Stocks Lower into Final Hour on Profit-Taking, Rising Economic Fear

Broad Market Tone:

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

Equity Investor Angst:

• VIX 22.28 +1.14%
  
• ISE Sentiment Index 128.0 +.79%
  
• Total Put/Call .84 -7.69%
  
• NYSE Arms 1.62 +312.51%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 100.23 bps -.55%
  
• European Financial Sector CDS Index 90.66 bps -4.49%
  
• Western Europe Sovereign Debt CDS Index 110.33 bps -1.80%
  
• Emerging Market CDS Index 206.80 bps +.80%
  
• 2-Year Swap Spread 16.0 -1 bp
  
• TED Spread 30.0 unch.
  

Economic Gauges:

• 3-Month T-Bill Yield .14% unch.
  
• Yield Curve 237.0 -3 bps
  
• China Import Iron Ore Spot $142.80/Metric Tonne +1.13%
  
• Citi US Economic Surprise Index -33.80 +.2 point
  
• 10-Year TIPS Spread 1.83% -1 bp
  

Overseas Futures:

• Nikkei Futures: Indicating -49 open in Japan
• DAX Futures: Indicating -4 open in Germany

Portfolio:

• Slightly Higher: On gains in my Biotech and Medical long positions
  
• Disclosed Trades: None
  
• Market Exposure: 100% Net Long

BOTTOM LINE: Today's overall market action is mildly bearish as the S&P 500 trades just slightly lower, despite more weak economic data, recent stock gains and weakness in Shanghai overnight. On the positive side, HMO, Drug, Computer Service, Networking, Gold and Hospital stocks are especially strong, rising .5%+. The European Investment Grade CDS Index is falling another -3.63% today to 91.83 bps. The European Financial Sector CDS Index is now at the lowest level since April 26th, which is a major positive. The UK sovereign cds is falling -6.6% to 55.75 bps, which is the lowest since Nov. 13th, 2009. Weekly retail sales rose +2.9% this week versus a +2.8% gain the prior week, which is also a positive given recent consumer sentiment readings. On the negative side, Airline, Education and Homebuilding shares are under meaningful pressure, falling 2.0%+. Cyclicals are underperforming, with the Transports falling -1.3%. Lumber is falling -4.0%. The 10-year yield is falling -6 bps, which is a mild negative. I would classify today's mild setback as a consolidation of recent gains. Tomorrow's ADP employment report and jobless claims on Thur. take on added importance ahead of Friday's jobs report. I suspect the major averages make another attempt to push higher before week's end. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, technical buying, mostly positive earnings reports and bargain-hunting.