Stocks Slightly Lower into Final Hour on Earnings Worries, US "Fiscal Cliff" Concerns, FOMC Commentary, Rising Global Growth Fears

Broad Market Tone:

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

Equity Investor Angst:

• VIX 18.67 -.27%
  
• ISE Sentiment Index 56.0 +5.66%
  
• Total Put/Call .95 -13.64%
  
• NYSE Arms .98 -57.10%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 111.99 +.47%
  
• European Financial Sector CDS Index 279.57 +.59%
  
• Western Europe Sovereign Debt CDS Index 276.75 -1.78%
  
• Emerging Market CDS Index 267.49 -2.42%
  
• 2-Year Swap Spread 23.50 -2.25 basis points
  
• TED Spread 36.50 -.5 basis point
  
• 3-Month EUR/USD Cross-Currency Basis Swap -54.50 +3.0 basis points
  

Economic Gauges:

• 3-Month T-Bill Yield .09% unch.
  
• Yield Curve 125.0 +1 basis point
  
• China Import Iron Ore Spot $134.0/Metric Tonne -1.11%
  
• Citi US Economic Surprise Index -64.50 +.4 point
  
• 10-Year TIPS Spread 2.08 unch.
  

Overseas Futures:

• Nikkei Futures: Indicating +9 open in Japan
• DAX Futures: Indicating -7 open in Germany
  

Portfolio:

• Slightly Lower: On losses in my tech, biotech and retail sector longs
  
• 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 off session lows, after testing its 50-day moving average, on disappointing FOMC commentary, eurozone debt angst, tech/consumer discretionary weakness, US "fiscal cliff" worries, rising energy prices, earnings concerns and rising global growth fears. On the positive side, Energy, Oil Service and Airlines shares are especially strong, rising more than +1.0%. Energy and financial shares have substantially outperformed throughout the day. Copper is gaining +.8% and the UBS-Bloomberg Ag Spot Index is down -.4%. The Germany sovereign cds is falling -6.0% to 91.16 bps, the Spain sovereign cds is down -2.2% to 558.90 bps, the Italy sovereign cds is down -2.2% to 496.55 bps, the UK sovereign cds is down -3.0% to 67.45 bps, the Saudi sovereign cds is down -6.6% to 115.82 bps and the Brazil sovereign cds is down -3.8% to 148.85 bps. On the negative side, Disk Drive, Networking, Biotech, Homebuilding, Retail and Education shares are under pressure, falling more than -1.25%. Cyclicals are underperforming again. Tech and consumer discretionary shares are heavy. Oil is rising +2.8%, Lumber is -.25% and Gold is up +.6%. The Citi Latin America Economic Surprise Index is falling another -12.5 points today to -33.7, which is the lowest since early-Aug. of last year. Major Asian indices were mixed overnight as a +.5% gain in China was offset by a -.7% loss in India. Major European indices are mixed as a +.8% gain in Spain(still down -5.4% in 5 days) is being offset by a -.5% loss in France. The Bloomberg European Bank/Financial Services Index is rising +.4%. Brazil is flat on the day. The Ireland sovereign cds is rising +.75% to 540.47 bps and the Japan sovereign cds is gaining +1.96% to 97.32 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 -26.0% since Sept. 7th of last year. Shanghai Copper Inventories have risen +140.0% 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 -21.0% 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. The 10Y T-Note 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 -74.60 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 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. The average stock, as measured by the Value Line Geometric Index, is underperforming the S&P 500 today. 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-lower into the close from current levels on eurozone debt angst, earnings worries, disappointing FOMC commentary, rising global growth fears, more shorting, tech/consumer discretionary weakness and US "fiscal cliff" concerns.