Stocks Slightly Lower into Final Hour on US "Fiscal Cliff" Worries, Rising Food/Energy Prices, Earnings Concerns, Rising Global Growth Fears

Broad Market Tone:

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

Equity Investor Angst:

• VIX 18.21 +6.49%
  
• ISE Sentiment Index 103.0 -5.5%
  
• Total Put/Call .99 -9.17%
  
• NYSE Arms 1.66 -19.60%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 111.95 -.63%
  
• European Financial Sector CDS Index 282.36 -.18%
  
• Western Europe Sovereign Debt CDS Index 284.99 +.50%
  
• Emerging Market CDS Index 279.98 +.29%
  
• 2-Year Swap Spread 26.0 +.75 basis point
  
• TED Spread 38.75 unch.
  
• 3-Month EUR/USD Cross-Currency Basis Swap -58.75 +.25 basis point
  

Economic Gauges:

• 3-Month T-Bill Yield .07% unch.
  
• Yield Curve 125.0 -2 basis points
  
• China Import Iron Ore Spot $135.50/Metric Tonne +.30%
  
• Citi US Economic Surprise Index -62.60 -.1 point
  
• 10-Year TIPS Spread 2.07 unch.
  

Overseas Futures:

• Nikkei Futures: Indicating +3 open in Japan
• DAX Futures: Indicating +13 open in Germany
  

Portfolio:

• Slightly Higher: On gains in my medical/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 just mildly bearish as the S&P 500 trades slightly lower on rising eurozone debt angst, tech/commodity sector weakness, US "fiscal cliff" worries, rising food/energy prices, earnings concerns and rising global growth fears. On the positive side, Medical, Biotech, HMO and Drug shares are flat-to-higher on the day. Lumber is gaining +1.2% and Copper is gaining +.8%. On the negative side, Coal, Alt Energy, Semi, Disk Drive, Networking, I-Banking, Education and Airline shares are under meaningful pressure, falling more than -1.5%. Cyclicals are underperforming. Tech shares are especially heavy again. The UBS Bloomberg Ag Spot Index is jumping another +2.8%(this index has surged +21.8% in less than six weeks, which is a large negative for several key emerging market economies that still have inflation problems), Oil is rising +2.0% and Gold is up +.3%. The 10Y Yld is falling -4 bps to 1.51%. The Citi Latin America Economic Surprise Index is falling another -3.5 points today to -21.4, which is the lowest since early-Aug. of last year. Major Asian indices fell around -1.25% overnight, led down by a -2.4% decline in Chinese shares. The Shanghai Composite is the worst-performing Asian index year-to-date, falling -1.3%. The index is also testing its early Jan. lows and is down -2.5% in 5 days despite rising stimulus hopes and some better economic data, which is a big red flag. It appears as though investors are more focused on whether or not the Chinese let their real estate bubble begin to further inflate rather than other forms of stimulus. Major European indices are mostly lower, led down by a -.7% decline in Spain. Spanish equities are down -6.0% in 5 days and down -21.9% ytd. The Bloomberg European Bank/Financial Services Index is falling -.33%. The Germany sovereign cds is rising +.7% to 99.74 bps, the Italy sovereign cds is gaining +1.33% to 521.99 bps(+11.5% in 5 days), the Spain sovereign cds is up +1.59% to 587.5 bps(+15.3% in 5 days), the China sovereign cds is up +2.7% to 119.51 bps and the Brazil sovereign cds is gaining +1.8% to 155.83 bps. The Italian/German 10Y Yld Spread is rising +1.8% to 478.38 bps(+13.5% in 5 days). Moreover, the European Investment Grade CDS Index is gaining +.5% to 172.55 bps(+6.5% in 5 days). 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 -3.0% 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 -25.0% since Sept. 7th of last year. Shanghai Copper Inventories have risen +138.0% 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 technically in a bear market, having declined -20.5% since May 2nd of last year. Spanish and Italian yields are back in the danger zone. Copper, oil and the euro are seeing mild bounces today on global central bank stimulus hopes and Iran saber-rattling/Norway oi production concerns/Saudi social unrest. Despite the rise in the CRB Index today, commodity equities are weak. As well, the 10Y continues to trade too well, which remains a 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 -74.10 points, which is 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. QE was a huge mistake, in my opinion, as it played a large role in the current global slowdown by helping to jack up commodity prices, thus creating significant inflation problems in key emerging market economies. Officials in these economies slammed on the brakes, which cut demand for goods and services from the Eurozone right when they needed that demand the most. Uncertainty surrounding the effects on business of Obamacare, the "US fiscal cliff " and 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. 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 mixed-to-higher into the close from current levels on short-covering, global central bank stimulus hopes, strength in shares of market-leader (AAPL), a bounce in the euro currency and bargain-hunting. Long AAPL