Bull Radar

Style Outperformer:

• Small-Cap Value +.33%

Sector Outperformers:

• 1) Alt Energy +1.69% 2) I-Banks +1.49% 3) Hospitals +.75%
  

Stocks Rising on Unusual Volume:

• ANFI, COV, GWPH, SCTY, WB, TSLA, WPRT, GLOG, JASO, ETFC, SCHW and GTIV

Stocks With Unusual Call Option Activity:

• 1) MBI 2) ONVO 3) RHT 4) GNW 5) URI

Stocks With Most Positive News Mentions:

• 1) NFLX 2) MS 3) AGN 4) JAZZ 5) WMB
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Tuesday Watch

Evening Headlines 
Bloomberg:

• Kurds Grab Fourth-Largest Iraq Oilfield Amid ISIL Advance. Kurdish troops were defending Iraq’s fourth-biggest oilfield against Islamist militants after deploying outside their semi-autonomous region in the country’s north to seize the deposit claimed by the central government. More than 100,000 Kurdish fighters, known as peshmergas, are guarding a “front line” from Iraq’s eastern border with Iran to the northern town of Fishkabur near Turkey, Jabbar Yawar, Peshmerga Ministry secretary-general, said yesterday in an interview in Erbil, the Kurdish region’s capital. They now occupy areas around the contested city of Kirkuk where BP Plc has been in talks with Iraq’s government to help reverse declining output at the oilfield discovered in 1927. 

• French Jihadis With ISIL Leave Europe at Risk of Iraq Blowback. The young man in a video posted on YouTube last July identified himself as Abu Abd Al-Rahman and told his French “brothers” it was their religious duty to join him in Syria to fight the Assad regime. In perfect French, he called on President Francois Hollande to convert to Islam and to distance himself from Jewish and American allies. His real name was Nicolas Bons and he was from Toulouse. On Jan. 2, his mother Dominique Bons received an SMS saying her 30-year-old son was dead. She called the number and someone told her in French he’d died in a suicide attack near Homs. Her stepson and Nicolas’s half-brother Jean-Daniel, 22, had already died in combat in August near Aleppo. The Bons brothers aren’t unique. The Islamic State of Iraq and the Levant, the group that burst into prominence last week by seizing much of northern Iraq, is the destination of choice for Europeans who have joined the radical Islamist cause in Syria.

• China's Brewing Subprime Crisis by William Pesek. China's infamous "ghost cities" are even scarier than they sound.

• China Aggression Sounds Wake-Up Call for Vietnam’s Manufacturers. For more than eight years, Luong Thi Kim Oanh bought cases of thread from China for her garment factory in Hanoi. Last month, rattled by an anti-China riot in her country, she placed her first order from South Korea. “I used to buy 90 percent of my thread from China,” said Oanh, 52, who employs about 200 people at Viet Hung Garments & Embroidery. “Shifting sourcing may cost us more, but we need to think of it now, or it may be too late. You never know how things may turn out.” 

• Macau Tightens Chinese Visitor Stays in Visa-Abuse Crackdown. Macau will reduce the maximum number of days that Chinese passport holders with transit visas can stay in the city to five days from a week, in an attempt to prevent them from abusing the law. Transit visitors from China who don’t depart for another destination within the five days will be in violation of the new rules, effective July 1, and will be penalized upon their next visit, the city’s Public Security Police Force said in a statement yesterday. Repeat violations will result in denial of entry, according to the statement. 

• Asia Stocks Swing; Energy Explorers Fall, Drugmakers Rise. Asian stocks swung between gains and losses as a decline in telecommunication shares countered gains by health-care firms. SoftBank Corp. (9984) fell 2 percent in Tokyo as telecom companies posted the largest drop among the regional index’s 10 industry groups. Takeda Pharmaceutical Co., Asia’s largest drugmaker, advanced 1 percent in Tokyo. Konica Minolta Inc. surged 8.7 percent, the biggest advance on the regional index, after JPMorgan Chase & Co. advised buying shares in the Japanese office-equipment maker. New World China Land Ltd. plunged as much as 22 percent in Hong Kong after a $2.4 billion plan by its parent to privatize the China property business collapsed. The MSCI Asia Pacific Index (MXAP) was little changed at 143.71 as of 11:26 a.m. in Hong Kong, with about four shares rising for every three that fell.

• Republicans Demand Answers From IRS on Missing E-Mails. Congressional Republicans are seeking answers from the Internal Revenue Service, which has lost more than two years’ worth of e-mails requested by lawmakers. The e-mails belonged to Lois Lerner, who was the director of exempt organizations during the period when the IRS gave extra scrutiny to some Tea Party groups seeking tax-exempt status.

• GM’s(GM) Recall Tally Hits 20 Million With New Ignition Fix. General Motors Co. (GM) is calling back 3.36 million more vehicles, the latest order related to ignition flaws, and said second-quarter charges for such moves would reach $700 million.

Wall Street Journal: 

• Unlikely Allies Aid Militants in Iraq. Radical Sunni Fighters Are Aided by Local Tribes Who Sympathize With Their Goal to Oust Baghdad Government. Radical Sunni fighters, who seized another northern Iraqi city on Monday, are being aided by local tribes who reject the Islamists' extreme ideology but sympathize with their goal of ousting the Shiite-led government in Baghdad. The uneasy alliance helps explain how several hundred insurgents from Islamic State of Iraq and Al Sham, or ISIS, have handily defeated a far larger, better-equipped Iraqi army and come to control about a...

• Russia's Gazprom Cuts Gas to Ukraine, Sparking EU Shortage Fears. Natural-Gas Shutoff Threatens to Further Destabilize Ukrainian Economy. Russian state gas giant OAO Gazprom said it suspended natural-gas deliveries to Ukraine on Monday, a move that threatens to further destabilize the country's crippled economy and sparked concerns of possible gas shortages in Europe. After a final round of late-night talks mediated by the European Union to resolve the impasse ended in failure, Gazprom made good on a threat it has held out for weeks and halted shipments... 

• The Pace of Obama's Disasters. Bergdahl one week. Then Ukraine. Now Iraq. What could be next? Was it only 10 months ago that President Obama capitulated on Syria? And eight months ago that we learned he had no idea the U.S. eavesdropped on Angela Merkel? And seven months ago that his administration struck its disastrous interim nuclear deal with Tehran? And four months ago that Chuck Hagel announced that the United States Army would be cut to numbers not seen since the 1930s? And three months ago that Russia seized Crimea? And two months ago that John Kerry's Israeli-Palestinian peace effort sputtered into the void? And last month that Mr. Obama announced a timetable for total withdrawal from Afghanistan—a...

Fox News: 

• 'Wave of humanity': Border Patrol overwhelmed by flow of illegal immigrants. At daybreak in this border town, two women from Guatemala – one with a small child strapped to her back – wait patiently on the levee overlooking the Rio Grande.

• House GOP investigators argue IRS targeting influenced by Obama. House Republicans seeking a direct link between President Obama and the IRS targeting of conservative groups -- a connection Democrats say is essential for a legitimate White House scandal -- have released a report detailing dozens of examples that they say prove the president and fellow Democrats pressured the agency to act.

CNBC:

• Few-strings-attached loans at record levels. Bank lending to companies with few restrictions has surged back since the financial crisis virtually killed the practice. The record issuance of so-called covenant-lite loans raises questions over whether a fresh wave of debt defaults and losses will return—probably not in the short term, according to experts, but becoming more likely as the trend plays itself out in coming years. U.S. "cov-lite" loan volume recently hit $83.6 billion over 82 deals in 2014, up 41 percent from the same period in 2013 ($59.4 billion over 68 deals), according to data tracker Dealogic. That represents the highest year-to-date volume and deal activity on record.

Zero Hedge:

• Obama Sends 275 Troops To Iraq As Explosions Rock Baghdad Airport.

• Fed Prepares For Bond-Fund Runs, Looking At Imposing "Exit Fee" Gates.

• Obama Urges Bailed-Out Students Recant Their "Climate-Change Skepticism".

• This Pretty Much Sums It Up... (graph)

• John Hussman's Formula For Market Extremes.

• Stunning Fact Of The Day: In 2014 GM Has Recalled More Cars Than It Sold In 2013 And 2012.

• "US Willing To Work With Iran" But John Kerry Claims ISIS Doesn't Have Ability To Overrun Baghdad.

• The Keynesian Jabberwocky Gets Downright Dumb.

• Shanghai Limits Individual Purchases Of Risky Bonds As China Overtakes US As Biggest Corporate Borrower.

• Iraq Breaks Down, Oil Surges - The Context Underlying The Growing Crisis.

Washington Post:

• Obama’s Iraq disaster. In 2011, the situation in Iraq was so good that the Obama administration was actually trying to take credit for it, with Vice President Joe Biden declaring that Iraq “could be one of the great achievements of this administration.”
  Now in 2014, as Iraq descends into chaos, Democrats are trying to blame the fiasco on — you guessed it — George W. Bush.

Reuters: 

• FINRA chief warns about illiquid investments that come with high fees. The chief of the Financial Industry Regulatory Authority, Wall Street's self-regulator, said on Monday he is worried about investors continuing to stretch for yield by going with complex products that sometimes carry high commissions. 

• Morgan Stanley(MS) calls Valeant(VRX) 'house of cards' in Allergan(AGN) pitch. Morgan Stanley (MS.N), an adviser to Valeant Pharmaceuticals International Inc (VRX.TO) in its $53 billion hostile bid for Allergan Inc (AGN.N), initially tried to get hired by Allergan and in its pitch called the unsolicited bidder a "house of cards," according to Allergan.

Obama takes on coal with first-ever carbon limits
Read more at http://www.philly.com/philly/news/politics/20130919_ap_0f857b20e0c144a5a1e1b9dddc9f9d72.html#YRThyDOhArykUeYy.9

Financial News:

• China Local Govt Bond Sale Necessary, Researcher Says. Allowing local govts to sell bonds can help stabilize economy as it faces increasing downward pressure this year, according to Wei Jianing, a researcher from the State Council's Development Research Center. Local govts need huge funds for infrastructure construction, Wei wrote. Central govt can have better risk-control if they allow local govt to issue debt as it boosts transparency.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -.75% to +.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 105.0 -1.0 basis point.

• Asia Pacific Sovereign CDS Index 77.5 +.25 basis point.

• FTSE-100 futures +.18%.

• S&P 500 futures +.13%.

• NASDAQ 100 futures  +.12%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (JW/A)/.68

• (FDS)/1.25

• (BOBE)/.41

• (ADBE)/.30

• (LZB)/.32

Economic Releases
8:30 am EST

• The CPI for May is estimated to rise +.2% versus a +.3% gain in April.

• The CPI Ex Food and Energy for May is estimated to rise +.2% versus a +.2% gain in April.

• Housing Starts for May are estimated to fall to 1030K versus 1072K in April.

• Building Permits for May are estimated to fall to 1050K versus 1080K in April.

Upcoming Splits

• (UFS) 2-for-1

• (TRN) 2-for-1

Other Potential Market Movers

• The UK inflation/retail sales reports, Eurozone ZEW Index, weekly US retail sales, (BLK) investor day, (ADI) analyst day, RBC Metals/Mining Conference and the Wells Fargo Healthcare Conference could impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by real estate and industrial shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 25% net long heading into the day.

Stocks Slightly Lower into Final Hour on Iraq Turmoil/Russia-Ukraine Tensions, Rising Emerging Markets/European Debt Angst, Yen Strength, Financial/Transport Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: About Even
  

• Sector Performance: Mixed
  

• Volume: Below Average

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• Volatility(VIX) 12.62 +3.61%

• Euro/Yen Carry Return Index 144.24 +.02%

• Emerging Markets Currency Volatility(VXY) 6.04 -8.35%

• S&P 500 Implied Correlation 52.94 unch.

• ISE Sentiment Index 76.0 unch.

• Total Put/Call .70 -7.89%

• NYSE Arms 1.11 +97.29% 

Credit Investor Angst:

• North American Investment Grade CDS Index 60.30 +.90%

• European Financial Sector CDS Index 62.37 +3.39%

• Western Europe Sovereign Debt CDS Index 29.73 +5.05%

• Asia Pacific Sovereign Debt CDS Index 78.11 +.90%

• Emerging Market CDS Index 254.21 +3.17%

• China Blended Corporate Spread Index 310.67 -1.18%

• 2-Year Swap Spread 15.0 +.5 basis point

• TED Spread 20.5 +.25 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -15.0 -1.25 basis points

Economic Gauges:

• 3-Month T-Bill Yield .03% unch.

• Yield Curve 214.0 -1.0 basis point

• China Import Iron Ore Spot $89.0/Metric Tonne -2.09%

• Citi US Economic Surprise Index -15.40 +4.1 points

• Citi Emerging Markets Economic Surprise Index -6.70 -.6 point

• 10-Year TIPS Spread 2.18 unch.

Overseas Futures:

• Nikkei Futures: Indicating +27 open in Japan

• DAX Futures: Indicating +14 open in Germany

Portfolio: 

• Slightly Higher: On gains in my tech/medical sector longs and emerging markets shorts

• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges, then added them back

• Market Exposure: 25% Net Long

Today's Headlines

Bloomberg:

• Al-Qaeda’s Heirs. Osama bin Laden is dead. So is much of the influence his organization built with the attack on the World Trade Center in 2001. Al-Qaeda, however, lives on through a collection of like-minded Islamist militias holding territory and threatening to redraw the map in the Middle East and North Africa. Inspired by bin Laden’s jihad and hardened by battle, they have capitalized on the security and political vacuum left by the toppling of autocrats in the 2011 Arab Spring. They feed off the area’s sectarian and tribal conflicts, and are united by an ambition to bring new states with strict interpretations of Islamic law to the Arab world. The region’s governments are mired in a battle to fight them, while the U.S. and its allies struggle to form a response.

• Iraqi Forces Search Baghdad Homes as Residents Hoard Food. Iraqi forces searched homes in Sunni Muslim-dominated areas in Baghdad as they prepared to defend the capital from a possible attack by an al-Qaeda breakaway group that captured the biggest city in the north. Army and security forces looked for weapons yesterday and made residents sign papers confirming they don’t belong to armed groups or are providing any with shelter. Military spokesman Qassim Ata said yesterday that the government was conducting pre-emptive operations in the capital.

• Ukraine Says Russia Has 38,000 Troops on Border Amid ‘Invasion’. Russia has amassed as many as 38,000 soldiers on its borders with Ukraine and continues to supply arms and personnel to rebel forces in the eastern part of the country, Ukraine’s National Security Council chief said. Russia has moved about 16,000 troops to Ukraine’s eastern frontier and has another 22,000 in Crimea, the Black Sea peninsula that President Vladimir Putin annexed in March, Andriy Parubiy told reporters in the capital Kiev today. “The military invasion is continuing,” Parubiy said. “We are dealing with Russian occupiers and weapons and militants are being brought in.” 

• Emerging Market Shares Fall While U.S. Stocks Fluctuate. Emerging market shares fell, while U.S. stocks fluctuated following last week’s drop as escalating violence in Iraq offset takeovers and growth in American industrial output. Treasuries reversed early gains and oil fell from a nine-month high. The MSCI Emerging Markets Index slipped 0.3 percent for a fourth straight loss.

• European Gas Jumps Most Since March as Russia Cuts Ukraine Flows. U.K. and Dutch natural gas prices climbed the most in more than three months as Russia’s pipeline-gas export monopoly OAO Gazprom (GAZP) cut shipments to Ukraine, threatening flows to the European Union. U.K. front-month gas jumped as much as 8.8 percent on ICE Futures Europe, the biggest increase since March 3, the first trading day after Russian President Vladimir Putin got approval from lawmakers to send troops into Ukraine’s Crimea region. Dutch prices rose 10 percent to their highest level since May 12, according to broker data compiled by Bloomberg.

• China Bigger Than U.S. With $14 Trillion in Company Debt. Chinese companies borrow more than their American counterparts as the world’s second-largest economy takes center stage in corporate-debt markets. Borrowers from China had $14.2 trillion in debt at the end of last year, exceeding than every other country including the U.S., which had $13.1 trillion in company obligations, according to a report dated June 15 by Standard & Poor’s. Needs of Chinese issuers will increase to $20 trillion through the end of 2018, a third of the $60 trillion in global funding needs. 

• Puts Abandoned in Calmest Stock Market in Two Decades: Options. For 40 days, the S&P 500 Index has failed to post a gain or loss exceeding 1%, the longest stretch of calm since 1995. That's squashing demand for options that protect against turbulence. For every 100 bullish calls trading on the CBOE in the 10 days through June 11, 80 puts to sell changed hands, the fewest since January. The measure tracking options on individual equities and indexes shows traders abandoning bearish bets as the S&P 500 steadily climbs higher.

• Oil at $125 Seen as Iraq Chaos Brings Price Swings: Opening Line. Brent crude rose as high as $113.28 a barrel in London this morning as Iraq struggles to contain civil war and dismemberment. “Practically speaking, the country has broken apart,” he said. “Geographically we practically have to cross another country to get to Baghdad.” 

• ECB Likely to Refrain From New Measures for Next Months. The European Central Bank is likely to refrain from any new stimulus package in coming months as it reviews lenders’ balance sheets, according to two euro-area central-bank officials familiar with current policy discussions. The effect of any ECB measures could be blunted by the reluctance of banks to increase lending during the assessment, the people said, asking not to be identified because the deliberations aren’t public. The health check is scheduled to end in October. An ECB spokesman said that the Governing Council discusses its policy stance every month.

• Bonds Liquidity Threat Is Revealed in Derivatives Explosion. The boom in fixed-income derivatives trading is exposing a hidden risk in debt markets around the world: the inability of investors to buy and sell bonds. While futures trading of 10-year Treasuries is close to an all-time high, bond-market volume for some maturities has fallen a third in the past year. In Japan’s $9.6 trillion debt market, the benchmark note didn’t trade until midday on two days last week. As a lack of liquidity in Italy caused transaction costs in the world’s third-largest sovereign bond market to jump last month, Lombard Odier Asset Management helped propel an eightfold surge in Italian futures by relying more on derivatives. The shift reflects an unintended consequence wrought by central banks, which have dropped interest rates close to zero and implemented policies such as buying debt to restore demand in economies crippled by the financial crisis. Inefficiencies in the $100 trillion market for bonds may make investors more vulnerable to losses when yields rise from historical lows. “Liquidity is becoming a serious issue,” Grant Peterkin, a money manager at Lombard Odier, which oversees $48 billion, said in a June 11 telephone interview from Geneva. The worry is that when investors try to exit their positions, “there may be some kind of squeeze.”

• Level 3(LVLT) Agrees to Buy TW Telecom(TWTC) in $5.7 Billion Deal.

• SanDisk(SNDK) to Buy Fusion-io(FIO) for $1.1 Billion. 

• BofA(BAC) Fined for Overbilling Ministers, Charities, School Workers. Bank of America Corp., the second-largest U.S. lender, agreed to an $8 million fine and returned almost $90 million to clients of its Merrill Lynch unit who were improperly charged fees over six years. About 6,800 retirement plans for charities, ministers and public-school workers and 41,000 for small businesses paid purchase charges for mutual funds when none was required from 2006 to 2011, according to the Financial Industry Regulatory Authority. While Merrill Lynch discovered the improper charges in 2006, it didn’t inform Finra until 2011, according to settlement papers released today.

Wall Street Journal 

• Iraq Government Loses Control of Another Key City. Forces Led by a U.S.-Trained Iraqi Military Commander Give Way to Islamist Fighters. Iraqi government forces led by a U.S.-trained commander lost control of another key northern Iraqi city to Sunni extremists on Monday, triggering warnings from neighboring Turkey that the escalating violence risked opening another front in sectarian fighting. The loss of Tal Afar and the defeat of one of Iraq's top generals underlined the fragility of Prime Minister Nouri al-Maliki's government and raised fresh questions about its...
  

• Manhattan Seeing Surge in New Office Construction: Report. Manhattan is experiencing a surge in new office construction that is set to outpace previous years, but whether the economy will generate the office jobs to keep vacancy rates from rising remains a question, according to a new report. Manhattan will add 9 million square feet of new office space between 2013 and 2015, more than two-thirds of it located in three towers – One World Trade Center, 4 World Trade Center and 10 Hudson Yards, according to the report released by the New York Building Congress, an association promoting the construction industry. If realized, that would be the highest amount of new office space built in a three-year period since 1990. The report forecasts about 24.4 million square feet of new office space will be built between 2010 and 2019, up about 26% from the 19.4 million square feet added between 2000 and 2009.

ZeroHedge:

• Call Of Allah Duty: What Happens When Al-Qaeda Captures A Tank. (video)

• Heads, You Lose.

• Homebuilder Confidence Beats; Remains Negative For 5th Month. (graph)

• Industrial Production Beats But Autos Drop 3rd Month In A Row. (graph)

• Empire Fed Hits 4 Year High Despite Tumble In Employee Index. (graph)

ValueWalk: 

• Christine Lagarde: EM To Slow As China Is Doing.

Business Insider: 

• There's A Staggering Humanitarian Crisis On The US Border, And It's Only Going To Get Worse.

• One Glaring Problem With Any US Cooperation With Iran.

• Yahoo(YHOO) Drops 5% After Alibaba Reveals A Significant Drop In Sales Growth.

• Argentina's Stock Market Is Crashing.

• Local Police Are Using Surveillance Tactics The Obama Administration Doesn't Want You To Know About.

• Janet Yellen Is Looking At Charts That Should Make All The Bulls Nervous.

Vanguard:

• 15 Killed in Fresh Borno Village Market Attack. No fewer than 15 people, including traders, were killed, yesterday, when some suspected members of Boko Haram terrorists stormed a local market in Daku village in Askira Uba Local Government Area of Borno State and set ablaze several shops, houses, vehicles and motorcycles.

USAToday:

• Greenpeace loses $5.2 million on currency trading. Greenpeace International has acknowledged losing $5.2 million on a bet the euro would not strengthen against other currencies in 2013— but it did.

Bear Radar

Style Underperformer:

• Large-Cap Growth -.02%

Sector Underperformers:

• 1) Coal -1.50% 2) Airlines -1.22% 3) Gaming -1.13%

Stocks Falling on Unusual Volume:

• MDT, KPTI, LVLT, EDN, BT, ALDR, YPF, TAXI, DWA, LAYN, GGAL, BWEN, GULF, VSAT, BMA, SXL, VRTX, TEO, ARSD, RNET, SHEN, IBOC, DORM, CUK and AGIO

Stocks With Unusual Put Option Activity:

• 1) OIH 2) AMJ 3) ACHN 4) OPK 5) S
  

Stocks With Most Negative News Mentions:

• 1) EV 2) CVG 3) GNC 4) RNR 5) SKX 
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Small-Cap Growth +.29%

Sector Outperformers:

• 1) Utilities +2.79% 2) Medical Equipment +2.34% 3) Alt Energy +.87%
  

Stocks Rising on Unusual Volume:

• COV, BLUE, TWTC, FIO, WPZ, WMB, LAD, EIGI, NMBL, SPWR, FCN and SUNE

Stocks With Unusual Call Option Activity:

• 1) CNP 2) FIO 3) MOS 4) ABT 5) LVLT

Stocks With Most Positive News Mentions:

• 1) CAB 2) PCLN 3) NFLX 4) COV 5) WMB
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume