Stocks Falling into Final Hour on Rising Eurozone Debt Angst, Less US Economic Optimism, Financial/Homebuilder Sector Weakness, More Shorting

Broad Market Tone:

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

Equity Investor Angst:

• VIX 23.32 +10.89%
  
• ISE Sentiment Index 83.0 -8.79%
  
• Total Put/Call 1.34 +38.14%
  
• NYSE Arms 1.91 +314.51%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 122.33 +4.84%
  
• European Financial Sector CDS Index 298.90 +3.07%
  
• Western Europe Sovereign Debt CDS Index 321.34 +2.33%
  
• Emerging Market CDS Index 328.13 +3.07%
  
• 2-Year Swap Spread 35.0 +.75 basis point
  
• TED Spread 40.0 +1.0 basis point
  
• 3-Month EUR/USD Cross-Currency Basis Swap -50.75 -3.5 basis points
  

Economic Gauges:

• 3-Month T-Bill Yield .07% -1 basis point
  
• Yield Curve 135.0 -10 basis points
  
• China Import Iron Ore Spot $134.80/Metric Tonne +1.74%
  
• Citi US Economic Surprise Index -30.0 +.2 point
  
• 10-Year TIPS Spread 2.07 -5 basis points
  

Overseas Futures:

• Nikkei Futures: Indicating a -140 open in Japan
• DAX Futures: Indicating -3 open in Germany
  

Portfolio:

• Slightly Lower: On losses in my Biotech and Tech sector longs
  
• Disclosed Trades: Added to my (IWM)/(QQQ) hedges, added to my (EEM) short, 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 gives back much of its recent gain on rising Eurozone debt angst, financial/homebuilder sector weakness, less US economic optimism, the ongoing decline in (FB) shares and rising global growth fears. On the positive side, Defense shares are holding up relatively well, falling less than -.5%. Oil is falling -3.6%. On the negative side, Coal, Alt Energy, Oil Tanker, Energy, Oil Service, Steel, Internet, Disk Drive, Networking, Bank, I-Banking, Hospital, Construction, Homebuilding, REIT, Retail, Education and Road&Rail shares are under significant pressure, falling more than -2.0%. Cyclical and Small-cap shares have traded poorly throughout the day. The financial/homebuilding sectors have also underperformed. Lumber is falling -2.6%, Copper is dropping another -2.4% and Gold is gaining +.6%. Major Asian indices fell around -.75% overnight, led lower by a -1.92% decline in Hong Kong. Major European indices fell around -2.0%, led lower by a -2.6% decline in Spain. Spain is now down -5.4% in 5 days and down -28.9% ytd, which remains a huge red flag. The Bloomberg European Bank/Financial Services Index is down -1.6%. This index is down -3.3% in 5 days and down -25.1% since March 19th. The France sovereign cds is jumping +6.3% to 214.33 bps, the Spain sovereign cds is jumping +5.1% to 588.83 bps, the Italy sovereign cds is gaining +5.3% to 549.51 bps, the Germany sovereign cds is gaining +3.0% to 102.16 bps, the UK sovereign cds is gaining +3.0% to 74.82 bps and the Brazil sovereign cds is gaining +3.6% to 165.65 bps. The Italian/German 10Y Yld Spread is rising +5.9% to 466.52 bps(+8.4% in 5 days). Moreover, the European Investment Grade CDS Index is gaining +4.2% to 177.36 bps. US Rail Traffic continues to soften. The Philly Fed ADS Real-Time Business Conditions Index continues to trend lower from its late-December peak. Moreover, the Citi US Economic Surprise Index has fallen back to late-Sept. levels. Lumber is -3.0% since its Dec. 29th high despite improving sentiment towards homebuilders and the broad equity rally ytd. Moreover, the weekly MBA Home Purchase Applications Index has been around the same level since May 2010 despite expectations for a strong spring home selling season. The Baltic Dry Index has plunged around -55.0% from its Oct. 14th high and is now down around -40.0% ytd. China Iron Ore Spot has plunged -25.0% since Sept. 7th of last year. Shanghai Copper Inventories have risen +238.0% ytd. The CRB Commodities Index is now technically in a bear market, having declined -25.3% since May 2nd of last year. Overall, recent credit gauge deterioration remains a big worry as most key sovereign cds remain technically strong. I still believe the level of complacency among US investors regarding the rapidly deteriorating situation in Europe is still fairly high. The Italian/Spanish economies appear to be in freefall, which will further intensify sovereign pressures. The 10Y T-Note continues to soar, copper trades very poorly and the euro can’t even sustain a bounce. I still believe there is still too much uncertainty on the horizon to conclude a durable stock market low is in place after the recent pullback. Spain is rapidly approaching full-blown crisis. I still don’t hear any viable “solutions” to the European debt crisis and it is really beginning to bite emerging market economies now, which will further pressure exports from the region and further raise the odds of more sovereign/bank downgrades. As well, the "US fiscal cliff "will become more and more of a focus for investors as the year progresses. For this year's equity advance to regain traction, I would expect to see a resumption in European credit gauge improvement, a subsiding of hard-landing fears in key emerging markets, a rising 10-year yield, better volume, stable-to-lower energy prices, a US "fiscal cliff" solution and higher-quality stock market leadership. One of my longs, (TFM), made a new record high today on an excellent earnings report. I still see substantial outperformance for the shares over the intermediate-term. I expect US stocks to trade mixed-to-lower into the close from current levels on rising Eurozone debt angst, rising global growth fears, less US economic optimism, financial sector weakness and more shorting.