Stocks Slightly Lower into Final Hour on Soaring Long-Term Rates, Financial Sector Pessimism, China Inflation Worries, Technical Selling

Broad Market Tone:

• Advance/Decline Line: Slightly Higher
  
• Sector Performance: Mixed
  
• Volume: Slightly Below Average
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 17.63 +.46%
  
• ISE Sentiment Index 147.0 -15.03%
  
• Total Put/Call .97 +51.56%
  
• NYSE Arms 1.16 +79.23%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 85.99 bps -.12%
  
• European Financial Sector CDS Index 138.45 bps -.97%
  
• Western Europe Sovereign Debt CDS Index 184.17 bps -1.78%
  
• Emerging Market CDS Index 208.44 bps -1.14%
  
• 2-Year Swap Spread 22.0 +1 bp
  
• TED Spread 18.0 unch.
  

Economic Gauges:

• 3-Month T-Bill Yield .13% +1 bp
  
• Yield Curve 283.0 +14 bps
  
• China Import Iron Ore Spot $167.50/Metric Tonne +.36%
  
• Citi US Economic Surprise Index +11.0 +9.6 points
  
• 10-Year TIPS Spread 2.22% +2 bps
  

Overseas Futures:

• Nikkei Futures: Indicating +70 open in Japan
• DAX Futures: Indicating +2 open in Germany

Portfolio:

• Slightly Higher: On gains in my Medical and Biotech long positions
  
• Disclosed Trades: None
  
• Market Exposure: 75% Net Long

BOTTOM LINE: Today's overall market action is mildly bearish as the S&P 500 trades slightly lower despite less eurozone debt angst and mostly positive economic data. On the positive side, Hospital, Biotech, Medical Equipment and Telecom shares are especially strong, rising more than 1.0%. The Spain sovereign cds is dropping -3.04% to 324.80 bps and the Portugal sovereign cds is falling -3.56% to 451.80 bps. Weekly retail sales rose +3.1% this week versus a +3.8% gain the prior week. On the negative side, Education, Gaming, REIT, Bank, Disk Drive, Networking, Alt Energy, Oil Tanker and Computer Hardware shares are under meaningful pressure, falling more than 1.0%. (XLF)/(IYR) have underperformed throughout the day and the transports are relatively weak again today. The Asia Ex Japan High Yield CDS Index is up another +1.38% and has risen +4% over the last five days. As well, the US Muni CDS Index is up another +.18% and has jumped +14% over the last five days. Shanghai copper inventories are jumping +5.4% and have risen +16.5% over the last five days to the highest level since May 20th. Short/intermediate-term gauges of investor sentiment remain overly bullish, which is a big negative. The financials had been propping up the broad market of late. They are now rolling over. As well, a number of market leaders are a bit "tired." I expect US stocks to trade modestly lower into the close from current levels on China inflation worries, profit-taking, US tax policy uncertainty, more shorting, soaring long-term rates, technical selling and ongoing eurozone debt fears.