Code:
#showtooltip
/use [nocombat,nostealth] Stealth; [@mouseover,harm,exists] [mod:shift,{at}arena2,exists,nodead] [mod:alt,{at}arena3,exists,nodead] [{at}arena1,exists,nodead] [harm] [@targettarget,harm,exists] Cheap Shot
EDIT: MMO-Champ is eating the @ for arena. Replace {at} with the symbol @. I don't know what the point of a [code] tag is if they're going to alter it with markup.
In psuedocode:
If not in combat and not stealthed, Stealth;
else if mouseover exists and is harmful, Cheap Shot it;
else if holding shift and arena2 exists and is not dead, Cheap Shot it;
else if holding alt and arena3 exists and is not dead, Cheap Shot it;
else if arena1 exists and is not dead, Cheap Shot it;
else if my target is harmful, Cheap Shot it;
else if my target's target is harmful, Cheap Shot it
I didn't test the arena part, but the rest of it works as stated above.
I'm not sure if this is exactly what you want because your description is a little incomplete and the macro you posted has some extra stuff. You should be able to tailor it yourself by matching the psuedocode to the macro conditional blocks and tinkering with it.
I would never use this macro because I think eventually it's going to do something you don't expect with all the fallbacks, but to each their own.