Wednesday, June 18, 2014

Stocks Rising into Final Hour on Central Bank Hopes, Stable Energy Prices, Short-Covering, Utilities/Metals & Minig Sector Strength

Broad Equity Market Tone:
  • Advance/Decline Line: About Even
  • Sector Performance: Most Sectors Rising
  • Volume: Below Average
  • Market Leading Stocks: Underperforming
Equity Investor Angst:
  • Volatility(VIX) 11.20 -7.13%
  • Euro/Yen Carry Return Index 144.56 +.09%
  • Emerging Markets Currency Volatility(VXY) 6.26 -1.88%
  • S&P 500 Implied Correlation 49.26 -4.78%
  • ISE Sentiment Index 135.0 +15.38%
  • Total Put/Call .75 -7.41%
  • NYSE Arms .61 -26.12% 
Credit Investor Angst:
  • North American Investment Grade CDS Index 58.94 -1.68%
  • European Financial Sector CDS Index 62.0 -.70%
  • Western Europe Sovereign Debt CDS Index 30.54 +4.11%
  • Asia Pacific Sovereign Debt CDS Index 79.90 -.12%
  • Emerging Market CDS Index 248.76 -2.83%
  • China Blended Corporate Spread Index 309.71 -.86%
  • 2-Year Swap Spread 16.0 +1.25 basis points
  • TED Spread 21.0 +1.0 basis point
  • 3-Month EUR/USD Cross-Currency Basis Swap -11.75 +1.25 basis points
Economic Gauges:
  • 3-Month T-Bill Yield .02% -1 basis point
  • Yield Curve 214.0 -3.0 basis points
  • China Import Iron Ore Spot $90.30/Metric Tonne +1.12%
  • Citi US Economic Surprise Index -11.50 +.1 point
  • Citi Emerging Markets Economic Surprise Index -9.90 -.1 point
  • 10-Year TIPS Spread 2.22 +1.0 basis point
Overseas Futures:
  • Nikkei Futures: Indicating +55 open in Japan
  • DAX Futures: Indicating +39 open in Germany
Portfolio: 
  • Slightly Higher: On gains in my medical/retail sector longs
  • Disclosed Trades: None
  • Market Exposure: 50% Net Long

Today's Headlines

Bloomberg: 
  • Iraq Premier Says War May Spread as U.S. Weighs Action. Iraqi Prime Minister Nouri al-Maliki warned that the offensive by Islamist militants his army is fighting could spill over into neighboring states, as the U.S. weighed options on how to counter the insurgents. “They will flee to you and your countries will also be inflamed with sectarian wars,” Maliki said in a televised speech today, without naming nations he considered at risk. His Shiite Muslim-led government yesterday accused Saudi Arabia, the region’s biggest Sunni power, of providing “moral and material support” for the Islamic State in Iraq and the Levant, the group that began its assault by sweeping into Mosul last week. 
  • ISIL Battles Elite Iraq Troops for Nation’s Biggest Refinery. Islamist insurgents battled Iraqi forces for control of the nation’s largest oil refinery. Local police said militants are inside the plant, while the central government said its elite troops are in control. Army helicopters struck fighters from the Islamic State in Iraq and the Levant near Baiji after militants seized the 310,000 barrels-a-day refinery, according to a statement from the Salahudin provincial police. ISIL fighters are still inside the facility and the battle continues, it said. Iraq’s troops killed 40 militants and repelled their attack, military spokesman Qassim Ata said in a televised news conference. 
  • $120 Oil Flagged as Danger Point for Global Economy on Iraq Crisis. The global economy faces a new threat from an old enemy: oil. A spike in the price of crude foreshadowed economic slumps in each of the last four decades and economists are worrying anew after Brent touched its highest price in nine months above $113 a barrel amid fresh violence in Iraq, OPEC’s second biggest producer. Brent started the year about $6 cheaper.
  • China Auditor Blames CIC Mismanagement for Investment Losses. Mismanagement at China Investment Corp., the nation’s $575 billion sovereign wealth fund, led to overseas investment losses that could widen, according to the National Audit Office. A dereliction of duty by managers, and inadequate due diligence and post-investment management were identified in 12 investments made abroad by the fund between 2008 and 2013, according to results of an audit conducted last year, that didn’t identify the individual cases.
  • World Cup Pushes Brazilian Inflation Above Analyst Forecasts. Brazil’s consumer prices in the month through mid-June rose more than economists forecast, as the World Cup boosted prices for flights, hotels and tours. Inflation as measured by the benchmark IPCA-15 index decelerated to 0.47 percent from 0.58 percent the prior month, the national statistics agency said on its website today. That was faster than the 0.42 percent median estimate from 38 analysts surveyed by Bloomberg.
  • Homebuilders See Record Bearish Bets on Shaky Recovery. Someone thinks the housing rebound is built on shaky foundations. A record 180,000 puts traded on the SPDR S&P Homebuilders (XHB) exchange-traded fund on June 11, according to data compiled by Bloomberg. The contract with the highest ownership pays off in the event of a 20 percent slump by December in the ETF tracking stocks from DR Horton Inc. to Williams-Sonoma Inc.
Wall Street Journal
  • Obama's Job-Approval Rating Takes a Hit. A new Wall Street Journal/NBC News poll finds President Barack Obama’s job-approval rating at 41%, which matches a previous low. Approval of his handling of foreign policy hit a new low of 37%.
CNBC: 
ZeroHedge: 
Business Insider: 
Freemaninrealworld:
Mysteel.com:
  • Daily Crude Steel Output by China Key Cos. Hits Record. Crude steel output by large Chinese steel makers averaged 1.83m tons a day in the first 10 days of this month, hitting a record, citing data from the China Iron and Steel Association.
Xinhua:
  • Audits Find Irregularities in 3 Major Chinese Financial Institutions. Irregularities have been revealed in the operation and management of three major financial institutions in China, according to the country's top auditing body on Wednesday. China Investment Corp, Agricultural Development Bank of China and Bank of China have been found violating regulations in issuing loans and their financial management described as "chaotic," the National Audit Office said in a statement. The institutions had either issued loans to projects which failed to go through a whole set of approval procedures or meet funding adequacy requirements, or offered loans to companies without going through required procedures.

Bull Radar

Style Outperformer:
  • Large-Cap Value -.14%
Sector Outperformers:
  • 1) Utilities +.98% 2) Gold & Silver +.86% 3) Steel +.85%
Stocks Rising on Unusual Volume:
  • INSM, APD, ACOR, NMBL, ADBE, GLNG, FDX, CALL and RCPT
Stocks With Unusual Call Option Activity:
  • 1) FDX 2) HTZ 3) ADSK 4) CAG 5) MNST
Stocks With Most Positive News Mentions:
  • 1) FDX 2) ICE 3) PX 4) BBRY 5) TSN
Charts:

Wednesday Watch

Evening Headlines 
Bloomberg:
  • Gunmen Attack North of Baghdad. Islamist militants in Iraq fought with the army in a town near Baghdad and with Kurds in the oil-rich province of Kirkuk, as the U.S. weighed options to stem an offensive that threatens to fracture the country. Gunmen from the Islamic State in Iraq and the Levant attacked Kurdish forces in Kirkuk yesterday, leaving two soldiers and a civilian dead and almost 50 people injured, al-Mada news agency said. An earlier attack left five police dead, while ISIL also regained control of the mostly Turkmen village of Bashir south of Kirkuk, al-Mada said.
  • Japan’s Exports Decline in May on Weak U.S., Asian Demand. Japan’s exports fell in May for the first time in 15 months on weak demand from the U.S. and Asia, adding to challenges for Prime Minister Shinzo Abe as he tries to steer the economy through a forecast contraction this quarter. Outbound shipments decreased 2.7 percent from a year earlier, the finance ministry said in Tokyo today, steeper than a median forecast for a 1.3 percent decline in a Bloomberg News survey of 29 economists. Imports dropped 3.6 percent, with the trade deficit narrowing to 909 billion yen ($8.9 billion). Slowing demand from the U.S. and China - Japan’s two biggest export destinations -- threatens to weigh on shipments, which are losing impetus as the yen’s slide against the dollar stalls. 
  • China Blocks European Shipping Pact, Sending Maersk Down. China blocked the formation of a global alliance by the world’s three biggest shipping lines in a surprise move that ignored Western approval of the plan and sent A.P. Moeller-Maersk A/S (MAERSKB) shares tumbling the most in two years.
  • Most Asia Stocks Rise Before Fed Policy Meeting Concludes. Most Asian stocks rose, led by health-care shares, ahead of a Federal Reserve monetary policy decision today. Energy producers declined. Tsuruha Holdings Inc. surged 7.1 percent in Tokyo after the drugstore operator forecast profit will gain 14 percent. Aquila Resources Ltd. climbed 7 percent in Sydney after the coal producer recommended a takeover offer from China’s Baosteel Group Corp. and Australia’s Aurizon Holdings Ltd. Woodside Petroleum Ltd. led energy firms lower, falling 3.6 percent, after Royal Dutch Shell Plc sold most of its stake in Australia’s second-largest energy producer. The MSCI Asia Pacific Index was little changed at 143.51 as of 9:27 a.m. in Tokyo, as three shares gained for every two that fell before markets open in China and Hong Kong.
  • Brent Above $113 as U.S. Weighs Military Options in Iraq. Brent for August settlement added 51 cents, or 0.5 percent, to $113.45 a barrel on the ICE Futures Europe exchange, the highest closing price for a front-month contract since Sept. 9. The volume of all futures traded was 17 percent above the 100-day average for the time of day.
Wall Street Journal:
  • U.S. Rules Out Iraq Airstrikes for Now. President Barack Obama Is Opting to Pursue Alternate Strategies. President Barack Obama decided against immediate air strikes on marauding Sunni extremists in Iraq, opting instead to pursue strategies such as providing intelligence to the Iraqi military, addressing the country's political divisions and seeking support from regional allies. Mr. Obama will convene a White House meeting Wednesday with Republican and Democratic leaders from the House and Senate to brief them on what...
  • China Shows Regulatory Heft by Sinking Shipping Deal. Beijing Blocks European Freight Alliance Out of Concern Over Pricing. China is flexing its growing power over global deals, after it put the kibosh on a shipping alliance that officials here said would hold too much sway over trade lanes to Europe. Tuesday's decision by China's Ministry of Commerce came despite approvals for the shipping alliance in Europe and the U.S. It marks only the second time the Chinese regulator has stepped in to block a corporate combination since the country enacted... 
  • Pro-Russia Militia in Ukraine Seeks Urgent Help from Moscow. The Kremlin Hasn't Responded to the Request That Comes as Ukrainian Forces Retake Borders Areas. A Kiev offensive to retake control of restive areas along the country's eastern border has accelerated in recent days, prompting leaders of an armed pro-Russia uprising to appeal to Moscow for urgent military help on Tuesday. Ukrainian government troops have advanced from the north and south in a bid to cut off the fighters and weapons that Kiev says are flowing over its border from Russia. So far, though, Moscow has given little...
  • The Collapsing Obama Doctrine. Rarely has a U.S. president been so wrong about so much at the expense of so many. As the terrorists of the Islamic State of Iraq and Syria (ISIS) threaten Baghdad, thousands of slaughtered Iraqis in their wake, it is worth recalling a few of President Obama's past statements about ISIS and al Qaeda. "If a J.V. team puts on Lakers' uniforms that doesn't make them Kobe Bryant" (January 2014). "[C]ore al Qaeda is on its heels, has been decimated" (August 2013). "So, let there be no doubt: The tide of war is receding" (September 2011).
Fox News:
  • Clinton claims she had doubts about video explanation after Benghazi strike. Hillary Clinton, in a sit-down interview with Fox News, suggested Tuesday that she had doubts from the outset about whether the Benghazi terror attack was triggered by a protest over an anti-Islam film -- though her State Department ended up pushing that narrative for days. "This was the fog of war," Clinton said, when asked about the administration's controversial public explanation of the attack. "My own assessment careened from the video had something to do with it, the video had nothing to do with it -- it may have affected some people, it didn't affect other people," she said in the interview with Fox News' Bret Baier and Greta Van Susteren. Clinton added: "There's no doubt terrorists were involved."
MarketWatch.com:
CNBC:
  • Fed pouring fire on glowing embers of inflation: Grant. In an interview with "Closing Bell," Grant said the Fed's monetary policy has led to an inflation of asset values, will likely lead to a measured rate of consumer price inflation and will certainly lead to "financial turmoil." If that turmoil is severe enough, he thinks it could introduce another risk of deflation.
Zero Hedge:  
ValueWalk:
Business Insider:
Reuters:
  • Adobe results beat estimates on strong subscription growth. Adobe Systems Inc, the maker of Photoshop and Acrobat software, reported better-than-expected quarterly profit and revenue, helped by higher subscription sales of its Creative Cloud and Marketing Cloud suites. Adobe's shares rose 8.6 percent in after-hours trading.
Evening Recommendations
  • None of note
Night Trading
  • Asian equity indices are -.50% to +.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 106.50 +1.5 basis points.
  • Asia Pacific Sovereign CDS Index 78.0 +.5 basis point.
  • FTSE-100 futures +.24%.
  • S&P 500 futures +.08%.
  • NASDAQ 100 futures  +.11%.
Morning Preview Links

Earnings of Note

Company/Estimate
  • (ATU)/.63
  • (FDX)/2.36
  • (JBL)/-.10
  • (RHT)/.33
Economic Releases
8:30 am EST
  • The Current Account Deficit for 1Q is estimated at -97.0B versus -81.1B in 4Q.
10:30 am EST
  • Bloomberg consensus estimates call for a weekly crude oil inventory decline of -575,000 barrels versus a -2,596,000 barrel decline the pior week. Gasoline supplies are estimated to fall by -387,500 barrels versus a +1,697,000 barrel gain the prior week. Distillate supplies are estimated to fall by -37,500 barrels versus a +860,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to rise +.7% versus a -2.9% decline the prior week.
2:00 pm EST
  • The FOMC is expected to keep the benchmark Fed Funds Rate at .25%.
  • The Fed's pace of QE3 is estimated to fall to $35B in June versus $45B prior.
Upcoming Splits
  • (TRN) 2-for-1
Other Potential Market Movers
  • The Fed's Yellen speaking, BoE minutes, weekly MBA mortgage applications report, Jefferies Consumer Conference, (AMZN) product launch and the Keystone Pipeline Senate Committee vote could impact trading today.
BOTTOM LINE: Asian indices are mostly lower, weighed down by real estate and technology shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the day.

Tuesday, June 17, 2014

Stocks Slightly Higher into Final Hour on Buyout Speculation, Yen Weakness, Central Bank Hopes, Financial/Tech Sector Strength

Broad Equity Market Tone:
  • Advance/Decline Line: Higher
  • Sector Performance: Most Sectors Rising
  • Volume: Below Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • Volatility(VIX) 12.20 -3.56%
  • Euro/Yen Carry Return Index 144.43 +.11%
  • Emerging Markets Currency Volatility(VXY) 6.33 +4.11%
  • S&P 500 Implied Correlation 51.25 -3.66%
  • ISE Sentiment Index 119.0 +56.58%
  • Total Put/Call .80 +15.94%
  • NYSE Arms .84 -23.31% 
Credit Investor Angst:
  • North American Investment Grade CDS Index 59.99 -.53%
  • European Financial Sector CDS Index 62.44 +.26%
  • Western Europe Sovereign Debt CDS Index 30.21 +3.65%
  • Asia Pacific Sovereign Debt CDS Index 79.22 +2.09%
  • Emerging Market CDS Index 256.44 +.99%
  • China Blended Corporate Spread Index 312.41 +.56%
  • 2-Year Swap Spread 14.75 -.25 basis point
  • TED Spread 20.0 -.5 basis point
  • 3-Month EUR/USD Cross-Currency Basis Swap -13.0 +2.0 basis points
Economic Gauges:
  • 3-Month T-Bill Yield .03% unch.
  • Yield Curve 217.0 +3.0 basis points
  • China Import Iron Ore Spot $89.30/Metric Tonne +.34%
  • Citi US Economic Surprise Index -11.60 +3.8 points
  • Citi Emerging Markets Economic Surprise Index -9.80 -3.1 points
  • 10-Year TIPS Spread 2.21 +3.0 basis points
Overseas Futures:
  • Nikkei Futures: Indicating +48 open in Japan
  • DAX Futures: Indicating +13 open in Germany
Portfolio: 
  • Slightly Higher: On gains in my tech/medical/retail sector longs and emerging markets shorts
  • Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges
  • Market Exposure: Moved to 50% Net Long

Bear Radar

Style Underperformer:
  • Large-Cap Growth -.02%
Sector Underperformers:
  • 1) Energy -.91% 2) Coal -.54% 3) Defense -.30%
Stocks Falling on Unusual Volume:
  • QIWI, DOM, CBI, REI, ACOR, BT, KFY, MRTN, ACMP, PGEM, KORS, IPCM, WPZ, SAIA, WSTC, CUB, BMA, SHPG, E, SGEN, DPZ, UTHR, ENV, OPHT, BHP and ZOES
Stocks With Unusual Put Option Activity:
  • 1) NUAN 2) FIO 3) GT 4) IYR 5) DXJ
Stocks With Most Negative News Mentions:
  • 1) GM 2) BSX 3) DPZ 4) BAH 5) AVAV 
Charts: