Stocks Dropping into Final Hour on Rising Financial Sector Pessimism, Profit-Taking, Commodity Sector Weakness, More Economic Fear

Broad Market Tone:

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

Equity Investor Angst:

• VIX 21.04 +10.41%
  
• ISE Sentiment Index 106.0 -24.82%
  
• Total Put/Call .97 +19.75%
  
• NYSE Arms 1.58 +120.14%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 98.25 bps -.75%
  
• European Financial Sector CDS Index 97.08 bps -.91%
  
• Western Europe Sovereign Debt CDS Index 137.75 bps +.43%
  
• Emerging Market CDS Index 213.84 bps +4.76%
  
• 2-Year Swap Spread 18.0 -1bp
  
• TED Spread 16.0 +1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .13% unch.
  
• Yield Curve 212.0 -1 bp
  
• China Import Iron Ore Spot $152.20/Metric Tonne unch.
  
• Citi US Economic Surprise Index -4.90 +.9 point
  
• 10-Year TIPS Spread 2.08% unch.
  

Overseas Futures:

• Nikkei Futures: Indicating -74 open in Japan
• DAX Futures: Indicating -13 open in Germany

Portfolio:

• Lower: On losses in my Medical, Tech, Ag, Retail and Biotech long positions
  
• Disclosed Trades: Added (IWM)/(QQQQ) hedges, added to my (EEM) short
  
• Market Exposure: Moved to 75% Net Long

BOTTOM LINE: Today's overall market action is very bearish as the S&P 500 trades near session lows despite gains in Asia overnight and better housing starts data. On the positive side, Oil Tanker shares are rising .84%+. (IYR) has traded well throughout the day. The European Investment Grade CDS Index is down -1.31% to 83.98 bps. On the negative side, Coal, Al Energy, Energy, Oil Service, Gold, Steel, Computer Service, HMO, Gaming, Construction, Hospital, Networking and Disk Drive shares are under significant pressure, falling more than 3.0%. Copper is dropping -3.2% and Lumber is down -2.54%. Shanghai copper inventories have soared +60% over the last 5 days. Weekly retail sales rose +2.6% versus a +2.5% gain the prior week, but down from a +3.0% gain the first week of September. The 10-Year Yield is falling -4 basis points to 2.47%, despite today's equity strength and better housing data. The Greece sovereign cds is rising +2.2% to 680.20 bps, the Ireland sovereign cds is rising +2.25% to 403.38 bps, the Russia sovereign cds is gaining +1.92% to 137.0 bps and the Hungary sovereign cds is rising +3.92% to 283.53 bps. The Emerging Markets CDS Index has risen +9.3% over the last 5 days. The news today didn't warrant as big of a drop in the major averages as we have, which is a change in character and a large negative. I expect US stocks to trade mixed-to-lower into the close from current levels on rising financial sector pessimism, more shorting, profit-taking, greater economic fear and commodity sector weakness.