Stocks Falling into Final Hour on Surging Eurozone Debt Angst, Earnings Worries, Rising Global Growth Fears, Tech/Consumer Discretionary Weakness

Broad Market Tone:

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

Equity Investor Angst:

• VIX 18.52 +13.83%
  
• ISE Sentiment Index 67.0 -41.23%
  
• Total Put/Call .86 %
  
• NYSE Arms .75 -52.82%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 113.28 +1.76%
  
• European Financial Sector CDS Index 293.49 bps +3.04%
  
• Western Europe Sovereign Debt CDS Index 281.09 +3.92%
  
• Emerging Market CDS Index 274.17 +4.43%
  
• 2-Year Swap Spread 23.5 -1.0 basis point
  
• TED Spread 36.5 unch.
  
• 3-Month EUR/USD Cross-Currency Basis Swap -48.0 -1.75 basis points
  

Economic Gauges:

• 3-Month T-Bill Yield .09% unch.
  
• Yield Curve 122.0 -3 basis points
  
• China Import Iron Ore Spot $125.0/Metric Tonne -1.1%
  
• Citi US Economic Surprise Index -60.80 +3.7 points
  
• 10-Year TIPS Spread 2.04 -2 basis points
  

Overseas Futures:

• Nikkei Futures: Indicating -13 open in Japan
• DAX Futures: Indicating +9 open in Germany
  

Portfolio:

• Slightly Higher: On gains in my index hedges and emerging markets shorts
  
• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges and some of my (EEM) short
  
• Market Exposure: Moved to 50% Net Long

BOTTOM LINE: Today's overall market action is bearish as the S&P 500 trades off session lows, but meaningfully lower, on surging eurozone debt angst, tech/consumer discretionary sector weakness, high food prices, US "fiscal cliff" worries, earnings concerns, more shorting, profit-taking and rising global growth fears. On the positive side, Homebuilding and Coal shares are just slightly lower on the day. Oil is down -3.8%, the UBS-Bloomberg Ag Spot Index is down -1.7%, Gold is down -.7% and Lumber is gaining +.3%. On the negative side, Alt Energy, Oil Tanker, Energy, Ag, Steel, Software, Computer, Networking, Medical, Hospital, Construction, Restaurant, Gaming, Education, Airline and Road & Rail shares are under meaningful pressure, falling more than -2.0%. Consumer discretionary and tech shares have traded heavy throughout the day. Copper is falling -2.2%. The UBS-Bloomerg Ag Spot Index is still up +26.9% in about 7 weeks. The 10Y T-Note Yld is falling another -2 bps to 1.44%. The China benchmark Iron/Ore Spot Price Index has broken down again technically, falling -17.3% since April 13th and -31.7% since Sept. 7 of last year. As well, the China Hot Rolled Steel Sheet Spot Index is also picking up downside steam. Major Asian indices fell around -1.75% overnight, led lower by a -3.0% decline in Hong Kong. The Shanghai Comp fell another -1.3% and is testing its early-Jan. lows. This index is down -24.5% since April 18th of last year despite investor hopes for another massive stimulus package and perceptions of an economic soft-landing. Major European indices are falling around -2.5%, led lower by a -3.2% decline in Germany. Italian equities are falling another -2.8% and have plunged -7.8% in 5 days. Italian shares are down -16.5% ytd and close to testing their March 9th 2009 lows. Spanish equities hit the lowest since March 2003 today and are down -29.0% ytd, which remains another large red flag. The Bloomberg European Bank/Financial Services Index is falling another -2.65% and is down -5.5% in 5 days. Brazilian shares are falling -2.4% to the low-end of the range they have been in since May.The Germany sovereign cds is rising +5.5% to 82.48 bps, the France sovereign cds is jumping +7.0% to 182.50 bps, the Italian sovereign cds is gaining +4.47% to 549.66 bps and the Spain sovereign cds is up 4.2% to 630.35 bps, the Russia sovereign cds is up +7.8% to 207.08 bps, the China sovereign cds is gaining +4.5% to 121.05 bps and the Brazil sovereign cds is up +3.5% to 147.83 bps. Moreover, the European Investment Grade CDS Index is jumping +3.8% to 175.35 bps, the Italian/German 10Y Yld Spread is gaining +3.3% to 516.25 bps and the Spain 10Y Yld is jumping +3.7% to 7.50%. US weekly retail sales have decelerated to a sluggish rate at +2.0%, which is the slowest since the week of April 5th of last year. US Trucking Traffic continues to soften. The ASA Staffing Index just took a large weekly tumble. Moreover, the Citi US Economic Surprise Index has fallen back to late-Aug. levels. Lumber is -1.0% 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 investor perceptions of 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 -40.0% ytd. Shanghai Copper Inventories have risen +114.0% 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 -17.3% since May 2nd of last year despite the recent surge in food prices. I cautioned recently over the precipitous fall in the German cds versus the Spain/Italy cds. Comments by German officials over the weekend only increase my skepticism regarding investor perceptions that Germany will put its balance sheet on the line to save the euro. The Spain sovereign cds and Spanish 10Y Yld are making all-time highs today. The Italy sovereign cds is only 53 bps away from its Nov. 15th all-time high. The European Investment Grade CDS Index and Financial Sector Index are close to breaking out technically, as well. This is extremely concerning given the perceived recent can-kicking. Copper and the euro currency remain in intermediate-term downtrends and trade poorly. The 10Y T-Note continues to trade too well, which remains a big red flag. There still appears to be a fairly high level of complacency among US investors regarding the still-deteriorating macro backdrop. The Citi Eurozone Economic Surprise Index is at -57.80 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. 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. The odds for QE3 are likely meaningfully lower than investors currently perceive as food prices soar and energy prices rebound. If the Fed embarks on another misguided round of QE, the Ag Spot Index should push through its Aug. 31, 2011 all-time high. This would likely also lead to another surge in energy prices as it would spur another bout of rioting in the Middle-East and other emerging markets. As well, it would greatly curtail any emerging markets stimulus plans, in my opinion. It is unlikely the Fed would take this risk ahead of an election, in my opinion. 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. Three of the main reasons US stocks had been rallying were the beliefs that QE3 was imminent, China would embark on another massive easing campaign and Europe had successfully kicked the can once again. However, as I stated above, soaring food prices/rising energy costs make QE3 much less likely, in my opinion. Recent comments by Chinese officials suggest a more subdued approach to easing and an unwillingness to let their real estate bubble begin re-inflating. Soaring food prices also put a large dent in emerging markets easing plans. Finally, the surge in Spanish yields to records and breakouts in other European debt angst gauges suggests the recent European debt crisis can-kicking may have already run its course. There had been a growing disconnect between US equity action and the deteriorating macro environment that was 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 mixed-to-lower into the close from current levels on surging eurozone debt angst, earnings worries, high food prices, rising global growth fears, more shorting, consumer discretionary/tech sector weakness, profit-taking and US "fiscal cliff" concerns.