Stocks Reversing Lower into Final Hour on Disappointing US Economic Data, Eurozone Debt Angst, Consumer Cyclicals Weakness, Technical Selling

Broad Market Tone:

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

Equity Investor Angst:

• VIX 23.89 +8.15%
  
• ISE Sentiment Index 92.0 +17.95%
  
• Total Put/Call 1.26 +10.53%
  
• NYSE Arms 1.02 +82.50%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 125.44 +1.72%
  
• European Financial Sector CDS Index 289.21 -1.25%
  
• Western Europe Sovereign Debt CDS Index 321.20 -.60%
  
• Emerging Market CDS Index 300.86 -.64%
  
• 2-Year Swap Spread 30.25 -.25 basis point
  
• TED Spread 38.25 +.5 basis point
  
• 3-Month EUR/USD Cross-Currency Basis Swap -54.75 +1.25 basis point
  

Economic Gauges:

• 3-Month T-Bill Yield .09% unch.
  
• Yield Curve 130.0 -7 basis points
  
• China Import Iron Ore Spot $133.70/Metric Tonne +.45%
  
• Citi US Economic Surprise Index -53.60 -5.2 points
  
• 10-Year TIPS Spread 2.10 -4 basis points
  

Overseas Futures:

• Nikkei Futures: Indicating a -62 open in Japan
• DAX Futures: Indicating -26 open in Germany
  

Portfolio:

• Slightly Lower: On losses in my tech, retail and biotech sector longs
  
• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges, covered some of my (EEM) short, then added them back
  
• Market Exposure: 50% Net Long

BOTTOM LINE: Today's overall market action is bearish as the S&P 500 trades near session lows on rising Eurozone debt angst, more disappointing US economic data, consumer cyclicals weakness and rising global growth fears. On the positive side, Drug, Airline and Tobacco shares are slightly higher on the day. The UBS-Bloomberg Ag Spot Index is falling -1.02% and Oil is down -1.1%. Major Asian indices were mostly higher overnight, led by a +1.3% gain in China. The Germany sovereign cds is down -1.9% to 107.58 bps, the France sovereign cds is down -2.3% to 211.67 bps, the Spain sovereign cds is down -1.3% to 599.33 bps and the Italy sovereign cds is down -2.3% to 551.33 bps. On the negative side, Alt Energy, Oil Tanker, Oil Service, Networking, Homebuilding, Retail, Education, HMO, Biotech and I-Banking shares are under meaningful pressure, falling more than -1.5%. Lumber is falling -.8%, Copper is falling -.6% and Gold is gaining +.3%. Major European indices are mostly lower, led down by a -.65% decline in Italy. Italian shares are now down -4.0% in 5 days and down -14.5% ytd as they approach their June 1 lows, which is a big red flag. The Bloomberg European Bank/Financial Services Index is down -.04%. This Nigel Farage video is making the rounds today. The Italy 10Y Yld is rising +.7% to 6.75% and the Spain 10Y Yld is gaining +.7% to 6.22%. Weekly retail sales have decelerated to a sluggish rate. 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 early-Sept. levels. Lumber is -6.0% 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 -60.0% from its Oct. 14th high and is now down around -50.0% ytd. China Iron Ore Spot has plunged -25.0% since Sept. 7th of last year. Shanghai Copper Inventories have risen +154.0% ytd. The CRB Commodities Index is now technically in a bear market, having declined -26.9% since May 2nd of last year. Overall, recent credit gauge deterioration remains a big worry as most key sovereign cds remain technically strong. The euro currency continues to trade poorly despite today's bounce higher. Oil, lumber and copper also trade poorly given global central bank stimulus hopes and recent stock gains. As well, the 10Y continues to trade too well. I still believe the level of complacency among US investors regarding the rapidly deteriorating situation in Europe is fairly high. While European officials' kick-the-can smoke-n-mirrors short-sighted "solutions" to the debt crisis may temporarily placate investors, economies in the region are likely accelerating their contractions right now. As well, the European debt crisis is really beginning to bite emerging market economies now, which will also 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. The upcoming earnings season could proving more challenging than usual for big multi-nationals given US dollar strength and the precipitous declines in some key parts of the global economy during the quarter. Global central bank stimulus hopes have been propping up US stocks, but I still believe there is too much uncertainty on the horizon to conclude a durable stock market low is in place. 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. I expect US stocks to trade modestly lower into the close from current levels on more disappointing US economic data, rising global growth fears, rising Eurozone debt angst, more shorting, technical selling and consumer cyclical weakness.