Stocks Falling into Final Hour on Profit-Taking, Technical Selling, More Shorting, Rising Economic Fear

Broad Market Tone:

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

Equity Investor Angst:

• VIX 24.01 +3.58%
  
• ISE Sentiment Index 212.0 +152.38%
  
• Total Put/Call .97 +16.87%
  
• NYSE Arms 1.09 +9.29%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 104.26 bps +1.0%
  
• European Financial Sector CDS Index 99.0 bps +2.54%
  
• Western Europe Sovereign Debt CDS Index 112.0 bps -.70%
  
• Emerging Market CDS Index 217.07 bps +1.75%
  
• 2-Year Swap Spread 17.0 -4 bps
  
• TED Spread 33.0 -1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .15% +1 bp
  
• Yield Curve 239.0 -2 bp
  
• China Import Iron Ore Spot $135.10/Metric Tonne -.88%
  
• Citi US Economic Surprise Index -41.10 -3.2 points
  
• 10-Year TIPS Spread 1.79% -1 bp
  

Overseas Futures:

• Nikkei Futures: Indicating -90 open in Japan
• DAX Futures: Indicating -2 open in Germany

Portfolio:

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

BOTTOM LINE: Today's overall market action is bearish as the S&P 500 trades near session lows after failing to hold above its 200-day moving average. On the positive side, Gold, Ag, Telecom and Wireless stocks are holding up relatively well. The 2-year swap spread is falling to the lowest level since April 29th. After consolidating gains for the last 10 days, the S&P GSCI Ag Spot Index is breaking out again, rising +2.4% today. Copper also continues to trade well. The Shanghai Composite rose +2.3% last night and has been trading much better of late. On the negative side, Gaming, Homebuilding, HMO, Hospital, Biotech, Medical Equipment, Disk Drive, Semi, Computer, Paper and Oil Tanker shares are under meaningful pressure, falling more than -2.0%. Cyclical and small-cap shares are underperforming. Tech shares have been a bit heavy throughout the day. 3-Month Euro Libor is rising slightly again today. The US Muni CDS Index is rebounding +3.82%, which is also a negative. The Asia Ex-Japan High-Yield CDS Index is rising +4.08% today to 607.83 bps. This index has been trending higher lately, nearing its highest level since last November, even with global equity strength. The 10-year yield is falling -5 bps to session lows at 3.0%. I want to see how overseas market's react tonight/tomorrow morning to our afternoon weakness before further shifting market exposure. I expect US stocks to trade mixed-to-lower into the close from current levels on technical selling, more shorting, profit-taking and rising economic fear.