Stocks Falling into Final Hour on Rising Global Growth Fears, Eurozone Debt Angst, Rising Food/Energy Prices, Tech Sector Weakness

Broad Market Tone:

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

Equity Investor Angst:

• VIX 17.11 +2.21%
  
• ISE Sentiment Index 105.0 +11.7%
  
• Total Put/Call .93 -7.0%
  
• NYSE Arms 1.14 +87.27%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 112.98 +.99%
  
• European Financial Sector CDS Index 281.05 bps +2.90%
  
• Western Europe Sovereign Debt CDS Index 265.17 -2.9%
  
• Emerging Market CDS Index 253.19 -1.99%
  
• 2-Year Swap Spread 23.75 +.75 basis point
  
• TED Spread 36.75 +1.0 basis point
  
• 3-Month EUR/USD Cross-Currency Basis Swap -48.50 +1.0 basis point
  

Economic Gauges:

• 3-Month T-Bill Yield .09% unch.
  
• Yield Curve 124.0 -1 basis point
  
• China Import Iron Ore Spot $130.1/Metric Tonne -2.03%
  
• Citi US Economic Surprise Index -64.0 -2.4 points
  
• 10-Year TIPS Spread 2.08 unch.
  

Overseas Futures:

• Nikkei Futures: Indicating +21 open in Japan
• DAX Futures: Indicating -10 open in Germany
  

Portfolio:

• Slightly Higher: On gains in my biotech sector longs and index hedges
  
• Disclosed Trades: Added to my (IWM)/(QQQ) hedges and to my (EEM) short, then covered some of them
  
• Market Exposure: 50% Net Long

BOTTOM LINE: Today's overall market action is mildly bearish as the S&P 500 trades slightly lower on rising eurozone debt angst, tech financial sector weakness, rising food/energy prices, more disappointing US economic data, US "fiscal cliff" worries, earnings concerns and rising global growth fears. On the positive side, Energy shares are especially strong, rising more than +.75%. The Germany sovereign cds is falling -6.7% to 77.83 bps(-21.9% in 5 days), the France sovereign cds is down -4.7% to 162.99 bps and the UK sovereign cds is down -3.0% to 62.63 bps. On the negative side, Oil Tanker, Coal, Steel, Internet, Semi, Networking, HMO, Insurance and Restaurant shares are under pressure, falling more than -1.0%. Cyclicals are underperforming again. Tech shares are relatively heavy once again. Oil is up +1.2%, Copper is down -.3%, Lumber is falling -1.8% and the UBS-Bloomberg Ag Spot Index is surging another +2.0%. The UBS-Bloomerg Ag Spot Index is up +25.2% in about 6 weeks, which is rapidly becoming a problem for the hopes of further meaningful central bank stimulus in emerging markets. Rice is on the verge of a technical breakout, as well. The 10Y T-Note Yld is falling another -2 bps to 1.46%. Major Asian indices were mixed overnight as a +.6% gain in Australia was offset by a -1.74% decline in China. The Shanghai Comp is down -2.3% ytd and is testing its early Jan. lows. China’s ChiNext Index(Chinese Nasdaq) plunged -4.7% overnight and looks to be rolling over again technically. Major European are mostly lower, led down by a -2.0% decline in Spain. Spanish equities are now down -2.3% in 5 days and -23.7% ytd, which remains another red flag for the still deteriorating situation in the region. The Bloomberg European Bank/Financial Services Index is dropping -.5%. Brazilian equities are down -1.7% today and are losing -5.9% ytd as they test their early June lows. The Spain sovereign cds is up +1.3% to 562.12 bps, the Italy sovereign cds is gaining +1.1% to 501.37 bps and the China sovereign cds is gaining +1.7% to 115.67 bps. Moreover, the Italian/German 10Y Yld Spread is rising +1.6% to 487.63 bps, the Spain 10Y Yld is rising +2.3% to 6.82% and the European Investment Grade CDS Index is gaining +2.15% to 169.65 bps. US weekly retail sales have decelerated to a sluggish rate at +2.2%, which is the slowest since the week of April 5th of last year. US Trucking 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-Aug. levels. Lumber is -4.0% since its March 1st 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 -50.0% from its Oct. 14th high and is now down around -35.0% ytd. China Iron Ore Spot has plunged -28.0% since Sept. 7th of last year. Shanghai Copper Inventories have risen +145.0% ytd. Oil tanker rates have plunged recently, with the benchmark Middle East-to-US voyage down to 25.0 industry-standard worldscale points, which is the lowest since Oct. 2009. The CRB Commodities Index is now down -19.6% since May 2nd of last year despite the recent surge in food prices. I continue to believe the recent plunge in the German cds relative to the rest of Europe is related to traders’ rapidly shifting perceptions with regards to whether or not Germany is really going to puts its balance sheet on the line to “save” the euro. This is another large red flag for the entire situation, in my opinion. Spanish and Italian yields are back in the danger zone. Copper, oil, lumber and the euro currency remain in intermediate-term downtrends. The 10Y T-Note continues to trade too well, which remains a big red flag. I still believe the level of complacency among US investors regarding the rapidly deteriorating situation in Europe is fairly high. Key gauges of credit angst remain technically strong. The Citi Eurozone Economic Surprise Index is at -71.90 points, which is near the lowest since mid-Sept. of last year. Massive tax hikes and spending cuts are still yet to hit in several key eurozone countries that are already in recession. A lack of competitiveness remains unaddressed. Moreover, the “solutions” for the European debt crisis I still hear being bandied about are only bigger kick-the-cans that if implemented will eventually lead to an even bigger catastrophe as Germany is engulfed, in my opinion. The European debt crisis is also 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. I continue to believe the bar for additional QE is likely higher than the Fed is letting on. Uncertainty surrounding the effects on business of Obamacare, the "US fiscal cliff " and the election outcome uncertainty will likely become more and more of a focus for investors as the year progresses. Finally, the upcoming earnings season could prove 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. Stocks that miss earnings estimates are being severely punished despite the obvious headwinds. There is a growing disconnect between US equity action and the deteriorating macro environment that is eerily similar to last July, in my opinion. The macro likely must begin improving very soon for equities to avoid a similar fate into the fall. 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 rising eurozone debt angst, earnings worries, rising food/energy prices, rising global growth fears, more shorting, tech sector weakness, more weak US economic data and US "fiscal cliff" concerns.