Stocks Falling into Final Hour on Rising Eurozone Debt Angst, Less Financial Sector Optimism, Rising Global Growth Fears, Technical Selling

Broad Market Tone:

• Advance/Decline Line: Lower
  
• Sector Performance: Almost Every Sector Declining
  
• Volume: Around Average
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 20.11 +5.88%
  
• ISE Sentiment Index 106.0 +89.29%
  
• Total Put/Call 1.0 -11.50%
  
• NYSE Arms .98 -44.22%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 103.22 +2.27%
  
• European Financial Sector CDS Index 258.72 +1.01%
  
• Western Europe Sovereign Debt CDS Index 287.24 +4.47%
  
• Emerging Market CDS Index 261.39 +3.22%
  
• 2-Year Swap Spread 33.0 +2.0 basis points
  
• TED Spread 38.0 unch.
  
• 3-Month EUR/USD Cross-Currency Basis Swap -48.25 -3.0 basis points
  

Economic Gauges:

• 3-Month T-Bill Yield .09% unch.
  
• Yield Curve 157.0 -1 basis point
  
• China Import Iron Ore Spot $141.30/Metric Tonne -.98%
  
• Citi US Economic Surprise Index -21.60 +.4 point
  
• 10-Year TIPS Spread 2.16 -2 basis points
  

Overseas Futures:

• Nikkei Futures: Indicating a -60 open in Japan
• DAX Futures: Indicating +1 open in Germany
  

Portfolio:

• Slightly Higher: On gains in my Tech sector longs and index hedges
  
• Disclosed Trades: Covered some of my IWM/QQQ hedges, then added them back
  
• Market Exposure: 50% Net Long

BOTTOM LINE: Today's overall market action is bearish as the S&P 500 trades well off session lows, but still lower for the day, despite rising Eurozone debt angst, less financial sector optimism, high energy prices, rising global growth fears, technical selling, more shorting and less US economic optimism. On the positive side, Coal, Computer and Homebuilding shares are especially strong, rising more than +.75%. Tech/Homebuilding shares have held up well throughout the day. Oil is falling -1.0%, the UBS-Bloomberg Ag Spot Index is down -1.0% and Gold is down -1.0%. On the negative side, Energy, Oil Service, Ag, Paper, Bank, Biotech, Drug, Hospital, HMO, Road & Rail and Airline shares are under pressure, falling more than -1.50%. Transportation and Financial shares have lagged throughout the day. Lumber is down -.54% and Copper is down -.4%. Major Asian indices fell around -1.25% overnight, led lower by a -1.7% decline in China. The Nikkei fell another -1.5% and is down -11.0% in about 6 weeks, closing slightly below its 200-day ma. Major European indices are falling around -.75%, led lower by a -2.8% decline in Spain. Spain is now just 109 points away from its March 9th, 2009 low and down -20.5% ytd. The Bloomberg European Bank/Financial Services Index is down -2.0% today and down -19.0% since March 19th. The Germany sovereign cds is gaining +4.3% to 89.17 bps, the France sovereign cds is jumping +3.5% to 209.50 bps, the Spain sovereign cds is rising +3.6% to 516.17 bps(testing all-time high), the Italy sovereign cds is rising +3.8% to 462.0 bps, the Portugal sovereign cds is jumping +4.6% to 1,106.29 bps, the China sovereign cds is gaining +3.0% to 118.64 bps, the Russia sovereign cds is rising +4.3% to 206.33 bps and the Brazil sovereign cds is gaining +3.7% to 131.79 bps. Moreover, the European Investment Grade CDS Index is jumping +3.9% to 156.41 bps and the Italian/German 10Y Yld Spread is gaining +4.3% to 407.91 bps. US Rail Traffic continues to soften. The Philly Fed ADS Real-Time Business Conditions Index continues to trend lower from its late-December peak. Moreover, the Citi US Economic Surprise Index has fallen back to early-Oct. levels. Lumber is -5.5% since its Dec. 29th high despite improving sentiment towards homebuilders and the broad equity rally ytd. Moreover, the weekly MBA Home Purchase Applications Index has been around the same level since May 2010 despite expectations for a strong spring home selling season. The Baltic Dry Index has plunged around -50.0% from its Oct. 14th high and is now down around -35.0% ytd. China Iron Ore Spot has plunged -22.0% since Sept. 7th of last year. Shanghai Copper Inventories are still near their recent all-time high and have risen +556.0% ytd. The recent intensification of the downturn in Eurozone economies raises the odds of further sovereign/bank downgrades. Overall, recent credit gauge deterioration is a big worry with a number of key sovereign cds breaking out technically. The 10Y T-Note continues to trade too well, copper trades poorly and the euro currency is breaking down technically. Oil is testing its 200-day ma again. While crude will likely bounce off this level short-term, I expect it to move still lower over the coming months. In general, US stocks remain extraordinarily resilient as aggressive dip-buyers once again materialized into an opening swoon. I continue to believe the level of complacency among US investors regarding the rapidly deteriorating situation in Europe is fairly high. For the recent equity advance to regain traction, I would expect to see further European credit gauge improvement, a further subsiding of hard-landing fears in key emerging markets, a rising 10-year yield, better volume, stable-to-lower energy prices, a US "fiscal cliff" solution and higher-quality stock market leadership. I expect US stocks to trade mixed-to-lower into the close from current levels on rising Eurozone debt angst, less US economic optimism, rising global growth fears, more shorting, technical selling and less financial sector optimism.

Today's Headlines

Bloomberg:

• Greek Euro-Exit Talk Goes Public as Officials Air Doubts. From the monetary fortress of the European Central Bank to the pro-European duchy of Luxembourg, policy makers are beginning to air their doubts that Greece can stay in the euro. Post-election tumult in Athens has put the once-taboo subject of an exit from the 17-country currency union on the agenda, lifting the veil on possible scenario planning afoot behind the scenes. “If Greece decides not to stay in the euro zone, we cannot force Greece,” German Finance Minister Wolfgang Schaeuble said at a conference sponsored by German broadcaster WDR in Brussels today. “They will decide whether to stay in the euro zone or not.” After 386 billion euros ($499 billion) in aid pledges for Greece, Ireland and Portugal, 214 billion euros in ECB bond purchases and another trillion euros in low-interest loans for banks, plus 17 high-level crisis summits, Greece’s political chaos thrust Europe into a perilous new phase. The world is witnessing an “important moment in European Union history, a moment of crisis,” EU President Herman Van Rompuy said in Brussels on the 62nd anniversary of the declaration by Robert Schuman, then France’s foreign minister, that launched postwar European integration.
• Spain's Top Seven Banks Need $88 Billion as Buffer, RBS Says. Spain’s biggest seven banks need 68 billion euros ($88 billion) of additional capital as a buffer against bad loans and to meet regulatory requirements, according to Royal Bank of Scotland Group Plc. (RBS) “Not only only do banks need to raise more provisions against 323 billion euros of real estate exposure, but insolvencies are rising steadily on other loans too,” Alberto Gallo, the bank’s head of European credit strategy, wrote in a note. Using public money to fund the lenders may “result in a vicious circle of austerity,” Gallo said, which could create higher unemployment and increase insolvency rates.
• China Stops Buying Europe Government Debt on Crisis Concern. China Investment Corp. has stopped buying European government debt because of an economic crisis on the continent, though it continues to look for new investments there, said CIC President Gao Xiqing. “What is happening in Europe right now is of course of concern,” Gao said today in an interview in Addis Ababa, Ethiopia, during the World Economic Forum on Africa. “We still have our people looking at opportunities in Europe, even though we don’t want to buy any government bonds.”
• Spanish Stocks Plunge to Eight-Year Low on Europe Crisis. Spanish stocks declined to the lowest level in more than eight years amid concern the Mediterranean nation may have to seek a financial rescue and Greece may leave the euro currency union. Bankia (BKIA) SA led a selloff in banking shares as the country’s 10-year bond yield climbed above 6 percent. Mapfre SA (MAP) retreated 6.3 percent after reporting a 13 percent drop in first-quarter net income. Sacyr Vallehermoso SA (SYV), a property developer, slumped to the lowest price since at least October 1989. The IBEX 35 Index (IBEX) dropped 2.8 percent to 6,812.7 in Madrid, its lowest since Oct. 2, 2003. The benchmark gauge has plunged 20 percent this year, the worst performance of 18 western European markets. The volume of shares changing hands on IBEX 35 companies was 44 percent higher than the average in the past 30 days, data compiled by Bloomberg showed. “Investors worry about what will happen next, to the euro and to Spain,” said John Plassard, director at Louis Capital Markets SA in Geneva. “This should lead to increased market volatility over the coming weeks. Spain, as the icing on the cake, adds to concern with some voices fearing another revision of its deficit targets this year.”
• Spanish Credit Risk Surges to Record on Bankia 'Zombie' Peril. The cost of insuring against a Spanish default surged to a record on concern a bailout of Bankia SA (BKIA), the nation’s third-biggest lender, won’t fend off a banking crisis triggered by bad real estate loans. “While there is no danger of an imminent collapse at Bankia, there is a risk that it becomes a zombie bank, which has to rely on the European Central Bank to fund it over the long term,” said Roger Francis, an analyst at Mizuho International Plc in London. There is growing speculation Spain may become the fourth European nation to seek a rescue as its lenders become overwhelmed by 184 billion euros ($239 billion) of what the nation’s central bank terms “problematic” assets linked to property. Of the 38 billion euros of real estate the Bankia group held at the end of 2011, about half was classed as either “doubtful” or at risk of becoming so, according to the lender’s annual report. Credit-default swaps insuring Spanish government debt rose 18.5 basis points to 517.25 basis points a 12:55 p.m. in London, according to data compiled by Bloomberg. Spanish 10-year government bonds extended a decline, pushing the yield on the securities above 6 percent for the first time since April 27. The yield climbed 17 basis points, or 0.17 percentage points, to 6.02 percent. Swaps on Valencia-based Bankia climbed nine basis points to 721 while contracts on Banco Santander SA (SAN), the largest Spanish lender, increased 15.5 basis points to 411 and Banco Bilbao Vizcaya Argentaria SA (BBVA), the second biggest, was up 19 basis points to 446.
• Money-Market Stress Indicators Increase on Greece. Money-market indicators signaled increased stress in the market for borrow and lend short-term funds as Greek politicians struggled to form a government, fueling concern the nation may leave Europe’s currency union. The Libor-OIS spread, a gauge of banks reluctance to lend, traded in the forward market widened to 35.4 basis points, the June so-called FRA/OIS spread shows, from 33.4 basis points yesterday. The difference between the two-year swap rate and the comparable-maturity Treasury note yield, known as the swap spread, widened to 33.44 basis points, the most since January.
  
• Brazil Bulls Capitulate as State Intervention Spurs Outflows. Brazil’s efforts to boost economic growth with the most aggressive interest rate cuts are driving away investors, reducing equity valuations to five-year lows and fueling the world’s biggest currency tumble. MSCI Inc.’s Brazil Index has dropped to the cheapest level since 2006 versus global shares as investors pulled $869 million from the nation’s mutual funds this year, the only country among the four largest emerging markets to post outflows, according to data compiled by Bloomberg and EPFR Global. Brazil’s debt handed foreign investors the worst losses since September last month. Three months after saying Brazil was in a “sweet spot,” JPMorgan Chase & Co. is advising clients to reduce stock holdings as President Dilma Rousseff, 64, orders state banks to slash lending rates, threatening profits. The real is the world’s most overvalued major currency even after posting the worst slump in the past month, Morgan Stanley says.
• Chilean Drops Most in Two Months as Trading Range Broken. Chile’s peso fell the most in two months as concern political turmoil in Greece may harm global growth prospects damped demand for commodities including copper, the South American country’s top export. The peso depreciated 1 percent to 490.55 per U.S. dollar at 11:02 a.m. in Santiago. The currency earlier plunged as much as 1.4 percent to 491.85, breaking through the 491 level for the first time since March 7. “It’s intraday still, but we’re breaking through and if we close above 491, the next is 495 or 500 pesos per dollar,” said Cristian Donoso, a trader at Banchile Inversiones in Santiago. “The trigger is the elections in Greece, and Spanish and Italian bonds are getting badly beaten up. That’s pushing down commodities, and emerging-market currencies are depreciating.” Copper for July delivery fell as much as 1.8 percent to a three-week low of $3.61 a pound on the Comex in New York. The metal accounts for more than half of Chile’s exports. BNP Paribas SA today recommended investors sell the Chilean peso versus the U.S. dollar, setting a target of 510 per dollar for the currency.
• Commodities Drop a 6th Day as Greek Crisis Fuels Concerns. Commodities fell, heading for the longest slump since August, as a global equity rout and an unraveling bailout of Greece increased the risk that a slowdown in the global economy will curb demand for raw materials. The Standard & Poor’s GSCI Spot Index (MXWD), which tracks 24 commodities, lost 0.4 percent to 646.23 at 1:07 p.m. in New York, leaving the gauge little changed this year. The index fell as low as 641.8 yesterday, the lowest since Dec. 29, as the euro extended a drop. Silver and gold plunged to four-month lows. The MSCI All-Country World Index of equities dropped to the lowest since January.
• Romney Says Obama Taking Unfair Credit for Oil-Production Gains. Mitt Romney, campaigning amid oil rigs dotting the landscape in Colorado, said President Barack Obama’s policies have hurt U.S. energy output and that regulation of hydraulic fracturing for natural gas should be left to states. “The president tries to take credit for the fact that oil production is up,” the former Massachusetts governor and presumptive Republican presidential nominee told supporters against the backdrop of an oil rig outside Fort Lupton. “I’d like to take credit for the fact that when I was governor, the Red Sox won the World Series,” he said, referring to the team’s 2004 title. “But neither one of those would be the case. It was not the president’s policies that led to oil production being up.”
• U.K. Retail Sales Drop Most in More Than a Year, BRC Says. U.K. retail sales fell the most in more than a year last month as poor weather and consumer caution on spending curbed demand at stores. Sales at stores open at least 12 months, measured by value, declined 3.3 percent from a year earlier, the London-based British Retail Consortium said today. That’s the biggest monthly drop since March 2011. Including stores open less than 12 months, sales decreased 1 percent.

Wall Street Journal:

• Hollande Meets Chief of European Council. French President-elect François Hollande on Wednesday discussed some of the most burning issues in the European Union with European Council President Herman Van Rompuy, including how to revive growth on the Continent and the crisis in Greece. At the Socialist's campaign headquarters in Paris, in his first meeting with a foreign official since his election on Sunday, Mr. Hollande discussed with Mr. Van Rompuy how to boost growth.
• Rehn: EU Has No Plans To Ease Budget Rules For The Netherlands. European Economic and Monetary Affairs Commissioner Olli Rehn Wednesday moved to quash speculation that the European Commission is considering relaxing its budget rules for the Netherlands.
• No French Minister at Ecofin, Eurogroup Meetings - Source.
• Banks Back Obama's Fed Nominees. President Barack Obama's two nominees to the Federal Reserve Board have received support from the financial-services industry, including Goldman Sachs Group Inc.(GS) and J.P. Morgan Chase & Co.(JPM)( Sen. David Vitter (R., La.) has effectively blocked Senate confirmation of the nominees, Harvard University economics professor Jeremy Stein and former private-equity executive Jerome Powell. Wall Street firms have been quietly pressing Mr. Vitter to drop his objections, an aide to the senator said.
• Intimidation by Proxy. The campaign to intimidate companies from exercising their free-speech rights is in high gear as shareholder proxy season arrives, and the most prominent early target is health-insurer WellPoint. The arc of this attack will be one of the election year's political leitmotifs, and it should be on the radar of every corporate boardroom. In the favored new tactic of the left, unions and activists are using politicized shareholder resolutions to send a message to corporations: Drop support for free-market and conservative causes, or you'll take a political beating.
  

CNBC.com:

• Dohmen: 'Soft Landing' in China? No Way!
• Fed Exit Should Start in 6 to 9 Months: Kocherlakota. Recent improvements in the U.S. economy should mean the Federal Reserve's next policy move will be to raise interest rates, possibly by the end of the year, Narayana Kocherlakota, president of the Minneapolis Fed, said on Wednesday. "I don't see a need for additional accommodation," Kocherlakota told a group of lawyers in Minneapolis. The increase in inflation and decline in unemployment over the past year point to the need for tightening, he said. "I would say in six to nine months we should begin to be thinking about initiating our exit strategy," he said.
• New Greek Poll Looms as Government Efforts Founder. Greece moved closer to a second snap election on Wednesday when the head of the biggest party launched a new attack on radical leftist Alexis Tsipras, saying his plans for a new government would push the country out of the euro zone.
• Health-Care Costs in Retirement Rise to $240,000. Americans are making a dangerous assumption: that their current retirement savings will be enough to cover health-care costs. Two new reports, released this week from Fidelity Investments and Nationwide Financial show Americans drastically underestimate how much they will spend out-of-pocket on health-care costs during retirement. According to Fidelity, couples retiring this year will need, on average, $240,000 to cover medical expenses throughout retirement, or an out-of-pocket cost of up to $10,750 per year. This is 4 percent more than those who retired a year ago.

Business Insider:

• Here's What You'll Find In The SALT Hedge Fund Conference Goodie Bag.
• Now We Know How Banks Plan To Make Up For All That Lost Overdraft Fee Revenue.
• Hugh Hendry: This Is The Biggest Psychological Problem Plaguing Hedge Funds Right Now.
• Chinese Architect Comments On 'Dark Apartments,' Vacancies and Malinvestment.
• The Disaster You Forgot: Portugal. (graph)
  

Zero Hedge:

• Europe's Stigmatized Banks On The Verge Of Crucifixion.
• Nigel Farage: "The EU Titanic Has Now Hit The Iceberg".
• Germany's Roadmap For A Greek Return To The Drachma.
• Spain's Bank "Bailout" A Complete Dud: Allows Banks To Opt-Out.
  

New York Times:

• In Spain, a Debt Crisis Rooted in Corporate Borrowing. In a country with one of the highest levels of company debt in the world, few businesses in Spain shoulder as big a burden as Grupo A.C.S., the global construction giant whose debt woes have become a mirror image of Spain’s own increasingly fraught financial struggle.

Seeking Alpha:

• The Fed and Credit Bubbles.

Reuters:

• Germany's Steinbrueck: Plan B Needed for Smaller Euro Zone. Europe should prepare a 'plan B' to cope with any possible departure of a country from the euro zone, Germany's former finance minister Peer Steinbrueck said on Wednesday. "If I had political responsibility, I would want to prepare for a plan B that would foresee that the European currency union, that the euro zone, no longer necessarily consists of 17 member states," Steinbrueck said in an interview on German television, when asked about Greece's future. "And that means to make provisions so that other countries are not pulled into the maelstrom through contagion." Steinbrueck's comments, coming at a time of growing uncertainty over Greece, carry weight. He is a leading member of Germany's centre-left Social Democrats (SPD) and is considered one of the leading candidates in the party to challenge Chancellor Angela Merkel in next year's federal election.
• US Money Funds Add Euro Zone Bank Debt in April - JPMorgan. U.S. prime money market funds raised their holdings of euro zone bank debt in April, resuming their return to this sector this year after scaling back their exposure in March, a report from J.P Morgan Securities released on Wednesday showed. Prime money market funds increased their euro zone debt holdings by $14 billion in April. This raised their total exposure to euro zone banks to $205 billion, up $52 billion since the beginning of the year, according to J.P. Morgan's latest monthly analysis of prime money funds' holdings.
• Spain, Portugal Committed to Budget Consolidation. Spain and Portugal urged Greece on Wednesday to stick to its bailout programme and stay in the euro and promised to spare no effort in reducing their own budget deficits to ward off the growing euro zone debt crisis. "I hope that Greece stays in the European Union and remains part of the euro project," Spanish Prime Minister Mariano Rajoy told journalists after a summit with his Portuguese counterpart, Pedro Passos Coelho. Passos Coelho said the Greek election result was "worrying" and urged the country's politicians to establish a government in order to follow the terms of Athens' second bailout.

Financial Times:

• Merkel's Austerity Put to Test in Poll. The austerity message of Angela Merkel, the German chancellor, and her insistence on balancing the budget and cutting government debt across the eurozone, is about to face its sternest test in a vital state election in Germany itself. On Sunday, a week after the French and the Greeks went to the polls, the 13m voters of North Rhine-Westphalia, Germany’s most populous state, will be called on to choose a new government. Ms Merkel’s Christian Democratic Union is fighting to win back power in the state by arguing for tougher budget discipline.

Telegraph:

• Debt Crisis: Live. Greece's future in the eurozone is in jeopardy, warns Germany's foreign minister Guido Westerwelle, as the EU and IMF will cut off future bailout payments if it refuses to continue implementing austerity measures.
• 'The Eurozone bail-out had three aims. It has failed on all of them' Two years after the eurozone bail-out was launched, experts give their verdict on its achievements.

Die Zeit:

• German Chancellor Angel Merkel's coalition may delay a parliamentary vote on the fiscal pact that had been planned for May 25, citing Rainer Bruederle, parliamentary head of Merkel's Free Democratic Party coalition partner. The coalition may decide to await the outcome of a May 23 special meeting of European Union leaders at which the pact will be discussed.
  

Handelsblatt:

• German economists including Kai Carstensen of the Ifo Institute and Michael Huether, who heads the IW economic institute, said Europe must prepare for a potential euro-exit by Greece. It is "absolutely appropriate" to develop a "plan B" that allows Greece to leave the common currency in as orderly a manner as possible, citing Carstensen. Huether said a country that no longer fulfills its obligations in the euro area cannot count on the solidarity of other members and may have to leave.
• ECB Executive Board member Joerg Asmussen said the bank can't keep coming to the rescue during the sovereign debt crisis, citing an interview. "We did what we could and had to do, but we can't keep conducting operations that actually overburden monetary policy," Asmussen said.
• Germany's Free Democratic Party, the junior coalition partner to Angela Merkel's Christian Democratic Union, says support payments to Greece should be stopped immediately, citing an interview with the party's parliamentary finance spokesman, Frank Schaeffler. A planned 5.2 billion-euro payment to Greece is "irresponsible", Schaeffler said.
  

La Vanguardia:

• Spain plans to demand banks make a further EU32b in real estate provisions. The Spanish government, Bank of Spain are working on a proposal to increase to 30% from 7% the provisioning rate on loans to developers that are still performing.
  

Shanghai Daily:

• Sales of Used Homes Decline. SHANGHAI'S existing property market failed to sustain March's strong sales last month amid a drop in supply and a continued caution among buyers, according to the latest market data. The market posted a 13.3 percent monthly drop in purchases of these properties, most of which were residential developments, to 14,300 units last month, Century 21 China Real Estate said in a report yesterday.
  

CRI English:

• Sina(SINA) Looks to Guide Microblog User Behavior. China's leading microblog site, sina.com, issued the country's first "community convention" Tuesday which clarified users' behavior norms and a mechanism of net management. The convention stressed that users should respect others' rights of not being disturbed and should not defame and insult others. Microblog users should cite the original sources of their reposts and should not release false information, the convention said. On the same day, the site also issued another regulation and a community committee system on the management of microblogs with all the three papers to be put into use on May 28. The regulation made a clear range over irregularities, including releasing harmful and false information and comments that will arouse disputes among the users. The site will welcome reports on illegal users from the netizens who have verified their identities as well as inspection of illegal information, the regulation said.

Bear Radar

Style Underperformer:

• Large-Cap Value -.60%

Sector Underperformers:

• 1) HMOs -1.70% 2) Airlines -1.68% 3) Drugs -1.53%

Stocks Falling on Unusual Volume:

• VRTX, PTR, BP, C, DB, GSK, BV, ABT, ECO, FIO, TTM, DAL, MELI, TRNX, AMED, JIVE, TTWO, ROSE, AMCX, GPOR, TEVA, RPXC, PRIM, DIOD, MCHP, MANT, CERN, WPPGY, DISCA, WPRT, FCN, CFI, FEZ, AGU, MLR, CGX, KRO, FCS, M, MWE, HII, GNRC, RNF, KRO, WTI and AMED
  

Stocks With Unusual Put Option Activity:

• 1) NLY 2) LEN 3) HOT 4) NTAP 5) COF
  

Stocks With Most Negative News Mentions:

• 1) PBI 2) CF 3) CQB 4) CHK 5) T
  

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Growth -.44%

Sector Outperformers:

• 1) Gold & Silver +1.45% 2) Utilities -.07% 3) Foods -.13%

Stocks Rising on Unusual Volume:

• CPWM, NILE, AEM, EGO, SODA, QSFT, TNGO, SCSS, DF, TPX, DF and SEMG
  

Stocks With Unusual Call Option Activity:

• 1) SODA 2) TTWO 3) UPL 4) TEVA 5) GME
  

Stocks With Most Positive News Mentions:

• 1) LYB 2) BA 3) CPWM 4) M 5) GD
  

Charts:

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

Wednesday Watch

Evening Headlines
Bloomberg:

• Greek Leaders Given Bailout Ultimatum. Alexis Tsipras of Greece’s Syriza party squared off with political leaders before talks on forming a coalition, handing them an ultimatum to renounce support for the European Union-led rescue if they want to enter government. Tsipras said he expected Antonis Samaras of New Democracy and Evangelos Venizelos, the former finance minister who leads the Pasok party, to send a letter to the EU revoking their written pledges to implement austerity measures by the time he meets them today to discuss a government alliance. Samaras and Venizelos rejected the request. Samaras said he was being asked “to put my signature to the destruction of Greece.” “He interprets, with unbelievable arrogance, the election result as a mandate to drag the country into chaos,” Samaras said late yesterday in televised remarks. “I hope Mr Tsipras will have come to his senses by the time we meet.” Tsipras is due to meet with political leaders from about 5 p.m. in Athens. The stand-off since the inconclusive May 6 election has reignited European concerns over Greece’s ability to hold to the terms of its two bailouts negotiated since May 2010. With Parliament split and policy makers in Berlin and Brussels urging Greece to stay the course, the country at the epicenter of the debt crisis is again facing the risk of an exit from the euro.
• Moody's Bank Downgrades Risk Choking European Recovery. Moody’s Investors Service will this month start cutting the credit ratings of more than 100 banks, a move that risks pushing up their funding costs and forcing them to curb lending in a threat to economic growth. BNP Paribas SA (BNP), France’s biggest lender, Deutsche Bank AG, Germany’s largest, and New York-based Morgan Stanley are among firms that face having their short- and long-term debt downgraded to their lowest-ever levels by Moody’s, the ratings company said in February. The cuts, which would follow downgrades by Standard & Poor’s and Fitch Ratings last year, could erode profits, trigger margin calls and leave some firms unable to borrow from money- market funds that have strict rules on who they can lend to. Without access to funding from private sources, banks have had to sell assets and reduce lending. “I’d like to say the views of the rating agencies don’t matter anymore but, unfortunately, they do,” said Philippe Bodereau, London-based head of European credit research at Pacific Investment Management Co., the world’s largest bond investor.
• Dutch Retailers Face Profit Blow as Taxes Chill Spending. Retailers in the Netherlands may have their earnings pinched this year as increased sales taxes and higher excise duties push prices up at a time when household confidence is at the lowest level since 2003. “I am worried about the higher VAT rates and the fact the Dutch government didn’t come up with a good solution for the stagnant housing market,” Ton Anbeek, chief executive officer of furniture retailer Beter Bed Holding NV (BBED), said in a telephone interview. To meet European Union budget rules, the Dutch government will boost the highest value-added tax rate on consumer goods to 21 percent from 19 percent after reaching an austerity agreement with opposition parties last month. Excise duties on tobacco and alcohol will increase starting in October. Dutch consumer confidence hit the lowest level since 2003 in March, according to the Central Bureau of Statistics, after consumer spending dropped 1.3 percent in February.
• China’s Stocks Fall Most in 5 Weeks on Export Slowdown Concerns. China’s (SHCOMP) stocks fell, dragging the benchmark index down by the most in five weeks, as political tension in Greece heightened concern Europe’s debt crisis may further slow Chinese export growth. China Cosco Holdings Co. and Cosco Shipping Co. dropped at least 1.4 percent before a report tomorrow that will show Chinese export growth decelerated. SAIC Motor Corp. slid 2.3 percent after the Xinhua News Agency said China will ban executives at state-owned companies from excessive spending on items such as cars. Sany Heavy Industry Co. paced declines for construction machinery stocks after Nomura Securities Co. said sales of excavators last month were “disappointing.” The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, slipped 1 percent to 2,424.91 as of 9:35 a.m. local time, poised for the biggest drop since March 29. The Communist Party of China may delay its planned five- year congress “by a few months” because of an internal debate on the size and composition of nine-member standing committee of the Politburo, Reuters said, citing unidentified people with knowledge of deliberations. “There’s already a lot of uncertainty this year because of the political changes and if stimulus measures are stalled because the congress is postponed, that will have an impact on shares,” Wan said.
• FX: Report of China's Congress Delay May Be AUD Negative: BNP Paribas. Reuters' report that China's Communist Party is considering a delay in its 5-year congress by a few months is likely to fuel speculation there's political infighting within the ruling party, BNP said in a note. This may have markets question the govt's ability to keep the Chinese economy on track in preventing a hard landing. While this may push USD/CNY 12-mo NDF higher, AUD will also remain vulnerable as the political news unfolds.
• Ross Says Looming ‘Freak Show’ May Threaten U.S. Economy. The U.S. economy is at risk of slipping back into recession in 2013 because of likely impasses in Washington over taxes and mandatory spending cuts, said Wilbur Ross, the billionaire investor. “That’s too big a hit for the economy to take,” Ross said today during a discussion at Bloomberg Markets’ Global Financial Elite lunch in New York. “We’re going to have another freak show at the end of the year.” Ross said he’s worried that President Barack Obama and Congress won’t be able to agree on extending tax cuts passed under former President George W. Bush that expire at the end of 2012, or on mandatory spending cuts tied to the extension of the country’s debt-ceiling agreement. He said he’s optimistic about the U.S. economy between now and then, and found a new way to describe the shape of the recovery beyond a “W.” “It’s more like punctuation,” he said. “Dots, dashes, question marks and an occasional exclamation point.” W.L. Ross & Co., his namesake firm known for buying distressed assets in industries from steel to financial services, is largely avoiding investments in what he called “the Club Med countries” of Europe, according to Ross. “It’s way too unsettled, even for our tastes, to be in Spain or countries like that just yet,” he said, adding that he has made deals in countries including Ireland. “You have to be very selective within Europe.”
• India Driving Away Telecom Operators Amid Probe: Tech. India’s mobile-phone industry, once a symbol of rapid growth, is turning into something else: a demonstration of the difficulty of doing business there. Some telecom companies have left and others said they may follow. India has rewritten tax rules, scrapped 122 licenses tainted by graft allegations and recommended charging 11 times more for airwaves in a bid to wrest more money from operators to help plug the widest budget deficit among the biggest emerging markets.
• Rubber Drops Most in 6 Months as European Woes Threaten Recovery. Rubber plunged by the most in six months as political turmoil in Greece deepened concerns Europe’s debt crisis may worsen, threatening the global recovery and sapping investor appetite for the commodity used in tires. October-delivery rubber fell as much as 4.4 percent to 291 yen a kilogram ($3,642 a metric ton), the lowest level for a most-active contract since Jan. 18, before trading at 291.1 yen on the Tokyo Commodity Exchange at 10:50 a.m. It was the largest drop since Nov. 10. The contract has lost 7.8 percent this week.
• FHA New Foreclosures Jump as Modified Loans Default: Mortgages. The number of Federal Housing Administration-insured home loans entering foreclosure jumped in March after half the mortgages it modified to ease repayment terms were in default again a year or more later. “The credit standards are way too loose -- you can get into a house with very little skin in the game, and if home prices drop by a small amount, you’re underwater,” said David Lykken, managing partner at Mortgage Banking Solutions, an Austin, Texas-based consulting firm. “We’ve got to start getting reasonable about standards. What they’ve done so far, some very slight attempts at tightening, don’t really count.”

Wall Street Journal:

• Turmoil in Greece Raises Euro Risk. Though Financial Markets Are Relatively Calm, Concern Grows About Impact of Potential Exit From the Common Currency. Financial markets' relatively calm reaction to the Greek turmoil masked rising risks Greece is on a road that leads to its exit from the euro zone, with hard-to-predict consequences. The weekend's inconclusive elections were seen by many as a possible beginning of the end, by choice or by necessity, for Greece's membership in the common currency.
  
• Annan Raises Fear of Syria Civil War. The Syrian conflict is at risk of breaking into a war that could split the Middle East, the lead international envoy to the country said, presenting his increasingly fragile peace plan as "the only remaining chance" to avert such a fate.
• Expanded Credit Elusive In Private Mortgage Bonds, Issuers Say. If there is a way to begin expanding credit with private mortgage bonds, companies that have issued such securities in the past few years aren't seeing it.
• NYSE Sees Danger of Exchanges Becoming 'Showrooms' for Prices. U.S. stock exchanges are in danger of becoming "showrooms" for prices in an equities market that's increasingly moving behind closed doors, the head of NYSE Euronext (NYX) warned Tuesday.
• Traders See SEC Speed Trap. Investors and regulators blame high-speed traders and computer-driven exchanges for causing problems in the stock market, but some traders are saying the real culprit is the market's own rules. The Securities and Exchange Commission instituted a broad set of rules in 2007 to direct buy and sell orders among stock exchanges. Since then, high-frequency traders along with exchanges have profited from loopholes in the rule, according to Blair Hull, founder of the Chicago investment firm Matlock Capital LLC.
• Broadcom(BRCM) CEO Sees Consolidation Ahead In Mobile-Chip Sector. Consolidation is ahead for the wireless semiconductor sector, according to the chief executive of chip maker Broadcom Corp. (BRCM), with many companies likely to face either a financial or technological squeeze. Scott McGregor, speaking at an investor conference, said the high cost and difficulty of developing new processors for smartphones and tablet computers will cause many chip makers to exit the market.
• Veteran Indiana Senator Ousted. Indiana Sen. Richard Lugar, whose 35 years in the Senate made him one of the longest-serving members, was ousted by a Republican primary opponent Tuesday after running a stumbling campaign and facing a tea-party movement eager to take advantage of his missteps.
• Rising Costs Hit Homeowners Chasing Lower Rates. Mortgage rates may be at rock-bottom levels, but the cost of getting a loan is on the upswing, thanks to reduced competition among banks and tougher lending requirements. Mortgage closing costs averaged $4,143 in 2011, the most recent data available, up 12.4% from a year earlier, according to Bankrate.com. Borrowers seeking to refinance often don't have to pay that full amount, but the prices for some of the most common components of a refinance have jumped as well. Origination fees, for instance, climbed by 12% to an average of $1,045 in 2011, according to Bankrate.com. Attorney costs and other settlement fees rose 9.6% to an average of $544.
• Chesapeake's(CHK) Private Jets in Cross Hairs. A shareholder of embattled natural-gas giant Chesapeake Energy Corp. accused the company of understating the cost of personal jet travel provided to top executives and outside directors by as much as $10 million per year. In a lawsuit filed in state court in Oklahoma City, the shareholder claims that Chesapeake directors misled investors by stating in regulatory filings that personal use of company aircraft was "limited" and that the company's fleet of jets was used "primarily" for business travel.
• North Carolina Backs Ban on Gay Marriage. North Carolina voters on Tuesday approved a constitutional amendment defining marriage as strictly between a man and a woman. The amendment was ahead 61% to 39% with 80% of the precincts reporting statewide, after earlier driving record turnout for early voting.
• Peltz's Trian to Take Stake in Ingersoll(IR). Nelson Peltz's Trian Fund Management LP is expected to report taking a more-than-7% stake in industrial conglomerate Ingersoll-Rand PLC, people familiar with the matter said, as some analysts have maintained the company is underperforming against its rivals.

Business Insider:

• How Goldman Sachs(GS) Blew The Facebook(FB) IPO.
• BOMBSHELL: The Al-Qaeda Underwear Bomber Was Actually A CIA Double Agent.
• 4 Ways That French Foreign Policy Will Change Under Hollande.

Zero Hedge:

• Spain Appears Unsure What A "Bank Bailout" Means.
• John Taylor Says "To Hell With Germany".
• America Will Have Negative Unemployment In January 2022.
  

CNBC:

• Green Mountain's(GMCR) Stiller 'Hurt' to Lose Chairman Title. "I am really shocked and hurt, Stiller told CNBC on Tuesday evening. "There were no SEC laws broken, nothing that was in violation of Federal law. I'm stunned. I've always been transparent with the board. I think it's an overreaction."
• Disney(DIS) Earnings Top Expectations; Shares Rise. Walt Disney reported on Tuesday quarterly earnings and revenue that beat Wall Street's expectations, driven by growth at its media networks such as sports powerhouse ESPN and its theme park business.
• Street Gangs: A New Breed of White Collar Criminals? Gangs are expanding and becoming more violent, posing an increasing risk to communities across the country, according to the National Gang Intelligence Center. And their latest threat is not drugs or prostitution, it’s white-collar crime.

IBD:

• Vitamin Shoppe(VSI) Rallies 15% On Healthy Earnings Growth.

NY Times:

• German Patience With Greece on the Euro Wears Thin. Just weeks ago, the idea that Greece would leave the euro zone was almost unthinkable. Now, with Greece’s newly empowered political parties refusing to abide by the terms of the country’s international loan agreement and Europe’s leaders talking tough, that outcome is looking increasingly likely. Germany’s devotion to the euro and the European Union runs extremely deep and cuts across the political spectrum. But the frustration with Greece here is undeniable. There is a growing conviction that it is up to Greece to follow through on its commitments, that Europe is done negotiating. “Germans are now predominantly of the opinion that they would be better off if Greece left the euro zone,” said Carsten Hefeker, professor of economics and expert on the euro at the University of Siegen. “If the country really is continuing on the path they are taking now, it would be hard to justify keeping them in. How do you deal with a country that says we don’t want to keep any of the commitments we have made?”

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Tuesday shows Mitt Romney earning 49% of the vote and President Obama attracting 44% support. Three percent (3%) would vote for a third party candidate, while another three percent (3%) are undecided.

Reuters:

• Exclusive - Chesapeake(CHK) CEO arranged new $450 million loan from company financier. In the weeks before Chesapeake Energy CEO Aubrey McClendon was stripped of his chairmanship over his personal financial dealings, he arranged an additional $450 million (278.6 million pounds) loan from a long-time backer, according to a person familiar with the transaction.

Financial Times:

• Greek Left Attacks 'Barbarous' Austerity. Greece is heading for a clash with international lenders as the radical leftwing party that came second in the weekend’s election called for the ripping up of a “barbarous” austerity programme underpinning its bailout and questions mounted about the country’s future inside the euro.
• Hollande At Odds With Key Partners On Structural Reform. What got less attention was Mr Hollande’s revealing admission that he did not share Mr Draghi’s vision, quickly endorsed by Angela Merkel, the German chancellor, that such a growth plan should be focused on structural reforms, such as increasing labour market flexibility. Mr Hollande was not coy about this. “Can we really believe that liberalism, privatisations and deregulation, which led us to the financial crisis we are in, will help us get out of the crisis?” he said. His emphasis at the European level is on boosting investment and employment in new energy technology, infrastructure and small businesses through the use of project bonds and institutions such as the European Investment Bank and EU structural funds.

Telegraph:

• Crisis escalates as insurrection breaks German control of Europe. The political dam has broken in Europe. German Chancellor Angela Merkel no longer has enough allies in the club of EU prime ministers to impose her hairshirt agenda. Her methodical plans are disintegrating on every front. The immediate fate of Greece - and the euro - is in the hands of a boyish motorcycle Marxist. Syriza leader deal Alexis Tsipras has vowed to tear up the hated Memorandum, as the EU-IMF "troika" loan package is known. He showed no sign of backing off as he met his country's president and began talks on the formation of an implausible Left front. "The popular verdict clearly renders the bailout null and void," he said.
• Greece Drifts Closer to Euro Exit. A rudderless Greece was drifting closer towards a euro exit on Tuesday night as the man tasked with forming a new government vowed to abandon its austerity promises.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -1.50% to -.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 173.0 +4.0 basis points.
  
• Asia Pacific Sovereign CDS Index 139.0 -.5 basis point.
  
• FTSE-100 futures +.28%.
  
• S&P 500 futures -.45%.
  
• NASDAQ 100 futures -.41%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (FCN)/.61
• (ABVT)/.69
• (DTG)/1.35
• (AOL)/.17
• (M)/.40
• (NWSA)/.31
• (PCLN)/3.95
• (BMC)/.80
• (ATVI)/.04
• (MNST)/.38
• (CSCO)/.47
• (CUZ)/.12
• (CGX)/.77
• (BKC)/.36

Economic Releases
10:00 am EST

• Wholesales Inventories for March are estimated to rise +.6% versus a +.9% gain in February.

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory build of +2,000,000 barrels versus a +2,840,000 barrel gain the prior week. Distillate inventories are estimated to rise by +125,000 barrels versus a -1,903,000 barrel decline the prior week. Gasoline supplies are estimated to fall by -750,000 barrels versus a -2,009,000 barrel decline the prior week. Finally, Refinery Utilization is expected to rise by +.5% versus a +1.3% gain the prior week.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Plosser speaking, Fed's Pianalto speaking, 10Y T-Note Auction and the weekly MBA mortgage applications report could also impact trading today.
  

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

Stocks Falling into Final Hour on Rising Eurozone Debt Angst, Rising Global Growth Fears, Less Financial Sector Optimism, Technical Selling

Broad Market Tone:

• Advance/Decline Line: Lower
  
• Sector Performance: Every Sector Declining
  
• Volume: Around Average
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 19.45 +2.69%
  
• ISE Sentiment Index 51.0 -37.8%
  
• Total Put/Call 1.19 +32.22%
  
• NYSE Arms 2.13 +107.78%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 101.04 +1.15%
  
• European Financial Sector CDS Index 255.98 +4.84%
  
• Western Europe Sovereign Debt CDS Index 279.38 +1.39%
  
• Emerging Market CDS Index 253.88 +2.10%
  
• 2-Year Swap Spread 31.0 +1.25 basis points
  
• TED Spread 38.0 -1.0 basis point
  
• 3-Month EUR/USD Cross-Currency Basis Swap -45.25 -3.75 basis points
  

Economic Gauges:

• 3-Month T-Bill Yield .09% +1 basis point
  
• Yield Curve 158.0 -4 basis points
  
• China Import Iron Ore Spot $142.70/Metric Tonne -.97%
  
• Citi US Economic Surprise Index -22.0 +1.1 points
  
• 10-Year TIPS Spread 2.18 -2 basis points
  

Overseas Futures:

• Nikkei Futures: Indicating a -82 open in Japan
• DAX Futures: Indicating +39 open in Germany
  

Portfolio:

• Slightly Higher: On gains in my Medical/Biotech sector longs and index hedges
  
• Disclosed Trades: Covered some of my IWM/QQQ hedges, then added them back
  
• Market Exposure: 50% Net Long

BOTTOM LINE: Today's overall market action is mildly bearish as the S&P 500 trades well off session lows, but still lower for the day, despite rising Eurozone debt angst, less financial sector optimism, high energy prices, rising global growth fears, technical selling, more shorting and less US economic optimism. On the positive side, Biotech and Tobacco shares are rising on the day. Oil is falling -.6% and Gold is down -1.9%. On the negative side, Steel, Alt Energy, Coal, Oil Service, Disk Drive, Telecom, I-Banking, Homebuilding and Restaurant shares are under meaningful pressure, falling more than -1.50%. Cyclicals are underperforming again. Financial shares have lagged throughout the day. Lumber is down -.5% and Copper is down -2.2%. Major Asian Indices were mixed overnight as a +.7% gain in Japan was offset by a -2.2% decline in India. India's Sensex, which finished near session lows, is down -4.5% in 5 days and down -10.7% since Feb. 22. Major European indices fell around -2.0%, led lower by a -2.8% decline in France. French stocks are now down -1.1% ytd and down -12.0% since March 16th. Italian stocks fell another -2.4% and are down -7.7% ytd(-18.5% since March 19th). The Bloomberg European Bank/Financial Services Index fell -2.0%. The Germany sovereign cds is gaining +1.77% to 86.33 bps, the France sovereign cds is jumping +5.0% to 202.92 bps, the Spain sovereign cds is rising +2.88% to 498.51 bps, the Italy sovereign cds is rising +1.2% to 446.33 bps, the Ireland sovereign cds is gaining +1.9% to 587.83 bps, the Brazil sovereign cds is gaining +2.9% to 127.06 bps and the US sovereign cds is surging +3.7% to 40.66 bps. Moreover, the European Investment Grade CDS Index is jumping +4.4% to 150.58 bps and the Italian/German 10Y Yld Spread is gaining +3.0% to 391.20 bps. US Rail Traffic continues to soften. The Philly Fed ADS Real-Time Business Conditions Index continues to trend lower from its late-December peak. Moreover, the Citi US Economic Surprise Index has fallen back to early-Oct. levels. Lumber is -5.0% since its Dec. 29th high despite improving sentiment towards homebuilders and the broad equity rally ytd. Moreover, the weekly MBA Home Purchase Applications Index has been around the same level since May 2010 despite expectations for a strong spring home selling season. The Baltic Dry Index has plunged around -50.0% from its Oct. 14th high and is now down around -35.0% ytd. China Iron Ore Spot has plunged -21.0% since Sept. 7th of last year. Shanghai Copper Inventories are still near their recent all-time high and have risen +564.0% ytd. The recent intensification of the downturn in Eurozone economies raises the odds of further sovereign/bank downgrades. Copper is breaking below its 200-day moving average. Weekly retail sales rose +2.6% this week versus a +3.2% gain the prior week and have decelerated from a +4.1% gain the week ended April 10th. The huge jump in consumer credit for April, given decelerating retail sales and lower gas prices, is another red flag. The 10Y T-Note continues to trade too well, despite a +47.0% gain in less than 3 weeks for the US sovereign cds, and the euro currency is close to a technical breakdown from its recent range. In general, US stocks remain extraordinarily resilient as aggressive dip-buyers once again materialized into an opening swoon. I continue to believe the level of complacency among US investors regarding the rapidly deteriorating situation in Europe is fairly high. For the recent equity advance to regain traction, I would expect to see further European credit gauge improvement, a further subsiding of hard-landing fears in key emerging markets, a rising 10-year yield, better volume, stable-to-lower energy prices, a US "fiscal cliff" solution and higher-quality stock market leadership. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, bargain-hunting and lower energy prices.