• These types of panic moves are usually not sustainable.

The S&P futures are down further after the news that a third explosion might have occurred at the John F. Kennedy Library about three miles from the finish line at the Boston Marathon. 

My guess is that they are unrelated.

My experience in the investment business is that these sort of "newsy" markets (especially the nature of today's news) incorporate a great deal of panic selling which has an artificiality to it (and is typically not durable in moves).

Even thought the event in Boston was horrific, as traders (and investors) we should view this opportunistically.

While this has been an awful event and I remain bearish, the above observation and experience suggest to me that I should take in my entire SPDR S&P 500 (SPY) short, which I just did (Spyders are trading at 154.70 now).

• Keep the injured and distressed in your thoughts.

I am happy to write that I have heard from Mikey Holland's son, Danny, and Mikey is fine, as he was rerouted at the Boston Marathon.

I never thought I would say it, but I am glad his near 70-year-old legs no longer perform like 30-year-old legs.  

Enjoy your evening and pray for those that were injured.

We will return to the markets tomorrow -- hopefully after there is no further news of explosion in Boston.

• My thoughts are with the entire Holland family on the hopes that he is OK.

My concern today is not with the markets; it is for the health of my buddy/pal/friend Mikey Holland who ran in something like his 25th Boston Marathon.

My thoughts and prayers are with the entire Holland family on the hopes that he is OK.

• The market is getting panicky.

Housekeeping item: The iShares Russell 2000 Index Fund (IWM) is down by nearly $4 a share now.

I can't recall a drop this large in quite a while.

I have just covered my IWM short (under $90), as the market is getting panicky folowing the news of explosions near the finish line at the Boston Marathon and possibly elsewhere in the city.

• Here is the firm's take on days similar to today.

Some great data from my friends at btig on big down days: 

Market is down > 1.5% as of 3PM EST.  In the 321 trading days since Jan 1, 2012 - This has only happened 10 times, or 3% of the time.  As you can see by the data below, in this Bull tape the market has reacted well to these distribution days on average over the next day, week and 2 week periods, outperforming the market's normal production from any random date over that time frame.

• It stinks!

Not surprisingly, breadth is a bad as its been all year:

• S&P 500 -- 9 advancers to 490 decliners
• NYSE -- 55 advancers to 1,825 decliners
• Nasdaq -- 241 advancers to 2,014 decliners
• Russell 2000 -- 51 advancers to 1,890 decliners

• Hopefully, I will be back by the close.

The folks from ABC's "Good Morning America" are coming by to film me for a segment on gold to be broadcast tomorrow morning.

Hopefully, I will be back by the close.

• Northwest Bancshares and Ford have my attention -- and that's about it.

I am bidding for Northwest Bancshares (NWBI) at $12, Ford (F) under $13 and, otherwise doing little.

• Yields on the 10-year are now at 1.70%.

The 10-year U.S. note yield is now at 1.70% -- or at "shooting apples in the barrel levels" on the ProShares UltraShort 20-Year-Plus Treasury ETF (TBT).

At least hopefully!

10-Year Yield

Bloomberg

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• I have sold some recently purchased April puts in the SPY. 

I have just sold my April SPDR S&P 500 (SPY) 157 puts that I recently purchased, as there are only four more trading days to expiration of the series.

• I'm covering the short positions on QQQ and IWM from last week.

Housekeeping item.

I just covered my PowerShares QQQ (QQQ) and iShares Russell 2000 (IWM) shorts from late last week.

• I exited the trade at $24.12.

Housekeeping item: I have covered my Yahoo! (YHOO) short at $24.12 just now.

• There's a fungus among us. 

Green Mountain Coffee Roasters (GMCR) is trading about 3% lower after research boutique Detwiler says that both Green Mountain and Starbucks (SBUX) K-Cups are being discounted aggressively in grocery stores over the last four weeks.

Detwiler sees long-term pressure on Green Mountain's margins from growing competition and higher coffee prices (due to the royal fungus in Latin America).

• The benchmark index is diverging from oil, the 10-year yield, gold and EUR/USD.

Four important 12-month charts that are diverging from the S&P 500 and suggest that caution is in order. 

1. Oil prices vs. the S&P 500

2. The 10-year U.S. note's yield vs. the S&P 500

3. The price of gold vs. the S&P 500

4. The EUR/USD cross vs. the S&P 500

• The index is leading the way to the downside.

The Russell 2000 is leading to the downside, meaning to me that the average stock is suffering worse than the indices.

• This is supportive of slowing domestic growth thesis.

Break in: The weak NAHB release (42 vs. expectations of 45) is supportive of my slowing domestic growth thesis.

• Here it is.

Below is this week's economic calendar.

Economic Calendar

Source: Bloomberg

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• This release is another indicator of slowing domestic economic growth.

The April New York Manufacturing Survey dropped unexpectedly to 3.1 compared to 9.2 in March and 10.0 in February. Expectations were for +7.

This release is another indicator of slowing domestic economic growth.

New orders, shipments and backlogs all moved lower.

The six-month outlook dropped.

Employment data were more upbeat, with the average workweek higher as well as other labor responses.

The New York survey is the first of the regional manufacturing surveys to report.

• Evidence continues to mount that the global economy is eroding and that S&P profits estimates are in jeopardy.

"The Zen philosopher Basho once wrote, 'A flute with no holes is not a flute. And a doughnut with no hole is a danish.'"

-- Ty Webb (Chevy Chase), Caddyshack

In looking back, the biggest surprise to me through the first three months of the year is that P/E multiples have expanded despite unprecedented secular economic and employment challenges, with growing evidence that the global economic outlook is eroding and that the bullish consensus estimates for S&P 500 profits is in jeopardy.

Faith, Low Interest Rates and Liquidity Have Buoyed Markets

So far in 2013, the U.S. stock market has risen based on extraordinary doses of liquidity injections and growing confidence that global easing will trickle down, improving overall confidence, lifting jobs growth, buoying the world's economies and propelling corporate profits to new records.

There Is No Free Lunch

It remains my view, however, that there is no free lunch associated with the grand experiment of almost unlimited quantitative easing. It is as if the central bankers are trying to repeal the laws of investment gravity, as countries and regions of the world make a mad dash to debase their currencies in an attempt to spur export growth.

Monetary policy is camouflaging the underlying weakness in worldwide economic growth and is contributing to an artificiality in today's elevated stock and bond prices. Indeed, virtually all economic indicators point to weakness in March, as the fiscal drag (higher taxes, lower government spending and the distortion in traditional corporate hiring practices, owing to the implementation of the Affordable Care Act) that I have often written about in my diary has begun to show up.

I use the Caddyshack epigraph as a metaphor for the increased ineffectiveness and reduced influence of quantitative easing on our domestic economic activity.

Continued massive monetary easing in the U.S. has lost much of its overall marginal impact -- there is still little credit growth. With "QE Infinity" no longer producing a tangible influence on the real economy, more easing is much like a flute without holes that cannot be played or a doughnut without holes (not being a doughnut but rather a danish).

While many are certain that continued liquidity will feed a steady market climb into 2014, sooner than later, there will likely be an "aha moment," a moment in time when the aggressive monetary policies are recognized as not only impotent and ineffective but as likely having adverse unintended consequences (such as producing currency wars). At that point in time, natural price discovery will be reintroduced into the capital markets, and stocks and bonds will retreat back closer to intrinsic or fair market values, which I view as well below current levels.

Golden Apples?

For those who believe that the U.S. stock market feels like it will never decline (and that global easing is the panacea for growth and will produce ever-rising share prices), I suggest you look at the price of gold in mid-September 2011 and/or the price of Apple's (AAPL) shares in late-September 2012. At those points in time, investor sentiment was at an extreme. Now look at the subsequent price drops following those heights and where those prices stand today. Gold futures have dropped by almost 10% since last Thursday's close, following a lengthy decline that had already occurred, and Apple's shares now stand at near $425 a share compared to $700 a share just six months ago.

Holders of gold (or gold-mining shares) and/or Apple shares feel far different today than when the commodity or shares were embraced in an extreme sentiment pull toward inappropriate valuations months ago.

The only thing I remain certain of is the lack of certainty and that some of the emerging fundamental and technical conditions are consistent with classic top signs over stock market history.

Global Growth Is Slowing, and a U.S. Recession Is Possible

Instead of producing an acceleration in economic growth in the U.S. and elsewhere, it is my view that global growth is now starting to slow to a rate that jeopardizes the bullish consensus on corporate profits.

In the U.S., it can now be argued that the marginal impact of more monetary stimulation is not only having a limited impact but that it may be beginning to even have a negative effect on growth in the real economy by robbing interest income from the savings class.

I maintain an out-of-consensus view that a recession in the U.S.by 2014 holds about a 50% probability.

Meanwhile the outlook for the European economies deteriorates almost daily. This is particularly true for the southern countries in the eurozone that appear to be in an economic death spiral. The most recent economic data out of France has been much worse than generally forecast, and, not surprisingly, Germany appears to be catching a bad economic cold.

Last night, following weaker-than-expected economic data from the U.S. and eurozone, China's GDP economic data and industrial production release failed to meet expectations, serving to reinforce the notion that the pace of global economic activity is moderating. But even before yesterday's data, China's rosy economic outlook could be disputed as the on-the-ground data are generally inconsistent with the public healthy growth releases.

The Line Between Progress and Reality Is Blurred

The gap between the rising U.S. stock market and the visible deceleration in the rate of global economic growth has been widening in a more dramatic and conspicuous fashion over the past several weeks, and my cautious market view is growing more bearish.

The weakness in the most recent U.S. March ISM release, the fall in consumer and small business confidence, disappointing March retail sales, a sharp drop in the Citigroup U.S. Surprise Index, worsening EU economies and/or any of a number of other factors affirm that global growth is slowing to a rate that will likely imperil the ambitious consensus for corporate profits. Other recent endorsements of the slowing global growth thesis include (most notably) the intensification in the drop in commodity prices (copper and gold, in particular). Also:

• U.S. Treasury yields are falling;
• the yield curve is flattening;
• the high-yield credit market is no longer rallying;
• the economically sensitive transportation index is faltering;
• there has been a near-record percentage in the number of companies issuing earnings warnings;
• the U.S. stock market leadership is focused on defensive high-quality consumer staple stocks (paying relatively high dividends) as opposed to aggressive, high-beta stocks; and
• with the exception of the U.S. and Japan, many markets around the world are struggling.

All of the above conditions are indicative of moderating worldwide economic growth and have historically been associated with market tops -- or, at the very least, a more hostile environment for stocks.

Consensus Corporate Profits Expectations Are Overly Optimistic

If we distill my multiple concerns into one concern, it is the more difficult earnings backdrop that should become increasingly apparent to market participants in the near term.

Given that the growth in nominal U.S. GDP is trending at under 4%, corporations have little in the way of pricing power. And with profit margins at all-time highs and nearly 70% above the mean levels achieved in the last seven decades, earnings forecasts are threatened based on slowing top-line growth and a likely mean reversion in margins.

Though early in the reporting period, a chill in early first-quarter earnings is already visible (across many industries). Fastenal (FAST), FedEx (FDX), J.B. Hunt Transport Services (JBHT), Harris Corporation (HRS) and many leading technology companies have missed consensus forecasts and/or lowered forward guidance -- even during a first quarter in which the U.S. will likely exhibit +3% real GDP.

I remain fearful of what will happen to earnings when the rate of real growth in the domestic economy halves to around +1.5% over the last three quarters of the year.

An Extreme Short-Term Overbought

Up to now there is little question that investors are feeling the pressure of underperformance, chasing price strength and ignoring the warning signs of slowing global economic growth, a worsening profit outlook and expanding technical divergences (and low NYSE volume). Hedge funds are now at their highest net long exposure in some time, sentiment studies are uniformly bullish, and retail investors are warming up to stocks. As a result of these factors (and others), stocks are overbought -- maybe even dramatically so.

But I see it as only a matter of time until reality adversely impacts stocks. In fact, it is my view that this could happen momentarily.

The Bottom Line

It is for the reasons above (and others) that I am short of the market.