Stocks Falling into Final Hour on Rising Eurozone Debt Angst, Rising Global Growth Fears, Less Financial Sector Optimism, High Energy Prices

Broad Market Tone:

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

Equity Investor Angst:

• VIX 21.24 +17.67%
  
• ISE Sentiment Index 76.0 -16.48%
  
• Total Put/Call 1.02 +9.68%
  
• NYSE Arms 2.33 +68.41%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 97.55 +2.15%
  
• European Financial Sector CDS Index 177.80 +7.30%
  
• Western Europe Sovereign Debt CDS Index 352.97 +1.54%
  
• Emerging Market CDS Index 253.34 +4.71%
  
• 2-Year Swap Spread 27.50 +1 bp
  
• TED Spread 40.50 -1 bp
  
• 3-Month EUR/USD Cross-Currency Basis Swap -66.75 +4.0 bps
  

Economic Gauges:

• 3-Month T-Bill Yield .07% +1 bp
  
• Yield Curve 167.0 -3 bps
  
• China Import Iron Ore Spot $143.0/Metric Tonne -.20%
  
• Citi US Economic Surprise Index 47.50 -.7 point
  
• 10-Year TIPS Spread 2.18 -3 bps
  

Overseas Futures:

• Nikkei Futures: Indicating -121 open in Japan
• DAX Futures: Indicating -25 open in Germany

Portfolio:

• Slightly Lower: On losses in my Tech, Retail, Medical and Biotech sector longs
  
• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges
  
• Market Exposure: Moved to 75% Net Long

BOTTOM LINE: Today's overall market action is very bearish, as the S&P 500 trades substantially lower after failing at intermediate-term resistance on rising Eurozone debt angst, high energy prices, rising global growth fears, less financial sector optimism, technical selling and profit-taking. On the positive side, Utility and Restaurant shares are holding up relatively well, falling less than -1.0%. Oil is falling -2.15%, Gold is down -1.97% and the UBS-Bloomberg Ag Spot Index is down -1.21%. On the negative side, Oil Tanker, Oil Service, Ag, Steel, Computer, Disk Drive, Networking, Bank, I-Banking, Construction and Homebuilding shares are under significant pressure, falling more than -3.0%. Cyclicals are substantially underperforming again. Financial shares have been heavy throughout the day. Copper is falling -3.06% and Lumber is down -.5%. The 10Y T-Note Yield at 1.94%, 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 -5.08% over the last week and continues to trend lower from its peak in mid-December. Lumber is -5.5% 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 +705.0% 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. Major Asian indices fell around -1.75% overnight on growth worries, led by a -2.2% decline in Hong Kong shares. Major European indices fell around -3.25% today, led lower by a -3.6% decline in French shares. The Bloomberg European Financial Services/Bank Index plunged -4.4%. The Morgan Stanley Cyclical Index is close to testing its 50-day moving average and is down almost -5.0% over the last 5 days. While stocks may bounce in the morning on an expected positive ADP jobs report, I suspect more weakness will return before week's end. 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 mixed-to-lower into the close from current levels on rising Eurozone debt angst, high energy prices, rising global growth fears, less financial sector optimism, technical selling and profit-taking.