Stocks Surging into Final Hour on Central Bank Hopes, Yen Weakness, Short-Covering, Biotech/Tech Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Higher
  

• Sector Performance: Most Sectors Rising
  

• Volume: Below Average

• Market Leading Stocks: Outperforming

Equity Investor Angst:

• Volatility(VIX) 12.22 -5.42%

• Euro/Yen Carry Return Index 146.64 +.29%

• Emerging Markets Currency Volatility(VXY) 7.33 +.14%

• S&P 500 Implied Correlation 54.49 -3.61%

• ISE Sentiment Index 115.0 +19.79%

• Total Put/Call .63 -32.98%

• NYSE Arms .66 -56.73% 

Credit Investor Angst:

• North American Investment Grade CDS Index 62.58 -1.85%

• European Financial Sector CDS Index 72.77 -2.52%

• Western Europe Sovereign Debt CDS Index 32.82 +1.26%
• Asia Pacific Sovereign Debt CDS Index 84.85 +.36%

• Emerging Market CDS Index 266.53 -1.04%

• China Blended Corporate Spread Index 360.44 +.19%
• 2-Year Swap Spread 13.75 unch.

• TED Spread 20.50 +.75 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -4.25 unch.

Economic Gauges:

• 3-Month T-Bill Yield .02% -1.0 basis point

• Yield Curve 226.0 +2.0 basis points

• China Import Iron Ore Spot $103.0/Metric Tonne +.29%

• Citi US Economic Surprise Index -6.60 +2.5 points

• Citi Emerging Markets Economic Surprise Index -23.40 +2.0 points

• 10-Year TIPS Spread 2.17 -1.0 basis point

Overseas Futures:

• Nikkei Futures: Indicating +170 open in Japan

• DAX Futures: Indicating +17 open in Germany

Portfolio: 

• Higher: On gains in my tech/retail/medical/biotech sector longs 

• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges and some of my (EEM) short

• Market Exposure: Moved to 75% Net Long

Today's Headlines

Bloomberg:

• Russia Hails Local Votes to Split From Ukraine as EU Imposes Sanctions. Rebels in eastern Ukraine said they’re seeking to join Russia after disputed referendums yesterday as the government in Kiev was handed a deadline to pay for Russian gas to prevent supplies being cut off. The self-styled Donetsk People’s Republic declared itself a sovereign state today after saying 90 percent of voters backed breaking away from Ukraine yesterday. Separatists in neighboring Luhansk announced a similar move. Russia’s state-controlled gas monopoly, OAO Gazprom (OGZD), said Ukraine must pay for next month’s supplies by June 2 or face a shutoff the next day. 
• Ukraine Rebels Seek to Join Russia as Gas Deadline Is Set. Rebels in eastern Ukraine said they’re seeking to join Russia after disputed referendums yesterday as the government in Kiev was handed a deadline to pay for Russian gas to prevent supplies being cut off.
• Ukraine Bonds Drop 2nd Day as Rebels Say Votes Favor Secession. Ukrainian bonds dropped for a second day and the hryvnia depreciated as pro-Russian groups in the country’s east said large majorities voted in favor of secession. The yield on the government’s dollar-denominated bonds due in July 2017 climbed 14 basis points to 13.71 percent. The hryvnia weakened 0.8 percent to 11.7450 per dollar by 12:48 p.m. in Kiev, taking this year’s retreat to 30 percent, the most among more than 170 currencies monitored by Bloomberg. The Ukrainian Equities Index (UX) fell 1.6 percent to 1,084.63.
• China Credit Gauge Declines as Officials Seek to Tame Debt Boom. China’s broadest measure of new credit fell last month as authorities extended their campaign to tame financial dangers even as construction and manufacturing data point to risks that the economy’s slowdown will worsen. Aggregate financing was 1.55 trillion yuan ($249 billion) in April, the People’s Bank of China said yesterday in Beijing, compared with 2.07 trillion yuan in March. New local-currency bank loans were 774.7 billion yuan, down from 1.05 trillion yuan the previous month. 
• China Regulators Said to Draft Plan for Bank Failure Risk. China’s government is drafting rules to help manage the fallout of any bank failure, two people with knowledge of the matter said, as lenders in the country face rising loan defaults and increased competition. The People’s Bank of China and the China Banking Regulatory Commission are working on a plan to ensure the safety of deposits and an orderly repayment of financial firms’ liabilities during a crisis, the people said, asking not to be identified because the draft rules haven’t been made public. Under the rules, financial institutions deemed to have failed will be allowed to cease operations rather than be propped up. 
• China Swap Rate Rises First Time in Three Days on Zhou Comments. China’s one-year interest-rate swaps rose for the first time in three days after the central bank said it would refrain from large-scale stimulus measures to boost growth in Asia’s largest economy.
• Assad’s Military Gains Challenge Obama’s Syria Strategy. With the Syrian uprising in its fourth year, U.S. President Barack Obama may be further than ever from his goal of seeing rebels topple President Bashar al-Assad. What’s more, U.S. and European officials say that Syria, because it has become a magnet and training ground for Islamic extremists from all over the world, now poses a greater security threat to the U.S., European nations and countries in the region than the Assad regime did before the uprising. 
• India Exit Polls Signal Modi Bloc Winning Majority in Election. India’s main opposition bloc led by Narendra Modi is poised to win a majority in a national election, most exit polls signaled, boosting his chances of taking power in the world’s second-most populous country. Modi’s Bharatiya Janata Party and its allies will win 249 to 340 seats, according to six exit polls today, with 272 needed for a majority. The Congress party and its allies, in power for the past decade, are projected to win 70 to 148 seats. Results will be announced on May 16. 
• EU Banks Urged to Boost Capital Now as Stress Test Doubts Voiced. European banks are being urged to boost their ability to withstand losses before the conclusion of a stress test that is drawing criticism for its design.
• Europe Stocks Rise to Six-Year High; Mining Stocks Rally. European stocks rose to their highest level in more than six years, as mining companies advanced, and Sky Deutschland AG rallied after British Sky Broadcasting Group Plc said it’s in talks to buy the company. A gauge of commodity producers jumped the most in almost seven months as JPMorgan Chase & Co. recommended buying shares in miners on signs of a recovery in Chinese demand. Sky Deutschland increased the most in more than two years. Logitech International SA added 6.8 percent as Credit Suisse Group AG advised buying the stock. Alstom SA added 2.8 percent after a report that Siemens AG may improve its offer for the company’s energy unit. The Stoxx Europe 600 Index climbed 0.7 percent to 340.96 at the close of trading.
• Russell 2000 Volatility Hits Seven-Share High. Traders are loading up on options as the Russell 2000 Index (RTY) hovers near the first 10 percent decline since 2012. Demand for protection against further losses has pushed the Chicago Board Options Exchange Russell 2000 Volatility Index up 11 percent this year to 19.53. That’s the highest level since 2007 versus the VIX gauge of Standard & Poor’s 500 Index contracts. In the past three days, more than 1 million options traded on an exchange-traded fund tracking small-cap shares.

Wall Street Journal:

• Crisis in Ukraine: Streaming Coverage.

CNBC:

• Not much spring in housing: Economist. (video)
• Out of ideas: 27% of US companies chop R&D.

ZeroHedge:

• The Solution To The Declining Middle Class: Destroy Fixed Costs And Debt.
• Is The Market Consolidating Or Topping? (graph)
• Russia Demands "Immediate Talks" With Kiev; Says Referendums Show "Real Mood" Of People.
• East Ukraine's Donetsk Declares Itself Sovereign: Asks Putin To "Consider Absorption" Of Newly Independent State.
• Seen On The New Donetsk Republic Leader's Wall...

ValueWalk: 

• JPMorgan(JPM) Could Slash 10,000 More Jobs [REPORT].
• Timothy Geithner Calls Those Seeking Wall Street Accountability “Terrorists".

Business Insider:

• Europe's Russian Nightmare Is Starting To Come True. 
• Pro-Russian Ukrainian Mayor Says Region Needs Russian Troops.
• Morgan Stanley Dramatically Slashes Its Outlook For The Tablet Market.
• New Video From Nigerian Kidnappers Allegedly Shows Kidnapped Schoolgirls.

CaliforniaWatchdog.org:

• Fleet of ObamaChoppers to Cost $20 Billion. You would think America didn’t have any economic troubles, and the government could waste whatever money it wanted to on anything. President Obama’s has ordered a fleet of 23 presidential helicopters — ObamaChoppers — that will cost taxpayers an incredible $20 billion. That’s $20,000,000,000,000.00. Although the program won’t deliver the ObamaChoppers until 2020 — typical military-industrial complex delays — they’re named after the president because he ordered them. It also was a no-bid contract.

Bear Radar

Style Underperformer:

• Large-Cap Value +.69%

Sector Underperformers:

• 1) Oil Service -2.52% 2) Utilities -1.0% 3) Drugs +.16%

Stocks Falling on Unusual Volume:

• HSH, CLB, INSY, APO, DXYN, MIDD, BPI, CSII, WIEC, AGN, DRQ, RL, VRX, AIRM, CXO, ARLP, OMED, EBS, ED, ACET, NEE, ADEP, BT, VVC and SHPG

Stocks With Unusual Put Option Activity:

• 1) EXC 2) SPLS 3) WDC 4) PANW 5) XME
  

Stocks With Most Negative News Mentions:

• 1) PBI 2) TSLA 3) HSH 4) DUK 5) WFM
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Small-Cap Growth +2.33%

Sector Outperformers:

• 1) Steel +2.62% 2) Networking +2.59% 3) Gaming +2.21%
  

Stocks Rising on Unusual Volume:

• PF, TSRO, GOGO, CPE, PAY, KNDI, IBN, NMBL, DEPO, AEIS, TASR, LQDT, FEYE, SGEN, BC, BDBD, TRIP, MSCI and TWTR

Stocks With Unusual Call Option Activity:

• 1) EPI 2) PAY 3) MBI 4) DNDN 5) K

Stocks With Most Positive News Mentions:

• 1) GD 2) IBM 3) TWTR 4) YHOO 5) PF
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Monday Watch

Weekend Headlines 
Bloomberg: 

• Ukrainian Regions Vote in Referendums Rejected as Illegal. Pro-Russian groups hailed a large majority in favor of secession in a referendum they organized in eastern Ukraine that was dismissed as illegitimate by the government in Kiev and its U.S. and European allies. Voters in Donetsk backed the breakaway plan by 90 percent to 10 percent, RIA Novosti reported late yesterday, citing Roman Liagin, head of the election committee. In Luhansk, the other region voting, turnout was 75 percent and the outcome wasn’t initially clear, RIA said. Final results are due later today.

• Russia Banks Should Be Targets in Sanctions, Boehner Says. Economic sanctions should be imposed on Russia’s banks and President Barack Obama needs to push European nations to take a harder stand against Vladimir Putin’s government, House Speaker John Boehner said. “You go after their banks,” Boehner said on Fox News Channel’s “Sunday Morning Futures with Maria Bartiromo” in an interview to be aired tomorrow. “I’m concerned that we’ve not pushed the Europeans hard enough to take a firmer line against the Russians. And our allies in the region are scared to death.”

• Europe Renews Threat of Russian Sanctions Over Ukraine Vote. European nations intensified their threat of further sanctions against Russia if Ukraine’s May 25 presidential vote doesn’t meet international standards, after President Vladimir Putin visited the annexed Crimea peninsula. “The Russian president must send out more signals of de-escalation so the elections can take place,” German Chancellor Angela Merkel said today after talks with French President Francois Hollande in Stralsund, Germany. “We’ve had first signs, but these have to get stronger so eastern and southern Ukraine also get the message that everyone wants free and general presidential elections.” 

• Xi Says China Must Adapt to ‘New Normal’ of Slower Growth. Chinese President Xi Jinping said the nation needs to adapt to a “new normal” in the pace of economic growth and remain “cool-minded” amid a slowdown that analysts forecast will lead to the weakest expansion since 1990. China’s growth fundamentals haven’t changed and the country is still in a “significant period of strategic opportunity,” Xi said, according to a Xinhua News Agency report on the central government website on May 10. At the same time, the government must prevent risks and take “timely countermeasures to reduce potential negative effects,” he said.

• China’s $50 Billion Asia Bank Snubs Japan, India.

• Japan’s Banks Seen Posting Profit Gains That Won’t Last. When Japan’s three biggest banks report a jump in profit this week, investors should be warned: the gains are already disappearing with the drop in the stock market.

• Asia Stocks Fall as China Adapts ‘New Normal’ for Growth. Asian stocks fell, with the regional benchmark index heading for its first drop in three days, after Chinese President Xi Jinping said the nation needs to adapt to a “new normal” in the pace of economic growth. The MSCI Asia Pacific Index lost 0.1 percent to 137.78 as of 9:02 a.m. in Tokyo after losing 0.4 percent last week.

• Europe Deflation Risk Seen by 74% in Global Investor Poll. Financial professionals are optimistic about the global economy, just not as fervent about it as they were at the start of the year. That’s the message from the latest Bloomberg Markets Global Investor Poll, which shows concern about risks ranging from the turmoil in Ukraine to the threat of deflation in Europe.

• Fed’s Lockhart Sees End of U.S. Stimulus Program This Year. Federal Reserve Bank of Atlanta President Dennis Lockhart said he expects the U.S. central bank to end its bond-buying program by the end of the year before raising interest rates in 2015 as the economy gathers pace. The world’s biggest economy will expand about 3 percent this year, which will probably lead the Fed to stop its bond buying in October or December, Lockhart said in a speech in Dubai today. Policy makers last month trimmed monthly bond purchases by $10 billion for the fourth consecutive meeting.

Wall Street Journal:

• Crisis in Ukraine: Streaming Coverage.

• FAA: U.S. Airliner Nearly Collided With Drone in March. Incident Appears to be First Case of a Big U.S. Airliner Nearly Colliding With an Airborne Drone.

• FCC Head to Revise Broadband-Rules Plan. Agency Won't Let Firms Segregate Web Traffic Into Fast, Slow Lanes.

MarketWatch.com:

• Geithner: Ending too-big-to-fail is ‘like Moby Dick for economists’.

CNBC: 

• These are bad days for big boys in high finance. (video) These are not happy days for big banks whether on Wall Street or Fleet Street. There's been a steady stream of negative headlines suggesting that five years after the end of the financial crisis, the bell finally may be tolling for too-big-to-fail financial institutions.

Zero Hedge:

• Ukraine Scrambles Fighter Jets, Intercepts Airplane Carrying Russian Deputy Premier.

• Ukraine Claims To Have Detained "Terrorists" With 100,000 Pre-Marked Referendum Ballots.

• Donetsk Region May Shift To Rubles After 1.7 Million Vote In Referendum.

• FEC Chairman Warns Of Forthcoming Government Media Censorship.

• "The Gold Cartel" And The Giant Credit Bubble. (graph)

• The Death Of Hedge Funds? (graph)

• Saxobank Warns China Is Exporting Deflation (And It's Not Going To Stop Anytime Soon). (graph)

• The Miracle Of Modern-Day Keynesian Dreams (In 1 Insane Chart). (graph)

• Tim Geithner Admits "Too Big To Fail" Hasn't Gone Anywhere (And That's The Way He Likes It).

• Warning: Weak Stock Market Closes Are On the Rise. (graph)

• Bizarro Housing Bubble Spills Over Into "Overbid Madness", $10 Million "Flips" In 24 Hours.

• Will History Record The Ending Of QE As An Archduke Moment?

• Japan Debt Update: ¥1,020,000,000,000,000.00. (graph)

• The Taxpayer Cost To Maintain Obama's Golf Handicap: Over $3 Million.

• Are Stocks Cheap? (graph)

• East Ukraine Votes For Independence: Turnout Reported "Off The Charts". (pic)

• Japan Balance Of Payments Current Account Collapses To Record Deficit. (graph)

Business Insider:

• Bello: The Post-Imperial Void.

• Six Numbers That Explain Why Europe Can't Get Its Act Together On Russia.

• Google(GOOG) Has A Grand Plan To Dominate The Travel Industry.

• East Ukraine Is Disintegrating Amid Rebel Referendums.

• Boom Times For Bank Trading Have Gone And May Never Come Back.

• Here's Why Chinese Shadow Banking Is Still Accelerating.

• Here's Why Putin Can't Let Go Of South And East Ukraine.

• The Average Stock Is In A Bear Market.

• Russian Official: We Have A Petition From Moldova's Pro-Russia Region To Join Russia.

Wall Street All-Stars:

• Indicator Update: What about “divergences?”.

macrobusiness: 

• Goldman(GS): Iron ore price to crash. Don’t say you weren’t warned.

BBC:

• Ukraine Will Fight Back If Attacked by Russia, Parubiy Says. Ukraine's army is ready to fight back should Russia attack it after referendums in Ukrainian eastern regions are completed, citing Head of Defense and Security Council Andriy Parubiy as saying in an interview. Should Russia recognize referendums and take active steps against its neighbor, "I reiterate once again that Ukraine will defend its territory," Parubiy said.

China Daily:

• Local government policies can't prevent housing prices from falling, Yi Xianrong, a researcher under the Chinese Academy of Social Sciences, writes in a commentary. Yi cites changes in hukou policy in Nanning city in Guangxi region. Some developers will lower housing prices for fear of a collapse in the supply of their funds, Yi writes. Local government attempts to boost the property market may aggravate investor concerns over risk, Yi writes.

Weekend Recommendations

Barron's:

• Bullish commentary on (FLS), (BGFV), (CBS), (MCK), (ACT), (SBGI), (NXST), (SLB), (CBI), (CAM), (SVU), (GS) and (BCO).

Night Trading

• Asian indices are -.50% to +1.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 122.25 unch.

• Asia Pacific Sovereign CDS Index 84.50 +.75 basis point.

• FTSE-100 futures +.16%.

• S&P 500 futures +.17%.

• NASDAQ 100 futures +.20%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (MCK)/2.40

• (MBI)/.13

• (RAX)/.12

Economic Releases 
2:00 pm EST

• The Monthly Budget Statement for April is estimated at $114.0B versus $112.9B in March. 

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Plosser speaking, BoA Merrill Metals/Mining/Steel Conference, SunTrust Internet/Digital Media Conference, Deutsche Bank Clean Tech/Utilities/Power Conference and (SLAB) analyst day could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by real estate and financial shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the week.

Weekly Outlook

U.S. Week Ahead by MarketWatch (audio). 
Wall St. Week Ahead by Reuters.
Stocks to Watch Monday by MarketWatch.
Weekly Economic Calendar by Briefing.com.

BOTTOM LINE: I expect US stocks to finish the week mixed as Russia/Ukraine tensions, global growth fears and earnings concerns offset technical buying, central bank hopes and short-covering. My intermediate-term trading indicators are giving neutral signals and the Portfolio is 50% net long heading into the week.