• Here are my reasons.

"One last thing."

-- Lt. Columbo

I have taken an outsized PowerShares QQQ (QQQ) short rental today (essentially as an overnight trade) for several reasons:

1. The sector is inflated owing to numerous squeezes on high-interest short stocks, and that bubble can deflate quickly -- Tesla (TSLA) and Green Mountain Coffee Roasters (GMCR), which report after the close, are two examples.
2. I am unimpressed with tech earnings, particularly large-cap tech.
3. There is a lot of beta on the Nasdaq, including a number of biotech stocks. (Note: The harder they rise the harder they can fall).
4. The Nasdaq is virtually at its yearly high.

There are other reasons, but we are close to the close now.

• I will be on CNBC's 'Fast Money' tonight.

A reminder: I will be with Mel and the gang on CNBC's "Fast Money" tonight. I will be on the 5:15 p.m. EDT segment.

Thanks so much for reading my diary and enjoy your evening.

• How much to sell?

My mavens on the floor of the exchange see about $ 10 million to sell on the close. That is the smallest imbalance I have ever seen.

In terms of sectors to buy, financials are at $55 million and information technology has $20 million. To sell includes health care at $55 million.

AIG (AIG) has $28 million to buy, and Wells Fargo (WFC) has $20 million to buy. Merck (MRK) has $32.5 million to sell.

• At $76.47.

I just added to my PowerShares QQQ (QQQ) short at $76.47.

• To the upside.

We have a big upside reversal in potash producer CF Industries (CF) today.

Let's go to the chart! 

• Subject to the data, of course.

Employment growth has been stronger than I was expecting, and the unemployment rate today is more than ½% lower than I projected it to be last September.... In light of this progress, and if the labor market remains on the stronger path that it has followed since last fall, then I would be prepared to scale back the monthly pace of asset purchases.

-- Cleveland non-voting Fed member Sandra Pianalto

Following Lockhart and Evans yesterday, Pianalto endorses tapering -- subject to the data.

• China and Japan.

Run, don't walk, to read Hedgeye's Moshe Silver's Fortunecolumn "Why China and Japan Should Have You Worried."  

This well-crafted analysis modifies my morning post on the threat of China's slowing domestic economy and yesterday's Early Peek, which warns about cuts in growth expectations for Japan.

• I remain negative on retail.

As the wise man once said, "As goes Ralph Lauren (RL), so goes retail."

I remain negative on Market Vectors Retail ETF (RTH) based on stagnating real incomes, monetary policy geared to raising the inflation rate and a five-year low in the savings rate.

• Here it is.

The Lindsey Group's Peter Boockvar's take on the 10-year auction today:

The benchmark 10 yr note auction was mixed as the yield of 2.62% was right in line with the when issued but the bid to cover of 2.45 was below the previous 12 month average of 2.79 and the lowest since March 2009. Direct and indirect bidders took a total of 61.5% of the auction, slightly above the 12 month average of 57.3%. Bottom line, this is another mediocre treasury auction as yields near two year highs are not enough to bring out strong demand as the growing likelihood of a change in Fed policy as early as next month has buyers in a wait and see mode. I continue to believe that the big back up in yields over the past two months has priced in a modest Fed taper but in this grand monetary experiment we are in where an historical playbook doesn't exist, we can only guess.

• Real estate maven Mark Hanson feels the Silicon Valley residential real estate makret is 'popping.'

Contrary to popular opinion, real estate maven Mark Hanson feels the Silicon Valley residential real estate makret is "popping."

Santa Clara County, CA -- Silicon Valley -- is one of the largest and most economically diverse counties in the nation.  It has proven to be less volatile than other regions due to it's stronger than average employment and income fundamentals. As such, it is one of my top "go-to" regions for micro analysis and leading indication.  And when I see real-time, hard data on just how "weak and on-the-edge" this region really is -- contrary to popular opinion -- I pay particular attention.

1)  YoY Pendings down 38%.  Real-time hard data of Santa Clara County housing -- Silicon Valley -- show "Housing Bubble" popping for second time in 7 years. (3rd time if you count the "double-dip" post the Homebuyer tax Credit of 2010)

2)  Yet, another leading indicator and proof that the past couple of years were more about the power of distressed supply, investors, and a "stimulus driven short squeeze" than an "organic, durable recovery".

3)  Demand Profile of this market more like "pre-crash" than any time since...and Pending Sales back to levels of when house prices were at their peak...right before the crash.

Houses are really expensive on a relative basis;  Pending Sales volume down 38% YoY;  Volume precedes price

I have proven that houses "cost" more today (by a long shot) than they did from 2003 to 2007 to the owner-occupant buyer using the popular mortgage loan programs of each period.  For example, a buyer in 2003 using a 5/1 interest only or buyer in 2006 using a Pay Option ARM could legitimately "qualify for" and "afford" 50% more house than they can today using a 4.5% 30-year fixed rate mortgage.

Most analysis simply look at house prices and incomes (then vs now) and 'assume' that everybody always used market-rate 30-year fixed loans to buy.  But that's not the case.   In many legacy "bubble regions" -- that "were" all the rage over the past 2 years due to investors  looking at the wrong data thinking they are getting houses "cheap" -- the "minority" used 30-year fixed loans from 2003 to 2007.

Santa Clara Demand at 6-year low...on par with 2006-2008 when house prices were at their peak, right before the crash

In Santa Clara County -- "Silicon Valley" -- where jobs and incomes are far better and more stable than most other regions in the state -- Pending Sales are at a 6-year low.  The data in the chart below show "pending sales" on a weekly basis straight from the MLS...there are no more current data than these.  Most chalk up the weakness to "not enough supply".  This is not the case.

The reasons demand is so light is because houses are too expensive.  And of course because this market -- like so many others coast to coast -- is structurally broken with a large percentage of the "total potential demand" locked in place as Zombie owners, unable to sell and rebuy. This is due to negative-equity;  "effective" negative equity;  a legacy HELOC never charged off preventing obtaining a new mortgage loans; and/or insufficient income/credit/cash-down needed to qualify for a loan.

Another reason Pending Sales are so low in 2013 YoY is because the flood of "in-demand" short sales -- which boost pending sales but take much longer to close -- buoyed the 2011/12 pending sales volume.  But now short sales volume has also plunged. Thus, the 2013 pending volume is not an exact apples to apples comparison.

However, what this "lack of distressed supply (short sales/foreclosures)" does mean is that the "demand" profile of this market is more like "pre-crisis" than any time since.  And Pending Sales are bouncing between levels of 2006 to 2008.  Given that volume precedes price, I think the next chapter in this markets history is fairly clear.

The Data

The real-time, hard data below are certainly in full-blown contrast to popular opinion that the real estate "market" is on fire here.  In fact, judging by the level of "pending sales" in 2013 (see red line) the market is in the exact same position as it was from 2006 to 2008 when prices were at their past peak.

These data tell me that this market benefited greatly over the past few years from the large flow of distressed and then the massive, historic rates stimulus...stimulus that did a great job releasing a lot of pent-up demand and an even better job at pulling it forward; and activating "investors" that bought distressed properties for rehab and resale.  Moreover, the mortgage mod bubble and Zombie population did a great job keeping "available for sale" supply artificially low.  But all that has changed now...

Bottom line, the housing crash, flood of "distressed" supply, and uber rates stimulus were the catalyst for higher sales volume and prices.  But now houses are super expensive on a relative basis, rates have surged, investors are sidelined due to the plunge in distressed supply/prices, and volume has plunged.  As such, the next stage this market will go through in the near-to-mid term involving lower prices is fairly clear.

• I'm down to $13.75.

Northwest Bancshares (NWBI) is rolling over with the rest of the financial sector.

In acknowledgement of this trend, I have reduced my buy level to $13.75.

• China is another reason to expect weakness in the U.S. stock market.

Today Goldman Sachs published a focus piece on China credit concrens in the latest edition of "Top of Mind."

The rapid pace of China credit growth, increasingly sourced from the more risky and less transparent "shadow banking" sector, has become Top of Mind.

In our view, corporate credit risk warrants concern but is unlikely to trigger an imminent banking crisis. But some seem more worried. We interview Charlene Chu, who covers Chinese banks for Fitch and believes there could "absolutely" be a negative surprise in 2013. We look at ripple effects beyond China (most negative for commodities and Emerging Market economies and assets) and demystify commodity financing deals - a formerly unchecked credit channel - and the crackdown on them, which exemplifies the fine line policymakers must walk between credit restraint and economic growth.

Tonight, on "Fast Money," I will spell out my "Top 10 Market Concerns."

Let me add an eleventh: China's credit growth relative to its GDP growth has been too rapid, so the country's leadership is committed to slowing credit. This raises the risk of a banking crisis and subpar economic growth. (Note: iShares China Large-Cap ETF (FXI) hasn't rallied in the broad July-August global market advance.)

This strategy will likely result in sub-5% GDP growth, though the official economic data will not reveal such a slowdown.

This downturn in growth will likely have an impact on systemic financial risk in China's banking industry (which could feed into non-Chinese banks), global economic growth and on the pricing of risk assets.

Bottom line: China is another reason to expect weakness in the U.S. stock market.

• Concerns for the bulls should be a rollover in financials, homebuilders and remodeling companies.

Similar to my emerging market analyst Milo, I am watching this decline.

Concerns for the bulls should be a rollover in financials, homebuilders and remodeling companies.

• It's moving under $29.30.

"Man, I don't know, but I wish we had some of it!"

-- Cheech and Chong, Up in Smoke

I am getting higher with Potash (POT) now as it moves under $29.30. 

Note: Cowen issued a negative report on the company and industry this morning.

• $19.20 is my price.

I am bidding $19.20 for some more Altisource Residential (RESI) now.

• Two executives sell some shares.

Ford (F) insider selling -- see it here.

• Mark Grant opines on the rising costs of mortgages based on the administration's views toward GSEs.

Southwest Securities' Mark J. Grant opines on the rising costs of mortgages based on the administration's views toward GSEs:

President Obama said yesterday that he wouldn't support restoring FNMA and Freddie Mac to the status they enjoyed before the credit crisis, which let Fannie and Freddie make profits during good times, "knowing that if their bets went bad, taxpayers would be left holding the bag," the president said in remarks at a Phoenix, Arizona high school. "It was 'heads we win, tails you lose,' and it was wrong."

In my opinion this was a game changing speech. The implications loom large not just for property owners but for investors if there will not be any "implicitly guaranteed" Agencies. For home owners it is likely to mean that their cost of mortgage products will rise and perhaps significantly if this task is left totally to the private sector. I suspect that in times of trouble then no one will lend and the volatility in the housing sector will increase dramatically.

If some new Government Sponsored Enterprise (GSE) is going to back-stop mortgages then their debt will be added to the national debt like the debt of GNMA now so that America's debt to GDP ratio will be impacted negatively. Perhaps, though, this new Agency will just guarantee certain types of mortgages and there will be no issuance of debt which will be problematic for the bond markets. With the Treasury indicating that new issuance will be down about 31% and the Fed monetizing about 52% of all newly issued government/agency debt now there could well be an extreme shortage of available bonds. Prices may sky rocket once again and yields fall as demand, much of which is being forced by the Fed's current policies, far outstrips supply.

Then there is the question of what banks may be allowed to invest in which would change the dynamics not just of their portfolios but of their financial risk position. Is it to be that they can only buy Treasuries then or will it be that certain types of corporate bonds or private mortgage backed-bonds will be allowed? There is a can of worms in this answer without doubt.

Then there is the question of their preferred stock. One of the largest blunders, in my opinion, during the 2008/2009 financial crisis, was to stop paying the dividends on these securities. Not only did it cause huge financial harm for many banks, especially community banks, but it called into question the value of the "implicit guarantee" of the country. While whether it was legally correct is still in contention the moral compass decision, in my opinion, was just very wrong. In any event one wonders what the brilliant minds in Congress will do with this issue when called to task.

The possible lack of issuance may well change the functioning of the fixed income markets in a very real manner. It could cause a huge amount of compression against Treasuries in all the other sectors. Spreads may compress past anything than we have seen before as the lack of available bonds decreases by large margins. With the Fed handing out newly created money like there is no tomorrow; the results could be disturbing.

I leave you with one final thought this morning. Many Municipal bonds are now yielding, for only the second time in recent years, more than their relatively rated corporate bonds. I suggest you not only take notice of this but make a change in your strategy to account for this opportunity. It will not last long in my view and the play should prove to be beneficial.

• They include Schwab, Morgan Stanley and McDonald's.

Housekeeping items: I am covering Schwab (SCHW), Morgan Stanley (MS) and McDonald's (MCD), as I try to be opportunstic and less dogmatic.

I intend to reshort the names on any strength, I remain net short, and I am committed now to prospering in more of a two-way market.

• I will be on CNBC's 'Fast Money' tonight at 5:00 p.m. EDT.

A heads up: I will be on "Fast Money" tonight with Mel and the gang at 5:00 p.m. EDT on CNBC.

The "Fast" crowd is almost universally bullish these days, so it should make for a good debate!

• At $29.30.

I am adding to Potash (POT) at $29.30 now.

• The weakness is helping my RTH short.

Polo Ralph Lauren's (RL) share price weakness is helping my Market Vectors Retail ETF (RTH) short this morning.

• Translated.

Yesterday I posted a story, written in Russian, which appeared to suggest Uralkali could return to the cartel under certain circumstances and concessions.

Subscriber Carols F. was kind enough to translate the story into English by using Google Translator:

"'Uralkali' and 'Belaruskali' can re-unite on the basis of 'Soyuzkaliya'"

Joint trader "BRIC" and "Belaruskali" could be created, but only under the condition that the new company "Soyuzkaly" will be the exclusive sales channel for Belarus, said in an interview with Reuters, CEO of "BRIC" Vladislav Baumgertner.

On Tuesday, "Uralkali" said that immediately stops the export sales through the joint with "Belaruskali" trader Belarusian Potash Company (BPC) because of the "stalled" of relations with partners.

"To come back to BKK, we just are not going to" - Baumgertner said, adding that in the future the Russian and Belarusian companies can discuss cooperation on the basis of "Soyuzkaliya", registered in Switzerland, on mutually beneficial terms.

However, negotiations on this issue have not yet begun, and when to begin, they will be wearing a long one, believes the director general of the "BRIC".

"Uralkali" accuses Belarusian partners is that they have started to sell potash outside BPC, breaking the agreement after signing at the end of last year, the presidential decree on the abolition of the exclusive right CCL export of Belarusian Potash.

Acting alone, "Uralkali" plans to focus on increasing market share, including increasing volumes of exports to China, which in 2013 will be spent on rail 2.5 million tons.

The company estimates that the demand for potash market in 2013 may rise to 54-55 million tons by 2014 it will reach 59-60 million tons.

In this case, due to the projected decrease in price by 25%, to less than $ 300 per tonne in the second half of 2013 many global companies will have to postpone the implementation of projects for the production of potassium, says Baumgertner.

• Run, don't walk, to read Zero Hedge's highlights from Ellott Management's letter to investors.

Zero Hedgepicks the highlights from Elliott Management's most recent letter to investors.

This is a must-read!

• Let's start the day with a review of the price action of the major asset classes overnight and early this morning.

The rundown:

• S&P futures down 6;
• Nikkei (the hedge fund industry's favorite regional market) down 4% (yen strength);
• China Shanghai down 0.7% (first drop since July 29, a lot of economic data starting tomorrow);
• Australian market down 1.85% (due to lower raw materials pricing);
• European markets mixed;
• euro up;
• crude up $0.40;
• gold down $4; and
• the 10-year U.S. note is yielding 2.63% (down 1 basis point day over day)

Worth noting:

• Holy market, Batman! It felt like stocks had their largest drop since I was Bar Mitzvahed.
• Could this be the start of something big? Was yesterday's dip an inflection point or a breather? I wish I knew!
• September tapering is on track. Evans and Lockhart seemed to bless it yesterday, which weighed on stocks.
• I remain net short based on my concerns of too-high valuations, vulnerability (and addiction) to high interest rates, the relatively weak real domestic economy, which remains unlikely to achieve sustainable growth (without the largesse of the Fed) and excessive (and expanding) investor confidence  in the future direction of stock prices.
• And I remain in Byron Wien's camp.
• Worshiping at the altar of price momentum? I couldn't help but observe the many Wall Street strategists have recently meaningfully increased their 2013-2014 S&P targets while not meaningfully increasing their S&P profit forecasts. In other words, they are sanctioning even (and ever) higher P/E multiples (and valuations).
• All quiet on the trading front -¿ my only trade yesterday was adding to Potash (POT), which was mostly on the possibility of Urakali rejoining the potash cartel later this morning.
• JOLTs give a jolt. The JOLT employment data seemed more pessimistic than the BLS jobs report.
• The Bank of England seems more dovish. "The MPC intends not to raise Bank Rate from its current level of 0.5% at least until the Labor Force Survey headline measure of the unemployment rate has fallen to a threshold of 7%.... The MPC stands ready to undertake further asset purchases while the unemployment rate remains above 7%." The muted market reaction suggests skepticism with regard to the BOE economic forecast and that the announcement might have been anticipated.

In the press:

• The New York Times -- "Did We Waste a Financial Crisis?"
• Politico -- "A New Way to Run the U.S. Economy"
• The Washington Post -- "Open Letter to Jeff Bezos" 
• The Wall Street Journal -- "The Myth of Hedge Funds as 'Myopic Activists'"; "Behind the Middle-Class Funk"

Economic and earnings catalysts that could impact markets:

• BOE's Carney speaks at publication of Inflation Report (5:30 a.m. EDT).
• U.S. consumer credit for June (3:00 p.m. EDT).
• Fed's Plosser and Pianalto speak.
• Analyst meetings -- WCC
• Earnings before the open -- AME, AOL, AVT, CG, DUK, DVN, EOG, FXCM, ING, LXP, MMC, MOLX, NEWS, SUNE, TWX
• Earnings after the close -- CTL, FSC, GMCR, IMPV, MBI, PNNT, PRU, RIG, RLD, SCTY, TROX, TSLA, TUMI, TWTC