Stocks Slightly Lower into Final Hour on Earnings Worries, Oil Weakness, Techincal Selling, Energy/Gaming Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Around Even
  

• Sector Performance: Mixed
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 13.18 -.90%

• Euro/Yen Carry Return Index 134.31 +.44%

• Emerging Markets Currency Volatility(VXY) 9.97 +.10%

• S&P 500 Implied Correlation 68.22 +.59%

• ISE Sentiment Index 142.0 +52.69%

• Total Put/Call .87 +11.54%

• NYSE Arms 1.60 +34.62% 

Credit Investor Angst:

• North American Investment Grade CDS Index 62.21 -.49%

• America Energy Sector High-Yield CDS Index 1,065.0 +.52%

• European Financial Sector CDS Index 75.34 -1.56%

• Western Europe Sovereign Debt CDS Index 26.75 +1.69%

• Asia Pacific Sovereign Debt CDS Index 59.68 -1.20%

• Emerging Market CDS Index 302.82 +.74%
  

• iBoxx Offshore RMB China Corporates High Yield Index 116.78 +.09%

• 2-Year Swap Spread 27.25 +1.0 basis point

• TED Spread 26.0 unch.

• 3-Month EUR/USD Cross-Currency Basis Swap -22.25 +1.5 basis points

Economic Gauges:

• 3-Month T-Bill Yield .01% -1.0 basis point

• Yield Curve 139.0 +2.0 basis points

• China Import Iron Ore Spot $51.04/Metric Tonne -1.03%

• Citi US Economic Surprise Index -53.10 +1.2 points

• Citi Eurozone Economic Surprise Index 47.80 -2.1 points

• Citi Emerging Markets Economic Surprise Index -12.8 -.3 point

• 10-Year TIPS Spread 1.87 -2.0 basis points

Overseas Futures:

• Nikkei Futures: Indicating +125 open in Japan

• DAX Futures: Indicating +51 open in Germany

Portfolio: 

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

• Disclosed Trades: None

• Market Exposure: 50% Net Long

Today's Headlines

Bloomberg: 

• Euro-Area Debt Levels Surge to Record, Led by Greece. Government debt in the euro area surged to the highest levels since the introduction of the single currency, underscoring the challenges still confronting the 19-nation bloc as it wrestles with Greece over new aid payments. Greece’s debt pile swelled to a new high of 177.1 percent of gross domestic product at the end of 2014, up from 175 percent a year earlier, the European Union’s statistics office in Luxembourg said today. For the euro zone as a whole, government debt rose to a record 91.9 percent of GDP last year from 90.9 percent in 2013. Italy’s debt mountain increased and remained as the second-highest in the euro area after Greece, going up to 132.1 percent of GDP in 2014 from 128.5 percent the previous year. Portugal, in third place, saw its debt rise to 130.2 percent of GDP from 129.7 percent, while in Ireland, next in line, debt fell to 109.7 percent from 123.2 percent. Both countries received international bailouts at the height of the euro crisis. The data also show that some euro-area countries are struggling to reduce their budget deficits to within the EU’s 3 percent of GDP limit. France, the region’s second-biggest economy, posted a deficit of 4 percent in 2014, down from 4.1 percent. Cyprus had the widest deficit, at 8.8 percent of GDP while Spain recorded a deficit of 5.8 percent, narrowing from 6.8 percent the year before. Greece posted a deficit of 3.5 percent.
• El-Erian: Greece Can’t Default and Remain in Euro Zone. (video)
• ECB Is Studying Curbs on Greek Bank Support. (video) The European Central Bank is studying measures to rein in emergency funding for Greek banks as resistance to further aiding the country’s stricken lenders grows among policy makers, people with knowledge of the discussions said.
• Ukraine Pushes for UN Peacekeepers as Rockets Disrupt Truce. Ukrainian President Petro Poroshenko renewed his efforts to invite international peacekeepers to the country’s east, where foreign observers reported rocket fire among recurring cease-fire violations. Poroshenko and United Nations Secretary-General Ban Ki-Moon agreed by phone on further steps for the possible deployment of a peacekeeping contingent under the UN’s aegis, according to Poroshenko’s website. Russian-backed separatists used mortars and tanks, killing one soldier, Ukrainian officials said on Tuesday. The rebels in turn accused the government of preparing to escalate the conflict in the Donbas region in the east of the country, DAN news service reported.
• German Investor Sentiment Falls on Shaky Economic Outlook. German investor confidence unexpectedly fell for the first time in six months, signaling that the uncertainty induced by Greece’s debt crisis may be weighing on Europe’s largest economy. The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months in advance, fell to 53.3 in April from 54.8 in March. Economists had forecast an increase to 55.3, according to the median of 33 estimates in a Bloomberg News survey. 
• U.K. Trader Accused of Manipulation Tied to 2010 Flash Crash. A U.K. futures trader contributed to the May 2010 flash crash by engaging in illegal bait-and-switch practices, according to U.S. authorities. The trader, 37-year-old Navinder Singh Sarao, was arrested in the U.K. Tuesday, and the U.S. is seeking his extradition, the Justice Department said in a statement. Sarao of Hounslow, U.K., who ran his own trading shop, was charged with wire and commodities fraud in a criminal complaint filed in federal court in Illinois.
• European Stocks Advance as SAP, Actelion Results Beat Forecasts. European stocks climbed as companies including SAP SE and Actelion Ltd. posted better-than-forecast results. The Stoxx Europe 600 Index rose 0.6 percent to 409.12 at the close of trading.
• Fink Says Central Bankers ‘Destroying’ Insurers With Low Rates. Low interest rate policies by central banks around the world are threatening insurance companies and pension funds, said Laurence D. Fink, chief executive officer of BlackRock Inc., the world’s largest asset manager. “As we live in a world of persistent low rates and, in the case of Europe, negative rates today, when you put a macro-prudential framework on it, we are destroying the value of pension funds,” Fink said at a conference in Singapore on Tuesday. “We are destroying the viability of insurance companies.”
• March U.S. Job Losses Widespread, Led by Slump in Energy. Payrolls dropped in 31 U.S. states in March, led by a slump in energy producers such as Texas and Oklahoma. The unemployment rate fell in 23. Payrolls in Texas decreased by 25,400, its first decline since September 2010 and the biggest since August 2009, figures from the Labor Department showed Tuesday in Washington. Oklahoma followed with 12,900 fewer jobs and employment in Pennsylvania fell by 12,700.
• Goldman Sachs Buys $21 Million Stake in HFT Network Company. Goldman Sachs Group Inc. has bought a $20.5 million stake in Perseus, a technology company that provides high-frequency trading firms with the networks they need to do business. “The investment by Goldman Sachs is an important accelerator of our business,” Perseus Chief Executive Officer Jock Percy said in a statement on Tuesday.
• Teva(TEVA) Makes $40 Billion Unsolicited Takeover Bid for Mylan(MYL). (video)
  Teva Pharmaceutical Industries Ltd. made an unsolicited offer to buy Mylan NV for about $40.1 billion, in the drug industry’s largest takeover attempt this year.
• Harley-Davidson(HOG) Falls After Cutting Annual Shipment Forecast. Harley-Davidson Inc., the biggest U.S. motorcycle maker, fell the most in more than two years after trimming its annual shipment outlook because the company doesn’t plan to match competitors’ steep discounts.

ZeroHedge: 

• Full Scapegoat Retard: Trader Arrested For 2010 Flash Crash. 
• Baker Hughes Cuts 17% Of Workforce As Oil Slump Ripples Through Economy. (graph)
• Bill Gross Says Bunds "Short Of A Lifetime", As Mario Draghi Is About To Run Out Of Bunds To Buy. (graph)
• White House Refutes European Complacency: Warns Grexit Threatens Global Economic Recovery. 
• European Banks Are Paid To Borrow For First Time Ever As Euribor Goes Negative. (graph)

Business Insider:

• The Pentagon now says Iranian warships were a 'factor' in a major US naval deployment near Yemen.

NY Times:

• A Veteran of the Financial Crisis Tells China to Be Wary. (video) About 340 pages into Henry M. Paulson’s new book on China, a sentence comes almost out of nowhere that stops readers in their tracks. “Frankly, it’s not a question of if, but when, China’s financial system,” he writes, “will face a reckoning and have to contend with a wave of credit losses and debt restructurings.”

MNI:

• Rosengren Says Fed May Have to 'Experiment' with Liftoff. Fed will have to be ready to make "technical adjustments" when time comes to raise interest rates, Boston Fed President Eric Rosengren said in an interview. Wile IOER is Fed's "primary tool" for pushing up fed funds, other money market rates, and overnight reverse repurchase facility the back-up, Fed may also have to use term RRPs as part of process.

Telegraph:

• Russia remains defiant as EU sanctions and oil price fall paralyse economy. Russian economy contracts by 2pc in first quarter, as prime minister Dmitry Medvedev admits his country faces "array of challenges" but says annexation of Crimea represents country's "Berlin Wall" moment.

Bear Radar

Style Underperformer:

• Large-Cap Value -.61%

Sector Underperformers:

• 1) Oil Service -3.61% 2) Coal -2.88% 3) Gaming -1.81%

Stocks Falling on Unusual Volume:

• BAM, SANM, HOG, PKG, UA, GLF, NVDQ, PRGO, EAT, ES, PNR, CNI, AMTD, FTK, AGRX, BRO, PII, ICLR, HAS, BIS, CALA, INVE, HAIN, MYGN, TRV, JOY, HAIN, KS and IP

Stocks With Unusual Put Option Activity:

• 1) HOG 2) COH 3) UA 4) CREE 5) APC
  

Stocks With Most Negative News Mentions:

• 1) HOG 2) ADT 3) BAC 4) HAL 5) OXD
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Mid-Cap Growth +.13%

Sector Outperformers:

• 1) Homebuilders +2.12% 2) Biotech +1.62% 3) Drugs +.85%
  

Stocks Rising on Unusual Volume:

• SCHL, VLTC, ECHO, RMBS, FTNT, MYL, TTS, LRCX, ICON, ATI, HMSY, VRTX and KMB

Stocks With Unusual Call Option Activity:

• 1) SYY 2) HAS 3) EA 4) RMBS 5) HTZ
  

Stocks With Most Positive News Mentions:

• 1) VRTX 2) BMY 3) MYL 4) MS 5) KFT
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Morning Market Internals

NYSE Composite Index:

• Volume Running 1.2% Above 100-day average

• 2 Sectors Rising, 8 Sectors Declining

• 53.2% of Issues Advancing, 42.4% Declining

• 58 New 52-Week Highs, 7 New Lows

• 57.4% of Issues Above 200-day Moving Average (yesterday's close)

• Average 14-Day RSI 45.7 (yesterday's close)

• TRIN/Arms 1.56

Tuesday Watch

Evening Headlines 
Bloomberg:  

• Russia Pushing Greece Gas-Pipeline Accord Before Turkey Signs On. When Greek Prime Minister Alexis Tsipras meets the head of Russia’s OAO Gazprom on Tuesday, they’ll probably sign an agreement to have a natural-gas link to Europe cross Greece, analysts from UBS Group AG and Alfa-Bank said. For now, the accord will be just a political step on the road to building the link, which depends on the backing of Turkey and the European Union, Maxim Moshkov from UBS and Alexander Kornilov from Alfa-Bank said. “The project has been supported in Russia at the highest level, so Gazprom is acting fast,” said Moshkov, an oil and gas analyst for UBS in Moscow.
• Greece Poses Political Threat to Euro Area: Lebovitz. (video)
• China Auto Sales to Rise Less Than 7% Forecast, Association Says. China’s vehicle sales will expand less in 2015 than the 7 percent forecast at the start of the year, as the economy slows and more cities impose restrictions on vehicle registrations, according to the state-backed auto association. “Even though we don’t like it, it will become a new norm that more cities will start limiting vehicle purchases every year,” Dong Yang, secretary general of the China Association of Automobile Manufacturers, said at a conference in Shanghai. He said the group will give a revised forecast later this year. China’s auto sales will grow by an average of about 5 percent to 10 percent a year, a “new normal” of slower expansion after increasing by an average of 24 percent from 2001 to 2010, he said.   
• Is China Getting Desperate for Growth? (video)
• Asian Stocks Rise as U.S. Shares Rebound, Japanese Yen Weakens. Asian stocks rose, following a rebound in U.S. shares, as the yen’s first drop in seven days buoyed Japanese exporters. Materials and health-care shares led gains. The MSCI Asia Pacific Index added 0.2 percent to 152.57 as of 9:01 a.m. in Tokyo. The measure retreated 0.9 percent yesterday, the most in almost a month, as China’s curbs on speculative trading outweighed the central bank’s biggest cut to reserve requirements since 2008.
• Steel demand in China forecast to decline through 2016. Steel demand in China will shrink this year and next to extend the first annual contraction since 1995 as economic growth in the world's biggest producer slows, according to the World Steel Association. China's steel use will drop 0.5 per cent to 707.2 million metric tons in 2015 and fall to 703.7 million tons next year, the group said in a statement. In 2014, demand declined 3.3 per cent to 710.8 million tons, according to the Brussels-based body, whose members account for 85 per cent of global output.

Wall Street Journal: 

• Bird Flu Hits Iowa Chickens in Escalation of Virus Outbreak. Farm with about 5.3 million chickens is biggest operation to be affected by outbreak.
• Israel Alone. Previous quarrels between Washington and Jerusalem were about differing Mideast perceptions. Now the issue is how the U.S. perceives itself.

Fox News:

• Top diplomat sorry for FBI director's remarks on Poland, Holocaust. FBI Director James Comey wasn't wrong when he said some in Poland were accomplices in the Holocaust, but his remarks -- which angered Poles and resulted in an apology Sunday night from America's top diplomat in Warsaw -- hit a raw nerve in a nation that suffered greatly at the hands of the Nazis, according to experts on the last century's darkest chapter

MarketWatch.com:

• Blue Bell recalls all its products in all markets.
• Lumber and gold send a warning to stock market bulls.

Zero Hedge: 

• Stunned Greeks React To Initial Capital Controls And The "Decree To Confiscate Reserves", And They Are Not Happy.
• "Too Many Zeros": China's Stock Bubble Proves Too Much For Computers. (graph)
• Steen Jakobsen: Get Ready For The Biggest Margin Call In History.
• Chinese Economic Outlook "Skewed Heavily To The Downside," BNP Says. (graph)
• Secretary Of State For Hire: Hillary Clinton Made Millions From Foreign Donors In Exchange For "Favors".
• The Crowning Glory Of Keynesianism.
• Builders Beggar Belief As Lumber Liquidation Looms. (graph)
• Bank Of England Exposes US Cronyism: Questions Why Buffett's Berkshire Hathaway(BRK/A) Is Not Too Big To Fail.
• David Einhorn Is "Adding More Shorts", Has A Question For Mario Draghi.
• IBM(IBM) Reports Worst Sales Since 2002; EPS Beats On Aggressive Buybacks, Cut In Tax Rate.
• Just Another Manic Panic-Buying Monday In Stocks. (graph)
• Stop The Presses: Nobel-Prize Winning Economist Slams QE.
• China's Day Trading Hordes Unmasked.

Business Insider:

• The chilling thing Blackstone(BX) said about the oil bust.
• David Einhorn really ripped into GE(GE) in his fund's quarterly letter.

Boersen Zeitung:

• Bundenbank's Dombret Warns of Risk to Financial Markets. Risks to financial stability have increased recently and the chances of a setback in such situations exists, citing Bundesbank board member Andreas Dombret saying in an interview. Increased risks to the financial system was dominant topic of discussion at the spring International Monetary Fund meeting and that of the G20 finance ministers and central bank governors in Washington. A growing cause of danger is unprecedented loose monetary policy, although there was strong support for this course by central banks to support growth. Liquidity has decreased significantly in some market segments, raising a question over what will happen in the event of a shock and certainly poses a danger.

Evening Recommendations 

• None of note

Night Trading

• Asian equity indices are -.25% to +1.0% on average.

• Asia Ex-Japan Investment Grade CDS Index 107.0 -2.5 basis points.

• Asia Pacific Sovereign CDS Index 60.5 -1.25 basis points.

• S&P 500 futures +.22%.

• NASDAQ 100 futures +.23%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (ATI)/.08
• (ACI)-.50
• (ARMH)/.07
• (BHI)/.44
• (EAT)/.93
• (CP)/2.20
• (CS)/.67
• (DD)/1.31
• (GPC)/1.05
• (HOG)/1.24
• (ITW)/1.17
• (KMB)/1.33
• (LMT)/2.49
• (MAN)/.79
• (NVR)/9.72
• (OMC)/.82
• (RF)/.18
• (SAP)/.63
• (AMTD)/.35
• (UA)/.05
• (UTX)/1.46
• (VZ)/.95
• (AMGN)/2.11
• (BRCM)/.60
• (CMG)/3.64
• (CREE)/.23
• (FWRD)/.40
• (ILMN)/.72
• (ISRG)/3.88
• (NBR)/.02
• (SYK)/1.09
• (VMW)/.84
• (YHOO)/.18
• (YUM)/.72

Economic Releases

• None of note

Upcoming Splits

• None of note

Other Potential Market Movers

• The German ZEW index and US weekly retail sales reports could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by financial and consumer 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 day.