Bull Radar

Style Outperformer:

• Mid-Cap Growth (-2.81%)

Sector Outperformers:

• 1) Gold & Silver +.99% 2) Utilities -1.61% 3) Foods -1.81%

Stocks Rising on Unusual Volume:

• EGO, AUY, FOSL, PEGA, LGCY, CLMT, PRXL, CREE, NUAN, OPEN, BEXP and RL
  

Stocks With Unusual Call Option Activity:

• 1) SFI 2) DIS 3) ATML 4) MRVL 5) HK
  

Stocks With Most Positive News Mentions:

• 1) GWW 2) CREE 3) SWN 4) RIMM 5) JBT
  

Charts:

• ETFs Rising on Unusual Volume
• Stocks Rising on Unusual Volume
  

Wednesday Watch

Evening Headlines

Bloomberg:

• France in Crosshairs as Germany Enjoys Sole Safe-Haven Status: Euro Credit. France’s borrowing costs are rising as Europe’s debt crisis makes investors wary of lending to any nation other than Germany. “There is only one sovereign in Europe, and that is Germany,” said Stuart Thomson, who helps oversee about $120 billion as a portfolio manager at Ignis Asset Management in Glasgow. “Everything else is a credit and trades like a credit, even France.” Investors currently demand about 90 basis points of extra yield to buy 10-year French debt rather than German bunds, even though both carry AAA grades from the major rating companies. That spread is almost triple the 2010 average of 33, and compares with 17 in the second half of the previous decade. The ECB bought Italian and Spanish bonds for a second day yesterday as it tries to halt a market rout, pushing Spain’s 10- year yield below 5 percent for the first time since December. The central bank’s previous round of bond purchases, though, failed to protect Ireland and Portugal from following Greece in needing financial aid as their funding costs surged. French bonds are the most costly AAA government securities to insure as investors raise bets that top-rated euro-region nations may be next in the firing line after the U.S. was downgraded by one notch to AA+ by S&P on Aug. 5. Credit-default swaps on France trade at 159 basis points, double the rate to protect German securities. “If the ECB is successful in bringing down Italian and Spanish bond yields, and I hope it is, then that will be at the expense of German bonds,” said Steve Major, head of fixed- income research at HSBC Holdings Plc in London.
• Bernanke Time Commitment Provokes Most Dissents Since 1992. Ben S. Bernanke lost the full consensus of the Federal Open Market Committee as he reached for another non-traditional tool and provoked three dissenting votes in the process -- the most for a Federal Reserve chairman since 1992. For the first time today, U.S. central bankers specified a date for their commitment to low borrowing costs, saying the benchmark rate will stay in a range of zero to 0.25 percent at least through mid-2013. The new language replaces their prior promise to keep rates low for an “extended period.”
• The cost of insuring Swiss government bonds from default more than doubled yesterday, according to traders of credit default swaps. Contracts on the sovereign surged 43.7 basis points to 80 basis points, according to CMA. That's the highest level since May 2009, the data show.
• S&P Doesn't Plan More Muni Rating Cuts Linked to U.S. Downgrade. Standard & Poor’s won’t consider further downgrades on state and local government credits dependent on federal funding until details of the U.S. budget are complete, Steve Murphy, managing director of U.S. public finance for the ratings company, said in a telephone interview.
• Company Pension Underfunding Jumps 38% to $351 Billion as Economy Slows. Corporate pensions in the U.S. are falling behind future payouts to retirees by the most this year as the U.S. economy slows, driving down bond yields that determine the plans’ future obligations. The gap between the assets of the 100 largest company pensions and their projected liabilities has widened by $97 billion in August to $351 billion, actuarial and consulting firm Milliman Inc. said today in a statement. That compares with the record $446 billion deficit in August 2010. “July was a brutal month for these pensions,” John Ehrhardt, a principal and consulting actuary in New York with Milliman, said in the statement. “Unfortunately it looks like we may be in for more bad news, with August off to a miserable start.”
• GM(GM) 'Unsure' of Demand as Share Rout Loses U.S. $6.7 Billion. General Motors Co. (GM) is unsure whether stock-market volatility will put its forecast for U.S. vehicle sales out of reach this year, Chief Executive Officer Dan Akerson said. “There’s a lot of turmoil in the business and turmoil means uncertainty, so we’re a little unsure of these numbers,” Akerson said today of Detroit-based GM’s forecast for at least 13 million vehicle sales this year. “When the market does recover, we should be able to really leverage it beyond what you’ve seen so far since our IPO.” The worst stock-market rout since 2008 has exacerbated a decline in GM’s shares, wiping out $6.7 billion from the value of the stock held by the U.S. Treasury Department.
• Och-Ziff Said to Rise Last Week as Some Hedge Funds Dodge Rout. Och-Ziff Capital Management Group LLC and Brevan Howard Asset Management LLP hedge funds advanced last week as some of the industry’s largest managers dodged the deepest slump for global stocks since 2008. Och Ziff, the $30 billion firm run by Daniel Och in New York, rose 1 percent with its main fund, and Brevan Howard’s $25 billion Master Fund in London, the world’s biggest macro fund, gained 2 percent, according to people briefed on the returns. “Managers who were macro aware have managed to pull their exposures much faster than the stock pickers,” said Alper Ince, a partner at Pacific Alternative Asset Management Co. in Irvine, California, which invests in hedge funds on behalf of clients. “Many people are in a wait-and-see mode. They want to see the dust settle before making massive changes.”
• California Revenue Fell 10.3% Short of Forecast in July. California collected 10.3 percent less tax revenue in July than projected, putting the most populous state closer to “drastic” cuts to universities, libraries and health programs, the state controller said. Sales taxes were 12.5 percent, or $139.4 million, below forecasts, while corporate receipts were down 19.3 percent, or $69.5 million. Personal-income taxes were 2.9 percent, or $89 million, higher than projected in May, Controller John Chiang said in a statement. The July numbers widen the gap between actual receipts and additional revenue on which Governor Jerry Brown and Democrats based their new budget, Chiang said. That $86 billion spending plan signed into law June 30 cut spending by $12 billion and counted on $4 billion in higher-than-forecast tax revenue from a recovering economy. “While July’s revenues performed remarkably similar to last year’s, they still did not meet the budget’s projections,” Chiang said in the statement. “While we hope for better news in the months ahead, every drop in revenues puts us closer to the drastic trigger cuts that could be imposed next year.”
• Falling Bank Stocks Offer a Too-Big-to-Fail Wakeup Call: View. Bank of America and Citigroup stood out for all the wrong reasons in Monday’s market meltdown. Shares of the two banks led the decline amid new doubts about the quality of the assets buried on their balance sheets. Investors now believe that Bank of America’s net worth is only about a third of what the bank claims; for Citigroup the figure is less than half. Any time shares of a financial company such as Bank of America or Citigroup plunge it’s particularly worrying. Both are among the roughly 40 U.S. institutions considered too big to fail. The Dodd-Frank Act, adopted in response to the financial convulsions of 2008, was supposed to ensure that taxpayers never have to rescue one of these banks again.
• Singapore Cuts Export Growth Forecast as Global Risks Rise. Singapore cut its forecast for export growth this year as a struggling U.S. economy and Europe’s debt crisis intensified risks to the global recovery. The currency pared gains. Non-oil domestic exports will probably rise 6 percent to 7 percent in 2011, lower than a previous forecast for shipments to grow 8 percent to 10 percent, the trade promotion agency said in a statement today. Gross domestic product fell an annualized 6.5 percent in the second quarter from the previous three months, compared with a preliminary estimate of 7.8 percent, the trade ministry said separately.
• Japan's Noda Signals Concern as Yen Strengthens to Near Intervention Level. Japan’s Finance Minister Yoshihiko Noda said that one-sided moves in the yen can hurt growth as the currency strengthened against the dollar to close to the level where authorities intervened last week. “Recent one-sided movements in the currency market risk hurting the economy’s recovery from the earthquake,” Noda said in parliament in Tokyo today, reiterating remarks made on Aug. 4 when authorities sold the yen. The government may include measures to help companies combat the strong yen in its next reconstruction package, Chief Cabinet Secretary Yukio Edano said.
• Korea Bans Shorting as State Funds Aim to Buy. South Korea banned equity short sales for three months while the two biggest state-run funds said they may boost investments as the government seeks to shore up a market that’s had its biggest six-day drop in three years. The Financial Services Commission said it will ban short selling on all shares until Nov. 9 from today.

Wall Street Journal:

• Reid Names First Debt-Panel Picks. Senate Majority Leader Harry Reid named three Democratic senators who are considered neither ideological purists nor eager compromisers to a "super committee" charged with finding at least $1.2 trillion in deficit reduction over the next decade. The move on Tuesday came as lobbying has intensified about who will be chosen for the remaining spots on the Joint Select Committee on Deficit Reduction—appointments that will play a large role in the eventual shape of any deal.
• Chinese Property Firms Getting Squeezed. Beijing Plans to Tighten Access to Credit From Lightly Regulated 'Trust' Firms That Are Key Lenders to the Sector. China's property developers are heading for a funding crunch in the next several months, analysts and industry executives say, as the government tightens access to credit from the lightly regulated trust firms that have become the sector's biggest lenders. The efforts by the China Banking Regulatory Commission, which haven't been publicly announced, add pressure to an industry that already was struggling with other government attempts to take some of the air out of the country's property bubble. How those efforts proceed, and whether the credit squeeze contributes to a significant decline in construction, has big implications for overall growth in the world's second-largest economy, which has been a rare bright spot in an otherwise gloomy global outlook.
• Call to Downsize Giants of Ratings. Three weeks ago, Egan-Jones Ratings Co. downgraded America. Almost no one paid attention. "S&P's downgrade was on the front page of every newspaper," said Sean Egan, president of the Haverford, Pa., ratings firm, which has been issuing ratings since 1995. Mr. Egan's disappointment that Standard & Poor's rattled the world with its Friday-night rating cut on long-term U.S. government debt to double-A-plus, from triple-A, while his identical move was essentially ignored, is a sign of the grip on the debt-ratings industry held by its three giants.
• Egypt's Rulers Stoke Anti-U.S. Trend. In the final days of President Hosni Mubarak's regime, Egypt's state media whipped up a xenophobic frenzy not seen here since the 1950s, blaming the revolution on alien plots and inciting vigilante mobs to assault and detain scores of foreigners. After a lull, Egypt's new military rulers are increasingly using the same tactic: portraying pro-democracy activists as spies and saboteurs, blaming the country's economic crisis and sectarian strife on foreign infiltrators, and blasting the U.S. for funding agents of change.
• Report Predicts US Container Ports' Volume Weaker This Summer. Import cargo volume at major U.S. container ports are predicted to be weaker for the rest of the summer before holiday retail restocking drives growth in the fall, according to a port report from the National Retail Federation and Hackett Associates.
• BofA(BAC) Sells Part of Mortgage Portfolio to Fannie Mae. Bank of America Corp. has agreed to sell part of its home-loan portfolio to government-controlled housing giant Fannie Mae, as the bank looks to shed assets and pare its exposure to an array of mortgage woes.
• Fund Stars Find Fortunes Fading. Well-known mutual-fund investors Bruce Berkowitz and Bill Miller enjoyed winning streaks that lasted years. But they have been among those whacked in the current downturn. The $13.4 billion Fairholme Fund lost about 18% in August through Monday, including a nearly 9% drop on Monday. That compares with a 14% decline in that time for similar large-value funds, according to Morningstar Inc. data.
• SEC Probes Goldman(GS) Over Libyan Dealings. Gadhafi Fund Trades Lost $1 Billion. Goldman Sachs Group Inc. said U.S. securities regulators are investigating whether the securities firm broke bribery laws. Tuesday's disclosure by Goldman of numerous investigations, regulatory reviews and legal action related to its sprawling businesses included a probe of the company's "compliance with the U.S. Foreign Corrupt Practices Act," according to a securities filing.
• Rental Options Sought On Foreclosed Homes. The Obama administration will announce plans Wednesday to seek investors' ideas for turning thousands of foreclosed properties owned by government-backed entities into rental homes, according to administration officials. The move is intended to put a floor under declining home prices by creating a way to deal with hundreds of thousands of potential foreclosures in coming years.
• Market Turmoil Stings Commercial Sector. Demand for Mortgage-Backed Securities Takes a Hit as Some Key Lenders Are Backing Off From Making New Loans.

CNBC:

• El-Erian: Unprecedented Fed to the Rescue. By boldly and controversially stepping up to the plate with an imperfect policy instrument, the Fed is again assuming considerable reputational and institutional risks. In the process, it ends up carrying even more of the policy burden. Like its counterparty in Europe (the ECB) last Sunday, the Fed’s intention is to provide a bridge for other, glacially-moving economic agencies. Let us hope that these agencies will finally get their act together. Otherwise, the Fed will simply be providing an expensive bridge to nowhere.
• Economic Uncertainty Leading to Global Unrest. Here's a look at what's happening around the world and how economic downturns are bringing protestors into the streets.
• August Sell-Off Hits Big Hedge Fund Names Hard. August is not even two weeks old and for top hedge fund traders like Steven Cohen, John Paulson and Bill Ackman it could be a month to forget. Even Cohen, one of the industry's titans, hasn't escaped the global sell-off — his $14 billion SAC Capital is down 4 percent this month. Still after SAC's poor start to the year, the fund is still in the black with a roughly 6 percent gain this year. That's not the case for John Paulson, whose two flagship funds had suffered steep losses even before the month began. The Paulson's Advantage funds lost more than 10 percent in the last week, bringing total losses in the two portfolios, which oversee about $17 billion of investor money, to more than 25 percent. The brutal global stock sell-off is quickly turning hedge funds that had been up for the year into losers. Meanwhile, funds that entered August already down for the year are piling up even more red ink.

Business Insider:

• Obama Plans Scorched Earth Re-Election Campaign. Today, Politico reports that the Obama re-election campaign has reviewed all of the available data, war-gamed various campaign stratagems and decided that the only way the president can win re-election is by destroying his Republican opponent. "Obama Plan: Destroy Romney" is the headline. The story was leaked to Politico by the president's re-election campaign advisors. On purpose. Are things really that bad? Is the only path to President Obama's re-election a scorched-earth, relentlessly negative campaign that positions the president as less horrible than his GOP rival? The short answer is: yes.
  

Zero Hedge:

• The Price of a Big Mac is Now $17.19 in Zurich.

IBD:

• Big Spenders Boost Sales at Saks(SKS), Macy's(M), Nordstrom(JWN).

Forbes:

• Pessimistic Bernanke Fed Admits QE Has Failed In FOMC Statement.

NY Times:

• Hazards of Borrowing Money From Hedge Funds.
• Test Can Tell Fetal Sex at 7 Weeks, Study Says. A simple blood test that can determine a baby’s sex as early as seven weeks into pregnancy is highly accurate if used correctly, a finding that experts say is likely to lead to more widespread use by parents concerned about gender-linked diseases, those who are merely curious and people considering the more ethically controversial step of selecting the sex of their children.
• Portugal Faces Challenge in Meeting Bailout Terms.
  

Washington Times:

• It's Clear Now, American Cannot Afford Obamacare. Perhaps the most frustrating aspect of the debt-ceiling debate, other than witnessing establishment politicians in complete denial of the mess they’ve made, is the fact that the Orwellian-named Budget Control Act of 2011 does so little to actually, you know, control the budget. Over the next decade, the plan piles up another $7 trillion of debt to be added to the current $14.5 trillion national debt - not exactly a profile in restraint.

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Tuesday shows that 21% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-two percent (42%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -21 (see trends ).

USA Today:

• White House's Former 'Car Czar' to Drive Into Sunset. The man who helped engineer the Obama administration's bailout of the U.S. auto industry is leaving his post at the end of August. Ron Bloom, who later became assistant to the president for manufacturing policy, played a key role in the 2009 bailouts and oversight of General Motors and Chrysler. He also helped to craft the deal between the government and automakers to raise light-duty vehicle fuel economy standards to 54.5 miles per gallon by 2025.

Reuters:

• Micron(MU) Says NAND Chip Demand Buoyed by Tablets. Orders for Micron Technology Inc's NAND memory chips are holding up despite growing economic uncertainty, thanks to strong demand from manufacturers making tablets and solid-state drives, a senior executive at the chipmaker said.
• NYSE Short Interest Dips in Late July. Short interest on the NYSE fell 0.7 percent in the second half of July, the exchange said on Tuesday. Through July 31, short interest fell to 13.31 billion shares from 13.40 billion shares as of July 15.
• Nasdaq Short Interest Dips in Late July. Short interest on the Nasdaq edged down 1.3 percent in the second half of July, the exchange said on Tuesday. Through July 29, short interest fell to 6.99 billion shares, compared with 7.09 billion shares in the first half of the month.

Financial Times:

• Merkel Faces Revolt Over Eurozone Deal. Battle lines are being rapidly drawn up in the German Bundestag for what promises to be a bruising debate over the crisis measures to stabilise debt markets in the eurozone. Angela Merkel, the chancellor, and her finance minister Wolfgang Schäuble face a revolt among their own supporters in both the Christian Democratic Union and the Free Democratic Party, junior partner in the ruling coalition in Berlin, over the deal they agreed last month with their 16 eurozone partners in Brussels.

Telegraph:

• Ambrose Evans-Pritchard: Euro is 'Unsaveable'. (audio) Telegraph columnist Ambrose Evans-Pritchard tells Robert Miller why the single currency cannot work in its current form, and what he believes will happen to the eurozone next.

Daily News & Analysis:

• London Tense as Riots Spread to New UK Towns. Rioting spread to towns in the Midlands and Manchester as 16,000 policemen flooded the streets of London to prevent another night of violence that has blighted the David Cameron government's image and ability to hold the 2012 London Olympics safely.

JoongAng Ilbo:

• North Korean spies with orders to assassinate South Korean Defense Minister Kim Kwan Jin have secretly entered the country, citing South Korean government officials. South Korean and U.S. intelligence officials are working to find them, the report said.

Economic Daily:

• A possible third round of U.S. quantitative easing may impact the trend of commodity prices in China, Zhou Wangjun, a deputy director at the National Development and Reform Commission's pricing department, wrote in a commentary. That adds to uncertainty surrounding China's consumer prices in the second half, Zhou wrote.

21st Century Business Herald:

• China's auto sales may grow by 3% this year, citing Zhang Xiaoyu, vice president of the China Machinery Industry Federation. That rate of growth would be the slowest in about a decade, Zhang said.

People's Daily:

• China's M2 growth has been "too high" in the past two years, citing Yao Jingyuan, a researcher at the State Council's counselors' office.
• A weak U.S. economy may drag down global growth, including in China, Fan Jianjun, a researcher at the State Council's Development Research Center, wrote in a commentary.
  

Evening Recommendations
Citigroup:

• Upgraded (OPEN) to Buy, target $82.

Night Trading

• Asian equity indices are -.25% to +2.75% on average.
• Asia Ex-Japan Investment Grade CDS Index 135.50 -20.5 basis points.
  
• Asia Pacific Sovereign CDS Index 142.75 -5.25 basis points.
• FTSE-100 futures +.76%.
  
• S&P 500 futures -.47%.
  
• NASDAQ 100 futures -.50%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (HAR)/.44
• (RL)/1.47
• (CSC)/.69
• (NWSA)/.29
• (CSCO)//.38
• (AAP)/1.38
• (JACK)/.40
• (M)/.50

Economic Releases
10:00 am EST

• Wholesale Inventories for June are estimated to rise +1.0% versus a +1.8% gain in May.

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory build of +1,350,000 barrels versus a +950,000 barrel increase the prior week. Distillate supplies are estimated to rise by +1,050,000 barrels versus a +409,000 barrel gain the prior week. Gasoline supplies are estimated to rise by +900,000 barrels versus a +1,701,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to fall by -.3% versus a +1.0% gain the prior week.
  

2:00 pm EST

• The Monthly Budget Deficit for July is estimated at -$135.0B versus a -$165.0B in June.

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The JOLTs Job Openings report for June, weekly MBA mortgage applications report, 10-Year Treasury Note Auction, Jefferies Indusgtrial/Aerospace/Defense Conference, Morgan Keegan Security/Defense Conference and the Morgan Keegan Tech Conference could also impact trading today.
  

BOTTOM LINE: Asian indices are higher, boosted by financial and commodity shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing modestly higher. The Portfolio is 75% net long heading into the day.

Stocks Rising Into Final Hour on Short-Covering, Bargain-Hunting, Less Financial Sector Pessimism, Falling Energy Prices

Broad Market Tone:

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

Equity Investor Angst:

• VIX 42.80 -10.83%
  
• ISE Sentiment Index 167.0 +80.43%
  
• Total Put/Call 1.32 -2.94%
  
• NYSE Arms 1.35 -6.65%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 112.68 +3.45%
  
• European Financial Sector CDS Index 198.45 +9.44%
  
• Western Europe Sovereign Debt CDS Index 290.83 -.34%
  
• Emerging Market CDS Index 297.60 +2.54%
  
• 2-Year Swap Spread 25.0 -4 bps
  
• TED Spread 24.0 -1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .04% +2 bps
  
• Yield Curve 208.0 -2 bps
  
• China Import Iron Ore Spot $177.80/Metric Tonne -.17%
  
• Citi US Economic Surprise Index -71.50 +1.0 point
  
• 10-Year TIPS Spread 2.18% unch.
  

Overseas Futures:

• Nikkei Futures: Indicating +40 open in Japan
• DAX Futures: Indicating -42 open in Germany

Portfolio:

• Higher: On gains in my Retail, Medical, Biotech and Tech sector longs
  
• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges and some of my (EEM) short
  
• Market Exposure: Moved to 75% Net Long

BOTTOM LINE: Today's overall market action is mildly bullish as the S&P 500 trades near session highs despite rising eurozone debt angst, US tax hike concerns, some FOMC statement disappointment, more homebuilder pessimism, emerging market inflation fears and global growth worries. On the positive side, Coal, Alt Energy, Networking, Biotech, HMO, Insurance, Construction, REIT, Restaurant and Airline shares are especially strong, rising more than +1.0%. Cyclicals are outperforming. Oil is dropping another -3.2%. The US sovereign cds is falling -4.37% to 53.77 bps. Weekly retail sales rose +4.8% versus a +4.3% gain the prior week. On the negative side, Homebuilding, Utility, Computer, Computer Service, Gaming, Education and Food shares are lower on the day. (XHB) has traded poorly throughout the day. Gold is +3.0% and Copper is down -.98%. Rice is surging +3.07% and is near a multi-year high, soaring about +27.0% in about 6 weeks. The US price for a gallon of gas is falling -.01/gallon today to $3.65/gallon. It is up .51/gallon in about 6 months. The 10-year yield is falling too rapidly again, plunging -27 bps to 2.05%. The Brazil sovereign cds is soaring +13.28% to 157.28 bps, the Russia sovereign cds is rising +9.07% to 197.67 bps, the UK sovereign cds is rising +4.88% to 82.73 bps, the Japan sovereign cds is climbing +6.7% to 101.06 bps, the France sovereign cds is rising +1.54% to 161.65 bps and the Germany sovereign cds is rising +4.67% to 82.86 bps. The Brazil sovereign cds is very close to a multi-year high. The France sovereign cds is making a new record high again today and has risen +70.0 bps in 13 days. The German sovereign cds is hitting another multi-year high and is only 10.0 bps from its Feb. 09 high of 93.0 bps. The Eurozone Financial Sector CDS Index is now only 9.0 bps from its March 09 record high. The 3-Month Euribor-OIS spread is jumping another +8 bps to a multi-year high of 62.0 bps. Despite some key Asian indices holding up well overnight, Hong Kong fell another -5.66% and is now down -16.1% ytd, while South Korea fell another -3.64% and is down -12.2% ytd. Germany and Spain were unable to rally today with the rest of Europe, despite US strength. Russia(-1.6%) and the Ukraine(-5.42%) also had poor performances today despite strong bounces in other markets. The surge in many key emerging markets cds remains a big negative. As well, a number of key European cds rose again today as the pressure on the financial sector mounts. As well, the euro currency couldn't rally meaningfully today despite the recent US debt downgrade, the equity rally, more dovish FOMC comments and the ECB's recent actions. The cds and equity markets continue to telegraph rising worries among investors over the implications to Germany and France of recent ECB actions. It is a big positive that US equities were able to bounce strongly over the last hour despite the Fed disappointing most investors and the massive decline in the 10-year yield. If overseas market cooperate overnight I would expect to see this rally extend itself in the near-term. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, falling energy prices, a bounce in the euro, less financial sector pessimism and bargain-hunting.

Bear Radar

Style Underperformer:

• Large-Cap Value (+1.29%)

Sector Underperformers:

• 1) Homebuilders -.36% 2) Utilities +.12% 3) Foods +.42%

Stocks Falling on Unusual Volume:

• CCJ, PTRY, FOSL, VMC, EXP, SYY, IFSIA, XOM, SYKE, DTSI, ZOLL, SLXP, LORL, RGLD, TNDM, DISH, SREV, SGNT, NILE, FELE, IOSP, EBIX, FSLR, CSGP, DBV, GTY and PIQ
  

Stocks With Unusual Put Option Activity:

• 1) GCI 2) AVP 3) ESV 4) VMC 5) EQIX
  

Stocks With Most Negative News Mentions:

• 1) ENOC 2) URI 3) OSK 4) CLWR 5) HSIC
  

Charts:

• ETFs Falling on Unusual Volume
• Stocks Falling on Unusual Volume
  

Bull Radar

Style Outperformer:

• Small-Cap Growth (+3.09%)

Sector Outperformers:

• 1) Oil Tankers +5.97% 2) Alt Energy +5.3% 3) HMOs +4.57%

Stocks Rising on Unusual Volume:

• LGCY, C, ROSE, CLMT, HDB, BBL, OME, HANS, LUMX, DGIT, MAKO, TWTC, BSFT, JRCC, LINE, ARMH, NXPI, XTXI, XBI, PBE and VE
  

Stocks With Unusual Call Option Activity:

• 1) NWS 2) OMX 3) ODP 4) CVI 5) GA
  

Stocks With Most Positive News Mentions:

• 1) IBM 2) AAPL 3) MCD 4) HOT 5) MJN
  

Charts:

• ETFs Rising on Unusual Volume
• Stocks Rising on Unusual Volume
  

Tuesday Watch

Evening Headlines

Bloomberg:

• ECB Half-Hearted Bond-Buying Program May Backfire: Euro Credit. The European Central Bank will need to commit more to its Italian and Spanish bond purchases than it did trying to cap the yields of Greece, Ireland and Portugal. Last week's decision to end an 18-week fast and resume buying Irish and Portuguese debt wasn't unanimous, ECB President Jean-Claude Trichet said at a press conference that coincided with the resumption. Bundesbank President Jens Weidmann was among the dissenters, according to an official familiar with the discussions. The Aug. 7 statement heralding the extension of support to Italy and Spain was issued in Trichet's name. Italy's 10-year borrowing cost declined by 81 basis points to 5.3 percent yesterday, the biggest one-day drop in yields since the euro was introduced in 1999, after reaching a record 6.4 percent last week. Spain's 10-year yield has shed 110 basis points in the past week. The European Financial Stability Facility must be "effectively and rapidly" overhauled to provide additional firepower, European Union financial services commissioner Michel Barnier said yesterday. "Whether this will restore confidence is another big question," said Nick Firoozye, head of interest-rate strategy at Nomura International Plc. in London. "Oftentime, the ECB showed it's not that committed. Not all ECB members supported this intervention. The market will need long-term solutions to back this up and they are still missing. It's still unclear what will happen to the EFSF and there's still doubt if the new measures will solve the Greek solvency problem." "The buying of Italian and Spanish bonds is a risky strategy," said Charles Diebel, the head of market strategy at Lloyds Bank Corporate Markets in London. "For it to work, the ECB will have to be very committed. Given the amount of reticence -- the fact that the decision was not unanimous and the ECB's view this is not their job -- the market will soon test its resolve."
• Bank of America(BAC) Leads Surge in Credit Swaps on Downgrade Concern. Credit-default swaps on Bank of America Corp., the nation’s biggest bank by assets, rose by the most on record and reached the highest since May 2009, while contracts tied to Morgan Stanley debt increased the most since September 2008. Swaps on insurers Hartford Financial Services Group Inc., MetLife Inc. and Prudential Financial Inc. rose, and a benchmark gauge of corporate credit risk climbed to the highest since July 2010. Contracts on Charlotte, North Carolina-based Bank of America, which rise as investor confidence deteriorates, soared 87.6 basis points to 295 basis points as of 4:30 p.m. in New York, according to data provider CMA. That’s the highest since May 2009. Swaps on New York-based Morgan Stanley jumped 80.2 to 280.1, the highest since June 2010, CMA prices show. The average credit swap price on the six biggest U.S. banks -- Bank of America, JPMorgan Chase & Co., Wells Fargo & Co., Citigroup, Goldman Sachs Group Inc. and Morgan Stanley -- jumped 51.5 basis points to 210.9 basis points. That’s the largest gain since September 2008 when Lehman Brothers filed for bankruptcy and caused credit markets to seize up. Swaps on Goldman Sachs jumped 44 to 210, CMA prices show. JPMorgan contracts climbed 25 to 135, while those on Wells Fargo rose 25 to 135, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market. Contracts on Citigroup added 47.8 to a 210, CMA prices show. Contracts on the Markit CDX North America Investment Grade Index, tied to the debt of 125 companies, jumped 12.5 basis points to 115.5 basis points as of 5:47 p.m. in New York, according to Markit Group Ltd. “We haven’t seen this kind of volatility since 2008,” said Rich Gordon, a fixed-income market strategist at Wells Fargo. Swaps on Hartford Financial, the insurer that repaid a $3.4 billion bailout last year, rose 34.3 to 249.2, CMA prices show. Contracts on MetLife, the largest U.S. life insurer, rose 44.3 to 229.3, while contracts on Prudential, the second-biggest life insurer, climbed 28.3 to 189.4. Swaps on GE Capital Corp., a finance unit of General Electric Co., rose 50.7 basis points to 230.5.
• China's 6.5% Inflation May Limit Response to Global Crisis. China's inflation accelerated to the fastest pace in three years in July, limiting the scope for monetary easing to support growth as plunging stock markets signal the global recovery is weakening. Consumer prices climbed 6.5 percent from a year earlier as food costs surged, reports from the Beijing-based National Bureau of Statistics showed today. That was more than the 6.4 percent median estimate in a Bloomberg News survey of 26 economists. In June, inflation was 6.4 percent. Shanghai stocks extended losses after tumbling into a bear market yesterday. Elevated inflation shows that China is still dealing with the after-effects of an unprecedented monetary expansion during the last global slump and may have limited room for more stimulus. "This is the kind of data that should trigger an interest rate hike, but the uncertainties in global financial markets may delay the action," said Yao Wei, a Hong Kong-based economist with Societe Generale SA. The Shanghai Composite Index, which tracks the bigger of China's stock exchanges, fell 1.2 percent as of 10:56 a.m. local time, paring an earlier decline of as much as 3.5 percent. The gauge yesterday capped a 20 percent drop from a November high, signaling a bear market. Producer prices rose 7.5 percent in July from a year earlier, the biggest gain in almost three years, after jumping 7.1 percent the previous month, today's reports showed. Food costs climbed 14.8 percent and non-food inflation was 2.9 percent. Bank of America Merrill Lynch said that the ruling Communist Party is unlikely to ease monetary policy and may have a fiscal response, including more spending on social housing and water infrastructure. Banks already face risks from lending to local-government financing vehicles. "In case the global economy slows down sharply, it will hurt Chinese exports and consumption, and the room for China to stimulate itself out of the problem will be smaller than 2008/09," Vincent Chan and Peggy Chan, Hong Kong-based analysts at Credit Suisse Group AG, said in a report yesterday. "There is no escape."
  
• Brazil may act more aggressively in the derivatives market to limit gains in the real, Finance Minister Guido Mantego told reporters in Brasilia, without giving more details.
• Ackermann's Italian Hedging Shows It's Every EU Bank for Itself. When Josef Ackermann called on lenders to help bail out Greece last month, the Deutsche Bank AG (DBK) chief executive officer had already cut his potential losses from the crisis spreading to Italy and Spain. Five days after lenders agreed to back the Institute for International Finance’s plan to accept losses on their holdings of Greek debt, the Frankfurt-based bank said it reduced its risks linked to Portugal, Italy, Ireland, Greece and Spain by 70 percent in the first half. In Italy, the lender cut its exposure to 996 million euros ($1.4 billion) from 8.01 billion euros. The decision helped the bank to escape losses on Italian bonds, which have since slumped on speculation the country will struggle to finance its deficit. It prompted an investigation by Italy’s securities watchdog and has also opened the bank to criticism it helped undermine confidence in the country. That may damage the lender’s franchise in a country where households save more than other Europeans and pay higher bank fees. “The signal was that Deutsche Bank thought Italian bonds would fall,” said Dirk Becker, an analyst with Kepler Capital Markets in Frankfurt.
• S&P Cuts AAA Muni Ratings Following U.S. Credit Downgrade. Standard & Poor's cut the AAA ratings of thousands of municipal bonds tied to the federal government, including housing securities and debt backed by leases, following its Aug. 5 downgrade of the U.S. The rating company assigned AA+ scores to securities in the $2.9 trillion municipal bond market including school- construction bonds in Irving, Texas; debt backed by a federal lease in Miami; and a bond series for multifamily housing in Oceanside, California. Olayinka Fadahunsi, an S&P spokesman, said he couldn't provide a dollar figure on the affected debt. S&P also cut ratings on securities backed by Fannie Mae and Freddie Mac, prerefunded issues and munis repaid by using federal assets, also known as defeased or escrow bonds. No state general-obligation ratings were affected and the company said some may remain unchanged.
• Gold Extends Advance to Record as Equity, Oil Rout Spurs Demand for Haven. Gold extended its rally to a record for a second day as the global rout in equities and crude oil deepened on concern the economic slowdown will worsen after Standard & Poor’s cut the U.S. credit rating. Gold for December delivery in New York advanced 1.1 percent to $1,731.80 an ounce. Immediate-delivery gold rose as much as 0.6 percent to $1,729.20, also an all-time high. The precious metal has surged 22 percent this year, heading for an 11th year of gains, as the global sovereign-debt crisis and a faltering economy boost demand from investors to protect their wealth. Gold holdings climbed the most since May last year while U.S. stocks had the biggest slump since December 2008 yesterday as investors retreated from riskier assets. Gold was costlier than platinum for the first time since December 2008.
• Crude Declines to 10-Month Low on U.S. Rating Downgrade, Rising Stockpiles. Oil dropped below $80 a barrel in New York, falling to the lowest in more than 10 months, as the U.S. credit rating cut and rising stockpiles stoked concern an economic slowdown will worsen, reducing fuel demand in the world’s biggest crude consumer. Futures slipped as much as 3.3 percent today, following a 6.4 percent plunge yesterday. Crude for September delivery fell as much as $2.69 to $78.62 a barrel in electronic trading on the New York Mercantile Exchange, the lowest intraday price since Sept. 30. It was at $78.71 at 10:41 a.m. Sydney time. The contract yesterday tumbled $5.57 to settle at $81.31. Prices are down 17 percent in August and 14 percent lower in 2011.
• Boehner Says Both Parties 'Must Work Now to Cut Spending' After S&P Action. Excessive spending by both political parties over decades “has created an environment of economic uncertainty,” and now Republicans and Democrats must work to cut federal spending, House Speaker John Boehner said. In a statement issued after President Barack Obama commented on the economy from the White House today, Boehner said “it is welcome news that the president will contribute to this process by laying out specific reforms he supports.”
• PNC(PNC) Subpoenaed by U.S. Attorneys Office in Probe of National City Lending. PNC Financial Services Group Inc. (PNC), the sixth-largest U.S. bank by deposits, said it was subpoenaed by federal prosecutors investigating lending practices at National City Corp., which PNC agreed to buy in 2008. The inquiry, which is in an early stage, concerns debts insured by the Federal Housing Administration, and certain non- FHA insured loan origination, sale and securitization practices, Pittsburgh-based PNC said today in a regulatory filing. The probe is being conducted by the U.S. Attorney’s Office for the Southern District of New York. “PNC is cooperating with the investigation,” according to the filing. “The outcome of the investigation is unknown, but it could result in penalties or other remedial actions.”
• Sotheby's(BID) Shares Plunge 13% Amid Concern About Resilience of Art Market. Sotheby’s (BID) shares plunged as much as 20 percent today amid concern that the art market rally since the 2008 financial crisis will fizzle. Shares of the publicly traded auctioneer closed down $5.17, or 13 percent, to $33.44, and are off 39 percent since their April 5 high this year. In the past three sessions, they’re down 16 percent.
• Freddie Mac Swings to Loss in Second Quarter, Seeks $1.5 Billion in Aid. Freddie Mac, one of two mortgage- finance companies under government conservatorship, reported a $2.1 billion loss for the second quarter and said it will seek $1.5 billion in U.S. Treasury aid.\
• Bank Stocks Plunge Most Since 2009. Bank of America, the nation’s largest bank by assets, plunged 20 percent and Citigroup slid 16 percent, leading the KBW Bank Index (BKX) down 11 percent. It was the worst showing for the 24-company benchmark since April 20, 2009, when Bank of America told investors it was putting aside more money to cover a growing pool of uncollectible loans. Those costs have continued to erode investor confidence ever since for the lender and some of its biggest rivals. More pressure came last week after S&P downgraded the credit of the U.S. government, which guarantees some of their deposits and debt, to AA+. Bank of America’s shares sold for only a third of their book value today, and Citigroup’s price-to-book ratio fell to less than 50 percent. “Investors are dumping financials because there’s so much confusion about what could be on their books,” Dave Lutz, head of ETF trading and strategy at Stifel Nicolaus & Co. in Baltimore, said in an interview. “You’ve got a perfect storm against Bank of America.”
• Cameron Returns to U.K. for Emergency Meeting on Rioting. U.K. Prime Minister David Cameron is returning to the U.K. from vacationing in Italy to chair an emergency meeting today to discuss rioting in London, which continued for a third night as petrol bombs were thrown, vehicles and businesses set ablaze and violence spread to three other cities.
• Hong Kong Stocks Tumble Amid Chinese Inflation, Global Selloff. Hong Kong stocks tumbled, with the index sliding more than 20 percent from a November high, as a report showing Chinese inflation accelerated added to concern the global economic slowdown may worsen in the wake of the U.S. credit-rating downgrade. Li & Fung Ltd., a supplier of toys and clothes to retailers including Wal-Mart Stores Inc., tumbled 6.1 percent. HSBC Holdings Plc, the U.K.-based lender that made a fifth of its revenue in North America last year, sank 7.9 percent. The Hang Seng Index tumbled 6.2 percent to 19,212.40 as of 10:50 a.m. local time, falling 23 percent from its closing high on Nov. 8, a level that some investors define as a bear market. None of the stocks in the 46-member gauge rose. The Hang Seng China Enterprises Index of Chinese companies listed in Hong Kong plunged 6.6 percent to 10,382.86 after Chinese inflation accelerated in July.

Wall Street Journal:

• Republicans Push Back on Higher Taxes. House Republican leaders, facing a stock-market rout on the first trading day after the U.S. lost its triple-A credit rating, warned colleagues not to feel pressured into raising taxes when the next stage of deficit negotiations begin. "Over the next several months, there will be tremendous pressure on Congress to prove that S&P's analysis of the inability of the political parties to bridge our differences is wrong," House Majority Leader Eric Cantor (R., Va.) wrote in a memo to Republicans. "In short, there will be pressure to compromise on tax increases. We will be told that there is no other way forward. I respectfully disagree." House Speaker John Boehner (R., Ohio) echoed Mr. Cantor's position, emphasizing that the U.S. needed to create "an environment in which businesses can invest and jobs can flourish." He said that "raising taxes is simply the wrong approach." A key pressure point will come when a bipartisan super-committee, created last week to come up with $1.5 trillion in additional cuts over 10 years, is formed and starts meeting. The S&P downgrade puts more pressure on the panel to come up with an even bigger package.
• Bank Lending Slows in Emerging Markets, Survey Finds. Banks in emerging markets are starting to tighten credit after years of rapid expansion, offering new evidence of a potential slowdown in global growth, a new industry survey found. The survey by the Institute of International Finance, a global banking trade group, found a cooling in financial conditions in recent months despite strong loan demand across emerging markets. The recent moves to tighten credit standards threaten to limit loan availability and restrain the global economic recovery.
• Indian Firms Wary. India's technology sector is bracing for a potential slowdown in growth after the historic U.S. credit downgrade over the weekend, which heightened fears of a double-dip recession in the largest outsourcing market and sparked a sell-off in IT stocks Monday.

CNBC:

• Hedge Funds Dumping Holdings. (video) Big hedge funds are dumping their favorite holdings en masse. Who's selling and what are they getting rid of? Find out from Anthony Scaramucci of Skybridge and Greg Zuckerman of the WSJ.
  

Business Insider:

• WATCH: Rioters Overpower Police In London. (video)
• A Preview of Tuesday's Huge Fed Meeting.
• Rhode Island Braces For Wave Of Muni Crises In Wake Of Central Falls Bankruptcy.
• Taliban Helicopter Attack May Have Been A Trap Involving A Devastating New Weapon.
  

Zero Hedge:

• Treasury Adds Another $20 Billion In Debt Overnight, Just $160 Billion Below Revised Ceiling.

Forbes:

• Is John Paulson Having to Liquidate His Positions? This is rumour, nothing more than mildly informed rumour. Which is, of course, the most interesting form of market information. But is John Paulson having to liquidate his hedge fund’s positions? That’s the interesting question posed over at Bronte Capital.

NY Times:

• China Economists See Big Risks From US Downgrade. It is not just many Americans who are upset about the Standard & Poor’s downgrade of United States debt. A lot of people in China are angry, too. But they are aiming their venom at the Chinese government.

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Monday shows that 22% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty percent (40%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -18 (see trends ).

Reuters:

• Senate Panel Reviewing S&P Downgrade. The Senate Banking committee has begun looking into last week's decision by Standard and Poor's to downgrade the U.S. credit rating, a committee aide told Reuters on Monday. The aide said the panel was gathering information about the S&P move but no decision had been made on whether it will hold hearings into the downgrade. While an official investigation has not been launched, the aide said that all options were being weighed.

China Business News:

• Chinese regulators have placed a cross-default provision on local government financing vehicle debt such that all banks must recognize loans to that vehicles as defaulted if it defaults on any one bank's loan, citing a person familiar with the matter.

21st Century Business Herald:

• U.S. and Mexico have jointly submitted a memorandum of understanding to the World Trade Organization accusing China of protectionism in its rare-earth policy, citing Gan Yong, vice president of Chinese Academy of Engineering.

Beijing News:

• Beijing's average new home prices fell to 13,623 yuan per square meter in the first seven months of the year, from 113,948 yuan per square meter in the first six months, citing Beijing Real Estate Association. The average prices were for new homes of 140 square meters or smaller. Average existing home prices dropped 2.2% in July from the previous month to 18,142 yuan per square meter.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -5.0% to -1.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 156.0 +20.0 basis points.
  
• Asia Pacific Sovereign CDS Index 148.0 +17.5 basis points.
  
• S&P 500 futures -1.60%.
  
• NASDAQ 100 futures -1.42%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (DISH)/.78
• (FOSL)/.76
• (CVC)/.40
• (AOL)/.17
• (CREE)/.27
• (DIS)/.73
• (SPWRA)/-.19
• (PEGA)/.13
• (NUAN)/.34

Economic Releases
7:30 am EST

• NFIB Small Business Optimism for July is estimated to fall to 89.9 versus a reading of 90.80 in June.

8:30 am EST

• Preliminary 2Q Non-farm Productivity is estimated to fall -.9% versus a +1.8% gain in 1Q.
• Preliminary 2Q Unit Labor Costs are estimated to rise +2.4% versus a +.7% gain in 1Q.

2:15 pm EST

• The FOMC is expect to leave the benchmark fed funds rate at .25%.

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The 3-Year Note Treasury Auction, weekly retail sales reports, Oppenheimer Tech/Communications Conference, Raymond James Bank Conference, Credit Suisse Industrial Conference and the Canaccord Growth Conference could also impact trading today.
  

BOTTOM LINE: Asian indices are sharply lower, weighed down by financial and technology shares in the region. I expect US stocks to open lower and to rally into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.