q, it bares monitoring. Lumber is -4.1% since its Dec. 29th high despite the better US economic data, more dovish Fed commentary, improving sentiment towards homebuilders, equity rally and decline in eurozone debt angst. Moreover, the weekly MBA Purchase Applications Index has been around the same level since May 2010. The Baltic Dry Index has plunged over -60.0% from its Oct. 14th high and is now down over -50.0% ytd. The Western Europe Sovereign CDS Index is still fairly close to its Jan. 9th all-time high. Overall, credit gauge improvement has stalled over the last few weeks and these gauges are still at stressed levels. China Iron Ore Spot has plunged -21.0% since Sept. 7th of last year. Shanghai Copper Inventories are up +692.0% ytd and are still very near their recent all-time high. I still think this is more of a red flag for falling demand rather than the intentional hoarding, which many suggest. Alternative Energy shares are getting hit again today(Wilderhill Clean Energy Index -9.2% in 3 weeks). This group continues to trade very poorly considering $100+ oil and the recent broad market rally. I suspect many of these companies will not survive the next global economic downturn. The euro is under pressure on better US economic data, less dovish-than-expected Bernanke commentary, worries over Ireland/Portugal and profit-taking. This is helping to push gold and silver down -4.5% and -6.2%, respectively. Given that hedge funds have recently increased equity market exposure and that gold/gold stocks play a big part in many portfolios, I suspect this could be fueling some of the reversal lower in the broad equity market today. US stocks are extended short-term and still near intermediate-term resistance. As well, the MS Tech Index is flat over the last 9 days, despite the ongoing surge in shares of Apple(AAPL), which is another red flag. For an intermediate-term equity advance from current levels, I would still expect to see further European credit gauge improvement, a further subsiding of hard-landing fears in key emerging markets, a rising 10-year yield, better volume, stable-to-lower energy prices and higher-quality stock market leadership. I expect US stocks to trade modestly lower into the close from current levels on Eurozone debt angst, less dovish-than-expected Bernanke commentary, rising energy prices, less tech sector optimism, global growth fears, technical selling and profit-taking.