Stocks Surging into Final Hour on Diminished Russia/Ukraine Tensions, Buyout Speculation, Central Bank Hopes, Homebuilding/Transport Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Higher
  

• Sector Performance: Most Sectors Rising
  

• Volume: Light

• Market Leading Stocks: Outperforming

Equity Investor Angst:

• Volatility(VIX) 13.55 +9.10%

• Euro/Yen Carry Return Index 143.09 -.08%

• Emerging Markets Currency Volatility(VXY) 6.77 -.73%

• S&P 500 Implied Correlation 49.24 -2.78%

• ISE Sentiment Index 96.0 +28.0%

• Total Put/Call .92 -7.07%

• NYSE Arms .82 -35.81% 

Credit Investor Angst:

• North American Investment Grade CDS Index 57.19 -3.98%

• European Financial Sector CDS Index 65.50 -5.75%

• Western Europe Sovereign Debt CDS Index 34.0 +.34%
• Asia Pacific Sovereign Debt CDS Index 70.46 -1.25%

• Emerging Market CDS Index 269.47 -1.30%

• China Blended Corporate Spread Index 316.05 +1.08%
• 2-Year Swap Spread 23.25 +1.0 basis point

• TED Spread 20.75 -.25 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -14.75 -1.25 basis points

Economic Gauges:

• 3-Month T-Bill Yield .03% unch.

• Yield Curve 197.0 +4.0 basis points

• China Import Iron Ore Spot $93.30/Metric Tonne -.11%

• Citi US Economic Surprise Index -2.0 +3.7 points

• Citi Emerging Markets Economic Surprise Index -12.30 -4.5 points

• 10-Year TIPS Spread 2.19 unch.

Overseas Futures:

• Nikkei Futures: Indicating +108 open in Japan

• DAX Futures: Indicating +16 open in Germany

Portfolio: 

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

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

• Market Exposure: Moved to 75% Net Long

Today's Headlines

Bloomberg: 

• Ukraine Talks Stall as Russia Sees Only Progress on Aid. Russia’s foreign minister said talks on the conflict in Ukraine haven’t produced a resolution, with progress made only on humanitarian aid deliveries. The crisis, in which government troops have been battling pro-Russian separatists for months in the nation’s easternmost regions, can only be stemmed once Ukraine calls off its army as part of an unconditional cease-fire, Sergei Lavrov told reporters today in Berlin after meeting with his Ukrainian, German and French counterparts. He said he expects truckloads of Russian aid for the Luhansk region to be delivered soon. “As long as they’re betting on a military solution, and as long as the authorities in Kiev are using military victories over their own people to shore up their position in Kiev, I don’t think there’s any point to what we’re trying to do now,” Lavrov said.

• Kurdish Forces Oust Militants From Dam With U.S. Airstrikes. Kurdish and Iraqi forces seized control of Iraq’s largest dam from Islamic State militants as the U.S. deployed air power that helped reverse some gains made by the Sunni-Muslim insurgents in the north. Kurdish forces, known as the peshmerga, and government anti-terrorism units “with joint air support, have taken over the Mosul Dam entirely,” Iraqi military spokesman Qassim Ata said on state-sponsored Iraqiya television. Their progress has been slowed by militants wearing suicide vasts, booby-trapped buildings and roadside bombs, Abo Maan Al-Taie, a spokesman for Sunni tribes supporting the insurgents, said by phone. 

• Bundesbank Casts Doubt on German Economic Rebound in Second Half. The Bundesbank said geopolitical tensions may impede a rebound of the German economy, Europe’s largest, after it contracted in the second quarter. “The economic outlook for the German economy has clouded over in the middle of the year in response to unfavorable international news,” the Frankfurt-based central bank said in its monthly report for August published today. “Expectations for a strengthening of economic momentum in the second half of 2014 underlying the spring projections are called into question by current data.”

• European Stocks Rise as Ukraine Concern Eases; Renault Up. European stocks advanced, after equities had their biggest weekly gain in more than a month, as Ukrainian and Russian officials met for talks. United Internet AG added 3.8 percent after saying it bought a 10.7 percent stake in Rocket Internet AG. Renault SA advanced 2.5 percent, helping a gauge of automakers post the biggest gain among 19 industry groups in the Stoxx Europe 600 Index. Aker Solutions ASA dropped 1.6 percent. The Stoxx 600 rallied 1.2 percent, the most in a week, to 333.6 at the close of trading in London, after advancing 1.5 percent last week.

• Dollar General(DG) Makes $9.7 Billion Family Dollar(FDO) Counterbid.

Wall Street Journal: 

• Why the Islamic State Represents a Dangerous Turn in the Terror Threat. The Danger Extends to America's Friends and Foes Alike Across the Middle East and Even Europe.
  
  You can mark it down: The summer of 2014 is the time when the terrorism threat morphed into something new, more ambitious and more dangerous. This threat represents a long-term danger to the U.S., but a more immediate threat to America's friends and foes alike across the Middle East and even Europe. It imperils Iraq, of course, but also Saudi Arabia, Israel, Turkey, Egypt, Russia and Iran.

• Wary Ferguson Awaits National Guard. Missouri Governor Calls in National Guard After Another Night of Clashes in St. Louis Suburb. Missouri Gov. Jay Nixon lifted the nighttime curfew here, hours after the worst violence from protests over the shooting death by police of an unarmed 18-year-old. The curfew was in effect between midnight and 5 a.m. on Sunday and Monday following looting and other vandalism on Friday night. But the past two nights saw violent clashes between protesters and police in the hours just before the curfew took effect.

• Fed Economists Criticize SEC Money-Fund Restrictions. Federal policy makers are warning a central plank in the Securities and Exchange Commission’s plan to rein in risks posed by the $2.6 trillion money-market mutual-fund industry will inadvertently encourage investor stampedes rather than quell them.

CNBC: 

• Chinese hackers stole info on 4.5 million U.S. hospital patients. If you've been to a hospital in a small town or anywhere in the southeastern portion of the United States in the last few years, it's worth keeping an eye on your personal information.

ZeroHedge:

• Is The Correction Over? (graph)

• What's So Special About A 17x PE Multiple? (graph)

• Dozens Of Flash-Crashes - Including AAPL - As BATS Breaks.

• Chinese Troops 'Invade' 25Km Into India, "This Is Chinese Territory, Go Back".

• Homebuilder Sentiment Jumps to Highest Since January As Midwest Hits Record High. (graph)

• Don't Think It Won't Happen Just Because It Hasn't Happened Yet: Loss Of Faith In The Fed.

Business Insider:

• FLECKENSTEIN: There’s 'No Chance' That This Ends Well.

PzFeed Top News:

• URGENT: This is reportedly a photo of women that ISIL is selling into sex slavery. (pic)

Reuters:

• Yazidis haunted by cries for help as militants bury victims alive. Refugee Samo Ilyas Ali has nine children to feed but he can't focus on the future because the sounds of women and children crying out for help while being buried alive by Islamic State militants in northern Iraq often consume his mind. Tens of thousand of Yazidis fled their ancient homeland of Sinjar and other villages to escape a dramatic push by the Sunni militants who regard the ethnic minority as devil worshippers who must embrace their radical version of Islam or die.The refugees sit idle in camps in the semi-autonomous Kurdish region in northern Iraq. Suddenly the men began digging ditches - soon to become mass graves. "We did not understand. Then they started to put people in those holes, those people were alive," said former grocery shop owner Ali, 46, pausing to weep. "After a while we heard gunfire. I can't forget that scene. Women, children, crying for help. We had to run for our lives, there was nothing to be done for them."

Xinhua:

• Xi Says China to Set Up Media Groups With Big Influence. China to set up a few media groups with high credibility and influence, President Xi Jinping said at meeting of leading group for deepening reform. Meeting approved guidelines to promote integrated development of traditional media and new media.

Bear Radar

Style Underperformer:

• Large-Cap Value +.64%

Sector Underperformers:

• 1) Coal -.35% 2) Utilities -.14% 3) Gold & Silver -.13%

Stocks Falling on Unusual Volume:

• NOAH, FN, FSYS, MNST, KMP, JKS, DLTR, NXPI, EPB, CMCM, NUS, KMR, FONR, RRGB, HGR, GLF, WBAI, MCY, ASPS, OCN, FEYE, CSTM, XONE, YOKU and MCHP

Stocks With Unusual Put Option Activity:

• 1) XME 2) URBN 3) MOS 4) ACHN 5) XLB
  

Stocks With Most Negative News Mentions:

• 1) MGM 2) STZ 3) RGR 4) NXPI 5) MNST
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Small-Cap Growth +1.17%

Sector Outperformers:

• 1) Semis +1.93% 2) Homebuilders +1.72% 3) Road & Rail +1.33%
  

Stocks Rising on Unusual Volume:

• FDO, DG, TASR, ST, ATHM, TKMR, HMSY, WUBA, KNDI, DWA, LCI, ARWR, ENPH and GTAT

Stocks With Unusual Call Option Activity:

• 1) NUE 2) ACHN 3) JWN 4) JBLU 5) URBN
  

Stocks With Most Positive News Mentions:

• 1) DG 2) AAPL 3) RTN 4) GTAT 5) NKE
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Monday Watch

Weekend Headlines 
Bloomberg:

• Red Cross Waits for Guarantees as Ukraine Truce Discussed. The Red Cross demanded safety guarantees before it begins inspecting the first 16 trucks from a convoy Russia says is carrying humanitarian aid at the Ukrainian border, as the nations’ top diplomats met to discuss a possible truce. Ukraine agreed to let Russian aid cross into separatist-held territory under the supervision of the International Committee of the Red Cross, which said it still hadn’t received the safety guarantees it needs. In Berlin, Ukrainian Foreign Minister Pavlo Klimkin and his Russian counterpart Sergei Lavrov began talks with Germany and France to ease tensions after officials in Kiev said their troops had destroyed part of an armored column from Russia. 

• Gaza Negotiators Not Budging Ahead of Midnight Deadline. Israeli and Palestinian negotiators showed little movement from long-held positions ahead of a midnight deadline to extend talks that have kept the Gaza Strip free from military conflict for a week. Egyptian officials are brokering a final day of talks in the five-day cease-fire agreed upon last week by Israel and Hamas, the militant Islamist group that controls Gaza. That truce extended an earlier 72-hour cease-fire. 

• China Home Prices Decline in Majority of Cities on Weak Demand. China’s new-home prices fell in July in almost all cities that the government tracks as tight mortgage lending deterred buyers even as local governments eased property curbs. Prices fell in 64 of the 70 cities last month from June, the National Bureau of Statistics said today, the most since January 2011 when the government changed the way it compiles the data. Beijing prices fell 1 percent from June, posting the first monthly decline since April 2012. Prices in Shanghai decreased 1.2 percent and dropped 1.3 percent in Guangzhou, both the biggest slide since January 2011. The eastern city of Hangzhou and the southern tropical city of Sanya had the largest declines in July, each falling 2.4 percent.

• China Banks’ Share Sales to Damp Profit in Vicious Cycle. China’s biggest banks, already poised for the weakest profit growth in more than a decade, risk a further erosion in earnings from record share sales intended to boost their capital after a credit binge.

• Chinese Rate Cuts Portend Stock-Market Losses: Chart of the Day. (graph) 

• Misery Unseen Since 2008 Besets Australia in Conundrum for RBA. A deepening gloom across the largest developed economy to escape recession during the global financial crisis is shaping up as one of the toughest challenges yet for Reserve Bank of Australia chief Glenn Stevens. Australia’s misery index -- the sum of unemployment and inflation rates -- is at 9.0, the highest since 2008, when the collapse of Lehman Brothers Holdings Inc. froze credit markets around the world and triggered the deepest recession in the U.S. since the Great Depression.

• London Home Asking Prices Plunge Most in More Than Six Years. London home sellers cut asking prices by the most in more than six years this month, adding to signs that the property market in the U.K. capital is coming off the boil. London values fell 5.9 percent from the previous month to an average 552,783 pounds ($922,300), the biggest drop since December 2007, property website Rightmove Plc said today. Nationally, prices declined 2.9 percent, a record for an August.

• Asian Stocks Fluctuate After Five-Day Winning Streak. Asian stocks fluctuated, after a five-day winning streak, as health-care shares gained while banks slid with consumer companies. Chugai Pharmaceutical Co. (4519) soared 15 percent as people familiar with the matter said Roche Holding AG is in talks to buy the almost 40 percent of the Japanese firm it doesn’t already own. National Australia Bank Ltd. slid 1.4 percent after the nation’s largest lender by assets said it will set aside more than 245 million pounds ($410 million) for compensation related to U.K. insurance and hedging products. Oversea-Chinese Banking Corp. dropped 0.4 percent in Singapore after Southeast Asia’s second-biggest bank by assets said it plans to raise S$3.37 billion ($2.7 billion) selling shares. The MSCI Asia Pacific Index (MXAP) slipped less than 0.1 percent to 147.96 as of 10:31 a.m. in Tokyo, with seven of its 10 industry groups rising. 

• Hedge Funds Extend Longest Soy Bear Run Since 2006: Commodities. Hedge funds extended the longest bearish streak for soybeans in eight years as improving crop conditions bolster prospects for a record harvest in the U.S., the world’s largest grower. Money managers have been betting on declines for five straight weeks, the most since October 2006. The U.S. on Aug. 12 raised its outlook for domestic production that was already forecast at an all-time high. The bumper harvest will swell global inventories to the biggest ever.

• Bull Market Waning as Barclays Sees 1% Gain for S&P 500. Five years of profit growth exceeding 17 percent is poised to slow in the Standard & Poor’s 500 Index, reducing returns as the bull market ages, according to Leuthold Group LLC and Barclays Plc. Equity price gains approaching 25 percent annually will weaken to 3 percent over the next decade as profit expansion reverts to its rate since 1929, said Doug Ramsey, the chief investment officer at Leuthold. Jonathan Glionna of Barclays says overseas markets are generating too little demand to push the S&P 500 up more than 1 percent in the rest of 2014.

Wall Street Journal:

• U.S. Farmers Are Up to Their Ears in Corn. 

• The Outlook: Federal Reserve Bets It Won't Wait Too Long on Rates. Officials Say Economic Indicators and Financial Markets Aren't Pointing to Overheating.

• Investors Rethink Bets on Europe Shares. Weak Economies, Ukraine Strife Have Hurt Stocks, Spoiling a Popular Wager. Economic headwinds and geopolitical strife have foiled investors betting on a comeback in European stocks, throwing cold water on one of 2014's most highly touted wagers. Many forecasters saw European equities as a likely big winner at the start of the year. Portfolio managers warmed to the continent after shares there lagged behind roaring U.S. stocks last year. Economies across the euro zone looked to be shaking off their financial...

• A Look At What Scares Investors Most.

• Senate Democrats vs. the Middle Class. Senators elected in 2008 made Obama's agenda possible, and its results have harmed most Americans.

MarketWatch.com:

• Fed should squelch any idea of a’Yellen put,’ former central banker says. The Federal Reserve must guard against the perception that there is a “Yellen put”  in place to keep the stock market moving endlessly higher, said Jeremy Stein, a former governor of the central bank. “Markets seem to sense an element of a Fed put, and that complacency can be a source of risk in itself, so you have to push back on that a bit,” Stein said in his first interview, with the New York Times, since leaving the Fed in May and returning to Harvard University’s economics department. Stein said the central bank should stick to its tightening plan, once launched, even if markets gyrate.

Fox News:

• Congressional Dems critical of Obama's efforts on ISIS, say 'mission is lost'. Congressional Democrats were critical Sunday of President Obama’s efforts to stop Islamic militants in the Middle East, suggesting the “mission has been lost” and that U.S. troops might be needed in Iraq.

Zero Hedge:

• US High Yield Inflows Trickle Back But European Stock & Bond Redemptions Surge. (graph)

• Presenting The Quote Stuffing Trading Strategy Of The NY Fed's Favorite Hedge Fund: Citadel.

• 5 Things To Ponder: Multifarious Cogitation.

• Chinese Power Consumption Crashes: Lowest Growth In 16 Months, Tumbles 10% In Shanghai, As Much As 22% Elsewhere. (graph)

• Jackson Hole Preview: Do Not Expect Policy Shift.

• State Of Emergency, Curfew Issued For Ferguson.

• Why The Fed Can't, And Won't, Let The Stock Market Crash.

• Seven Charts That Leave You No Choice But To Not Feel Optimistic About The US Economy.

• Japan’s Keynesian Demise: A Cautionary Tale For Our Times.

• India, Spain Testing Suspected Ebola Patients; Liberian Quarantine Center Raided.

• "God Willing, We Will Raise The Flag Of Allah In The White House" - A Deeper Look Inside ISIS.

• Charting Poverty In Ferguson: Then And Now. (map)

• Goldman On The Consequences Of Recent Geopolitical Events.

• China Contagion: Diamonds & Wine Plunge To 4-Year Lows. (graph)

• 18 Charts Exploring How The Ageing World Will Shape The Global Economy.

Business Insider:

• The White House Has No Idea What's Going On With The Russian Convoy In Ukraine.

• A Market-Shaking Paradigm Shift Could Be Coming Out Of The East.

• Even Liberals Think The Indictment Of Rick Perry Looks Weak.

• Ukraine's Rebel Leader Says He's Got 1,200 Troops Who 'Trained For Months In Moscow'.

• The United States Will Face Tough Choices If Russia And Ukraine Go To War.

• JOHN BURBANK: The Next Crash Is More Likely To Look Like What We Saw In 1987. (video)

• SHILLER: The Market Is At One Of Its Most Expensive Levels Of All Time, And There's One Thing Can Take It Down.

• Kurds Advance Against ISIS Militants With US Air Support.

• Ukraine Says Its Troops Make Breakthrough In Rebel Stronghold As Russian Weapons Pour In.

• The Spread Of Ebola In West Africa Is Deeply Troubling For The Region And The World.

• Bubbles Have Looked Remarkably Similar Throughout History. (graph)

• New York Times Reporter Calls Obama 'The Greatest Enemy Of Press Freedom In A Generation'.

Reuters:

• Islamic State 'massacres' 80 Yazidis in north Iraq: officials. Islamic State insurgents "massacred" some 80 members of Iraq's Yazidi minority in a village in the country's north, a Yazidi lawmaker and two Kurdish officials said on Friday. "They arrived in vehicles and they started their killing this afternoon," senior Kurdish official Hoshiyar Zebari told Reuters. "We believe it's because of their creed: convert or be killed." 

Financial Times: 

• Fed blow to banks over ‘living wills’. Global banks can no longer assume continuing access to the Federal Reserve’s discount lending window as an element of their living wills, people familiar with the process have warned.

Financial News:

• China Large-Scale Private Bond Default Unlikely. A large-scale default of bonds in China would cause financial market turbulence, which can't be allowed when the economy faces "relatively heavy" downward pressure, according to a front-page commentary by Xu Shaofeng. Private bonds of 6.2b yuan will mature next quarter, the biggest amount since 2012 when China started allowing bond issues by medium-sized and small cos., the commentary said.

Weekend Recommendations

• None of note

Night Trading

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

• Asia Ex-Japan Investment Grade CDS Index 103.0 -.5 basis point.

• Asia Pacific Sovereign CDS Index 71.25 -1.25 basis points.

• FTSE-100 futures +.49%.

• S&P 500 futures +.28%.

• NASDAQ 100 futures +.27%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (JKS)/.76

• (AAP)/-.03

• (URBN)/.49

Economic Releases
10:00 am EST

• The NAHB Housing Market Index for August is estimated at 53.0 versus 53.0 in July.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Eurozone Trade Balance could also impact trading today.

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

Weekly Outlook

Week Ahead (audio) 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 higher on diminished Ukraine-Russia tensions, less emerging markets/European debt angst, central bank hopes, technical buying and yen weakness. My intermediate-term trading indicators are giving neutral signals and the Portfolio is 50% net long heading into the week.