Stocks Slightly Higher into Final Hour on Buyout Speculation, Diminishing Global Growth Fears, Short-Covering, Healthcare/Utility Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Lower
  

• Sector Performance: Mixed
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 12.59 -.79%

• Euro/Yen Carry Return Index 142.87 +.07%

• Emerging Markets Currency Volatility(VXY) 5.93 +.68%

• S&P 500 Implied Correlation 54.76 -1.76%

• ISE Sentiment Index 108.0 +22.73%

• Total Put/Call .93 -1.06%

• NYSE Arms 1.17 +15.44% 

Credit Investor Angst:

• North American Investment Grade CDS Index 59.22 -.59%

• European Financial Sector CDS Index 66.69 -1.19%

• Western Europe Sovereign Debt CDS Index 33.19 -1.72%

• Asia Pacific Sovereign Debt CDS Index 70.65 -.58%

• Emerging Market CDS Index 255.83 +4.40%

• China Blended Corporate Spread Index 302.25 +.52%

• 2-Year Swap Spread 20.75 +.5 basis point

• TED Spread 21.0 +.25 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -8.0 +.75 basis point

Economic Gauges:

• 3-Month T-Bill Yield .03% +1.0 basis point

• Yield Curve 198.0 -4.0 basis points

• China Import Iron Ore Spot $94.30/Metric Tonne +.75%

• Citi US Economic Surprise Index -20.70 +3.8 points

• Citi Emerging Markets Economic Surprise Index -.5 +.1 point

• 10-Year TIPS Spread 2.27 unch.

Overseas Futures:

• Nikkei Futures: Indicating +58 open in Japan

• DAX Futures: Indicating +25 open in Germany

Portfolio: 

• Slightly Higher: On gains in my retail/tech sector longs and index hedges

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

• Market Exposure: Moved to 50% Net Long

Today's Headlines

Bloomberg:

• EU Moving With U.S. on More Russia Sanctions. The U.S. and European Union will act on stiffer sanctions against Russia as soon as this week as Vladimir Putin’s government is “doubling down” on its support for Ukrainian rebels, an Obama administration official said. The new sanctions by the EU are aimed at the Russian finance, defense and energy industries as well as Putin’s “cronies,” Deputy National Security Adviser Tony Blinken said. 

• Secret Tunnels Under Israel Reveal Threat From Gaza. Slipping into a tunnel under Israel’s southern border and heading toward the Gaza Strip, the scorching summer heat suddenly turns cooler and the boom of artillery fire above fades away. 

• Europe Stocks Decline as Investors Weigh Unrest, Earnings. European stocks fell for a second day as investors weighed unrest in Ukraine and the Middle East, and watched companies’ financial results. Wincor Nixdorf AG slid the most since May after the maker of automated teller machines posted third-quarter revenue that fell short of analysts’ estimates. Aberdeen Asset Management Plc (ADN) slid 5.3 percent after reporting a drop in assets under management. Ryanair Holdings Plc (RYA) added 2.7 percent after lifting its fiscal full-year profit goal as quarterly profit more than doubled. Reckitt Benckiser Group Plc rose 2.7 percent after saying it will spin off its pharmaceutical business. The Stoxx Europe 600 Index fell 0.2 percent to 341.34 at the close of trading after sliding as much as 0.7 percent and rising as much as 0.3 percent.

• Fed’s Fisher: Rates Too Loose for Too Long. (video)

• Buying on Dips Pays Most in Five Years as Stocks Rebound. Not since the bull market began has buying dips in the Standard & Poor’s 500 Index been a surer way of making money. Declines (SPX) in the benchmark gauge for American equity are lasting an average of 1.5 days in 2014, the shortest since at least 2009, according to data compiled by Bloomberg. Starting last year, returns on days after the index fell have averaged 0.13 percent, the highest since they were 0.38 percent in 2009.

• Memphis Cops Call in Sick in New Tactic to Stop Cuts. Police and firefighters in Memphis are calling in sick by the scores as a new Tennessee law kicks in requiring cities to stop shortchanging workers’ pensions. Their beef: Memphis’s plan to comply. Tennessee’s largest city, which for years has failed to save enough to support promised retirement checks, plans to make up that sum by eliminating retirees’ health insurance, which has fewer legal protections. At one point, 558 police officers stayed home, one fourth of the force, in a city that had the sixth-highest incidence of violent crime in the U.S. last year. At the end of last week, 131 were out.

Wall Street Journal:

• Fragile Gaza Truce for Muslim Holiday Breaks Down. Four People Killed in Israel by Mortar Shell.

• Ukraine Reports Heavy Fighting Around Malaysia Airlines Crash Site. Kiev Seeking to Cut Off Rebel Stronghold of Donetsk.

MarketWatch.com:

• Stock trader who called three crashes sees 20% collapse. Insight: Veteran investor expects bear market within 12 months.

CNBC:

• The Fed in denial.

• Fed up? Janet Yellen facing challenges from within.

• When everything tech is up and to the right.

ZeroHedge:

• Earnings Recovery? Europe Would Love Some Of That. (graph)

• The Case For A Bull Or Bear Market In Two Charts. (graph)

• LOCO IPO Soars To Insane 20x EBITDA Multiple. (graph)

• Pending Home Sales Tumble From Recovery Highs, Biggest Miss In 2014. (graph)

• US Services PMI Beats After Last Week's Manufacturing PMI Record Miss, Employment Plunges. (graph)

• China's Solution To “Property Companies Facing Huge Debt Burdens”: Much More Debt. (graph)

• "Reprehensible" Lloyds Bank Agrees To $105 Million Wristslap For Manipulating Libor.

• Spanish Bond Yields Tumble Below 2.5% - Lowest In History. (graph)

Business Insider: 

• The White House Is Furious At Israel’s Thrashing Of John Kerry.

• WHITE HOUSE TO RUSSIA: Prepare To Get Whacked By The Worst Sanctions Yet.

• Former Yale Professor Says Ivy League Schools Are Churning Out 'Zombies'.

• Africa's Most Populous Country On 'Red Alert' After Ebola Death In City Of 21 Million.

• POLL: Romney Would Beat Obama In Election Rematch.

• ZILLOW(Z) BUYS TRULIA(TRLA) FOR $3.5 BILLION.

• This Could Be The Busiest Week For IPOs Since August 2000.

• ART CASHIN: Three Things Worry Me Right Now.

NY Post:

• 2,500 Ground Zero Workers Have Cancer. More than 2,500 Ground Zero rescuers and responders have come down with cancer, and a growing number are seeking compensation for their illnesses, The Post has learned. The grim toll has skyrocketed from the 1,140 cancer cases reported last year.

Spiegel:

• EU Ministers May Decide on More Russian Sanctions Soon. EU foreign ministers will be able to make decisions on tougher sanctions for Russia "in the coming days," Frank-Walter Steinmeier, German foreign ministers, says in an interview.

Le Temps:

• Russia May Retaliate Against Sanctions, Chizhov Says. Russia reserves the right to respond to "hostile measures" in manner that will be "as strong," and "symmetrical," Vladimir Chizhov, Russia ambassador to European Union, says in an interview. Russia is not only considering retaliation measures, is also ready for them, Chizhov says.

Xinhua:

• China angered by U.S. protectionism. The Ministry of Commerce (MOC) announced on Monday that China is strongly dissatisfied with the United States for its anti-dumping and countervailing probes into Chinese exports of photovoltaic products.

China News Service:

• China Property Market May Face 2-3 Years Adjustment. Large number of housing units will enter the market after 2014 and result in oversupply, citing a report from the Chinese Academy of Social Sciences. Short-term declines are inevitable. Prices won't crash entirely, the report said.

Bear Radar

Style Underperformer:

• Small-Cap Growth -1.05%

Sector Underperformers:

• 1) Homebuilders -2.21% 2) Road & Rail -1.52% 3) Biotech -1.43%

Stocks Falling on Unusual Volume:

• CMP, AWI, ZION, GALT, Z, CALM, CMI, LRE, TTS, ENPH, HYGS, BFR, USLV, MLNX, SKYW, GNC, NVDQ, AIMC, WIRE, CWEI, VLP, CYN, SWI, NXPI, INVN and MAN

Stocks With Unusual Put Option Activity:

• 1) OIH 2) GLW 3) XLI 4) CMI 5) JNK
  

Stocks With Most Negative News Mentions:

• 1) LVLT 2) FDX 3) ITB 4) MNST 5) LTM
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Mid-Cap Value -.35%

Sector Outperformers:

• 1) Utilities +.89% 2) Gaming +.87% 3) Hospitals +.77%
  

Stocks Rising on Unusual Volume:

• DLTR, FDO, TRLA, TOUR, MOVE, JKS and TSN

Stocks With Unusual Call Option Activity:

• 1) LNG 2) TRLA 3) FDO 4) RFMD 5) INFN
  

Stocks With Most Positive News Mentions:

• 1) Z 2) F 3) FDO 4) ESRX 5) AAPL
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Monday Watch

Weekend Headlines 
Bloomberg:

• Ukraine Army Advances as EU Plans Tougher Putin Sanctions. Ukraine’s army advanced on a last main separatist stronghold as the U.S. said Russian President Vladimir Putin is poised to give the rebels heavy weapons and European Union leaders considered their toughest sanctions yet on Russia. Ukrainian troops are battling insurgents in the town of Horlivka, about 20 kilometers (12 miles) northeast of the regional capital Donetsk, a city of 1 million people where rebels retreated after abandoning other positions earlier this month. Taking Horlivka would open the way to attack one of their last redoubts, Ukrainian Defense Ministry spokesman Andriy Lysenko said yesterday in Kiev. “Fighting to take over Horlivka is going on,” he told journalists. “Donetsk will be next.” CNN reported that long lines of cars jammed roads leading south from the city yesterday as residents tried to flee.

• Photos Said to Show Russia Shelling of Ukraine Released. Satellite photos show that Russia has shelled across the border into Ukraine, the Obama administration said, as Dutch Prime Minister Mark Rutte said signs of heavy fighting prevented investigators from reaching the crash site of Malaysian Air Flight 17. “Russian forces have fired across the border at Ukrainian military forces,” the State Department said in a statement accompanying the photos released yesterday. The pictures also purportedly show “Russia-backed separatists have used heavy artillery, provided by Russia, in attacks on Ukrainian forces from inside Ukraine.” Ukraine’s forces were attacked twice from Russian territory, the Ukrainian defense ministry said in a posting on Facebook, without giving further details.

• Kerry’s Diplomacy Falls Short to End Gaza Fighting. It took U.S. Secretary of State John Kerry five days in the Middle East to negotiate a 12-hour pause in the bloody fighting between Hamas and Israel. Prospects for extending that humanitarian halt in the Gaza war had evaporated by the time Kerry landed in Washington shortly after midnight yesterday following a sleep-deprived week in which he served as a round-the-clock, Cairo-based diplomatic call center for Israel, Egypt and intermediaries to Hamas. 

• ECB Opaque-Asset Review Seen Targeting Deutsche Bank, BNP. Deutsche Bank AG (DBK) and BNP Paribas SA (BNP), which hold almost half of the hard-to-value assets on the books of the euro area’s 10 biggest banks, are facing a reality check that could impose losses. As part of its review of 128 lenders, the European Central bank is studying less-actively traded loans and securitized products that banks value with minimal external data. The unprecedented scope of the exercise gives the ECB, which is taking on a supervisory role this year, insight that has eluded investors: comparing how the biggest investment banks value complex assets. 

• Australian Regulators Watch as Debt Drives Up Prices: Mortgages. Central banks from Scandinavia to the U.K. to New Zealand are sounding the alarm about soaring mortgage debt and trying to curb risky lending. In Australia, where borrowing is surging, regulators are just watching. Australian household debt is at a 25-year high, according to statistics bureau figures, and a government inquiry this month found housing to be a significant source of risk to the financial system. The average mortgage is at least four times household income in almost 80 percent of the country, research by Digital Finance Analytics shows.

• Asian Stocks Swing as Oil Falls; Soybeans Lead Crop Gains. Asian stocks fluctuated, leaving the regional index near a six-year high, with the Federal Reserve meeting this week to debate the outlook for U.S. interest rates. Oil dropped while Australian bonds climbed with crop futures. The MSCI Asia Pacific Index was little changed by 9:56 a.m. in Tokyo.

Wall Street Journal:

• U.S. Push for Gaza Truce Yields a Few Hours of Calm. Diplomacy Stymied by Divisions Between Washington and its Mideast Allies. After six days of exhaustive meetings and stops in Cairo, Tel Aviv, Jerusalem, Ramallah and Paris, Secretary of State John Kerry came home Sunday with only a few fitful hours of peace in Gaza that proved fleeting. Israel and the Palestinian territory's Hamas rulers observed a 12-hour humanitarian cease-fire on Saturday. But they couldn't agree to extend the truce on Sunday and the cycle of attacks resumed.

• In China, Warnings Flash Despite Better Data. Economic Growth Has Picked Up, but Other Figures Suggest Optimism May Be Premature. When Monte Burnham, the president of Birmingham, Ala.-based Foundry Manufacturing Solutions, recently visited Tianjin, China, he was pleasantly surprised to find its air more breathable than during his previous stay. "Then I realized, the smelters weren't running," recalled Mr. Burnham, referring to the northern port city's giant steel plants, which until recently had been delivering economic growth rates as high as 16% to..

• J.P. Morgan(JPM) Questioned for Conflicts of Interest. Firm Has Responded by Changing Its Disclosures.

• The Danger of Too Loose, Too Long by Richard W. Fisher. With an improving labor market and an uptick in inflation, the danger now is to wait too long to tighten. I have grown increasingly concerned about the risks posed by current monetary policy. First, we are experiencing financial excess that is of our own making. There is a lot of talk about "macroprudential supervision" as a way to prevent financial excess from creating financial instability. But macroprudential supervision is something of a Maginot Line: It can be circumvented. Relying upon it to prevent financial instability...
  

Fox News:

• Israeli PM Benjamin Netanyahu vows Israel will do 'whatever is necessary' in fight with Hamas. Israeli Prime Minister Benjamin Netanyahu on Sunday vowed to do "whatever is necessary" in the country's latest weeks-long battle with Islamic militant group Hamas.

Zero Hedge:

• High Yield Credit Market Flashing Red As Outflows Surge. (graph)

• Did The "Dash For Trash" Just End? (graph)

• Company In Which Joe Biden's Son Is Director Prepares To Drill Shale Gas In East Ukraine.

• ObamaFraud: GAO Study Finds Almost All Fake Applicants Are Approved For Subsidized ObamaCare.

• "It Can't Be A Bubble!" (graph)

• Can Germany Carry Europe’s Weight In The Next Financial Crisis?

• America's Lost Decade: Typical Household Wealth Has Plunged 36% Since 2003.

• Runaway Ebola-Infected Woman Dies As US Doctor Tests Positive For Virus.

• The Italian Government Owes Over $100 Billion To Private Suppliers.

• China Expands Live-Fire Gulf Of Tonkin Drill; Warns Of Massive Flight Disruptions.

• John Hussman: "Make No Mistake - This Is An Equity Bubble, And A Highly Advanced One". (graph)

Business Insider:

• An Obamacare Architect Said Something In 2012 That Could Unravel The Law.

• Tesla(TSLA) Has Had Serious Problems Delivering Cars To China, And Customers Aren't Happy.

• This Video Shows ISIS Blowing Up The Tomb Of Jonah.

• Top Iranian Commanders Are On The Front Lines Of Fighting In Iraq.

• Hezbollah Tells Israel: Continuing In Gaza Is 'Suicide'.

• US Isolationism Is Feeding A Global Free-For-All. If democratic and humanistic values can be so readily abandoned internationally, and by the states that best embody them, then all talk of a global order based on international law and respect for human rights is an illusion. It means states will accept a free-for-all, a global state of nature, where no one prevents barbarous crimes. Americans and Europeans may not realize that this is what they are contributing to, but they are doing so unambiguously.   

• Here Are The Details Of Kerry's Ceasefire Proposal — And Why Israel Turned It Down.

• Free Exchange: Sun, Wind and Drain. Wind and solar power are even more expensive than is commonly thought. 

• Goldman Sachs(GS) Just Downgraded Stocks.

• ISIS Has Female Members — And They're Terrorizing Women Who Won't Follow The Caliphate's Rules.

• US Evacuates Embassy In Tripoli, Libya Amid Growing Violence.

• China's President Has Only Begun To Take Down The Tigers And Swat The Flies In His Historic Corruption Crackdown.

• Google(GOOG) May Be Breaking Into The Phablet Market In An Enormous Way.

• The SEC's New Rules For Money-Markets Are 'One Of The Most Flawed And Controversial' Decisions Ever.

• More Of Moscow's Men Are Taking Top Rebel Posts In Eastern Ukraine.

• The Fed Has Overstepped Its Bounds.

• Hamas And North Korea Are Working On A Secret Arms Deal.

• Russian Rebels Involved In Shooting Down MH17 Were From 4,200 Miles Away. The motivation for nearly half of Sapper's crew to travel all the way across Russia and into Ukraine is unclear. But the notion that they traveled to Ukraine on their own, without guidance from Moscow, is very unlikely.

Reuters:

• Goldman(GS) mortgage deal could reach $1.25B: Source. A deal to resolve a U.S. regulator's claims against Goldman Sachs over mortgage-backed securities sold to Fannie Mae and Freddie Mac leading up to the financial crisis could cost the bank between $800 million and $1.25 billion, according to a person familiar with the matter.

Financial Times:

• Argentina braces for sovereign debt default. Santiago Medina frowns as he recalls Argentina’s economic crisis at the time of its 2001 sovereign debt default, when he lost his job and took part in street protests. “Those were tough times,” says Mr Medina, who sells newspapers at a small kiosk beside a traffic-clogged avenue in Buenos Aires. “I don’t understand why the government wants to risk default again. It’s irresponsible: people are going to suffer.”

Der Spiegel:

• German Poll Says 52% Back Russia Sanctions Over Jobs. Most Germans would support sanctions even if they endangered jobs, citing a TNS-Infratest poll. 39% would oppose sanctions if jobs were endangered.

China Securities Journal:

• China Property Curb Easing Won't Stimulate Market. The easing of property purchase curbs in some Chinese cities won't stimulate the market as the government faces problems with excess inventories and growth, reporter Zhang Min said in a front-page commentary. The government is overly reliant on land sales for fiscal revenue.

Xinhua:

• China Growth Won't Show 'Strong' Momentum. Chinese economic growth won't show "strong" momentum in 2015-2016, according to a commentary. China faces possible risks in real estate, finance and local government debt. China exports may have a hard time growing quickly.

Weekend Recommendations

Barron's:

• Bullish commentary on (DOW), (TUP), (KEY), (GOOG), (WLP), (C), (THRX) and (CIT).

• Bearish commentary on (WMT) and (LXU).

Night Trading

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

• Asia Ex-Japan Investment Grade CDS Index 104.0 +3.0 basis points.

• Asia Pacific Sovereign CDS Index 70.0 -1.0 basis point.

• FTSE-100 futures +.20%.

• S&P 500 futures -.14%.

• NASDAQ 100 futures -.08%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (TSN)/.78

• (CALM)/1.18

• (CMI)/2.39

• (EMN)/1.84

• (ADVS)/.34

• (HLF)/1.57

• (JEC)/.86

Economic Releases
9:45 am EST

• Preliminary Markit US Services PMI for July is estimated to fall to 59.8 versus 61.0 in June.

10:00 am EST

• Pending Home Sales for June are estimated to rise +.5% versus a +6.1% gain in May.

10:30 am EST

• Dallas Fed Manufacturing Activity for July is estimated to rise to 12.0 versus 11.4 in June.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Japan Jobless Rate and $29B 2Y T-Note Auction 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 modestly lower. The Portfolio is 25% net long heading into the week.

Weekly Outlook

Week Ahead by Bloomberg. 
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 modestly lower on escalating Mideast/Ukraine-Russia tensions, high-yield debt bubble worries, technical selling, yen strength, profit-taking and escalating Fed rate hike concerns. My intermediate-term trading indicators are giving neutral signals and the Portfolio is 25% net long heading into the week.