Bull Radar

Style Outperformer:

• Large-Cap Value -.51%

Sector Outperformers:

• 1) Airlines +.38% 2) Semis +.34% 3) Biotech +.17%
  

Stocks Rising on Unusual Volume:

• HRTX, KANG, GME, EYES, ALTR, SHAK and FLO

Stocks With Unusual Call Option Activity:

• 1) HRTX 2) ESI 3) LLY 4) URI 5) SUNE
  

Stocks With Most Positive News Mentions:

• 1) CPRT 2) TITN 3) AVGO 4) GME 5) Q
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Morning Market Internals

NYSE Composite Index:

• Volume Running 13.0% Below 100-day average
• 1 Sector Rising, 9 Sectors Declining
• 24.5% of Issues Advancing, 71.7% Declining
• 32 New 52-Week Highs, 39 New Lows
• 53.1% of Issues Above 200-day Moving Average
• Average 14-Day RSI 42.3
• Vix 14.3
• Total Put/Call 1.39
• TRIN/Arms 1.10

Friday Watch

Evening Headlines 

Bloomberg: 

• Greece Creditors Say No Deal Near as Frustration Vented at G-7. Greece’s creditors said a deal to unlock rescue aid isn’t imminent as they demanded the debt-ravaged nation make stronger commitments to overhaul its economy and strengthen public finances. The Greek government saw its optimism over an agreement scoffed at as European officials gathered in Germany for a Group of Seven meeting and said much more effort is needed. Greece had claimed a solution could be reached by Sunday. The two sides are “certainly not the three quarters of the way” there, European Economic Commissioner Pierre Moscovici told reporters in Dresden on Thursday where finance ministers and central bankers from the world’s largest economies discussed the global economy. “We need to work day and night.”

• The U.S. Suddenly Sounds an Alarm on Greece. In the world’s most pressing financial crisis, Greece’s potential default on its debt, the U.S. has adopted a quiet, behind-the-scenes role. That’s changing. Until recently, President Barack Obama and his top financial advisers have made few public statements on Greece’s debt crisis, which threatens to drive the country out of the euro zone. Yet this week U.S. Treasury Secretary Jacob J. Lew voiced frustration over a stalemate in the talks between Greece and its European creditors.

• China Reforms Head Down Path Littered With Crisis Casualties. “History shows that if China prematurely opens the capital account before properly sequencing in other reforms the results could be disastrous for financial stability and longer-run growth prospects,” said Kevin Gallagher, an associate professor of international relations at Boston University who co-wrote a paper on China’s cross-border capital deregulation. “I worry that they are forgetting the past.”   

• China's Asset Bubble Is Scary: Sanibel Captiva's Dorsey. (video)

• Evergrande Stock Sinks After Developer Sells Shares Below Range. Evergrande Real Estate Group Ltd., among China’s most indebted developers, plunged the most in five-and-a-half years after it was forced to cut the price of a share offering in order to successfully raise capital. The company raised HK$4.6 billion ($593 million) net proceeds from a sale of 820 million shares at HK$5.67 each, according to a statement to the Hong Kong stock exchange Friday. The price represents an 18 percent discount to Evergrande’s last close. 

• Abenomics Heads Toward Debt Meltdown, Reflation Enemies Warn. Two years after unleashing record monetary stimulus, Bank of Japan Governor Haruhiko Kuroda and his allies are confronting increasingly vocal opposition from the opponents of reflation who once dominated the policy debate. Hundreds of economists filed in to a Saturday symposium on BOJ policy at a Japan Society of Monetary Economics semiannual gathering in Tokyo May 16. Backers of Kuroda’s 2 percent inflation target squared off against advocates of monetary restraint, who say the BOJ’s bond purchases are delaying a crucial overhaul of public finances to deal with record debt.

• Macquarie Sees Ticking Bomb for India as Restructured Loans Fail. India’s state-run banks’ restructured loans are souring at a record pace, threatening their appetite for new lending with profitability already at a seven-year low. Reworked assets that turned bad almost doubled to 570 billion rupees ($8.9 billion) in the year ended March 31, industry data show. There’s another 2.9 trillion rupees in the category, which must be reclassified as delinquent or healthy within two years. Macquarie Group Ltd. has called this debt a ticking time bomb. Standard & Poor’s predicts a record portion will fail in the year ending March 2016 as Fitch Ratings Ltd. sees lenders’ return on equity falling to the least since 2006.

• Asian Stocks Pare Monthly Loss as Yen Rises; China Extends Drop. Asian stocks rallied, trimming their first monthly drop this year, as the yen rebounded from a 12-year low and oil gained. Chinese shares declined after plunging on record turnover on Thursday. The MSCI Asia Pacific Index climbed for the first time in four days, adding 0.2 percent by 9:49 a.m. in Hong Kong. The Shanghai Composite index dropped 2.4 percent, after a 6.5 percent slump the previous day.

• Wall Street’s Young Guns Brace for First Big Test. Magdy El Mihdawy remembers exactly where he was when the stock market tanked in 2009. He was on Spring Break in Florida -- as a 22-year-old undergrad. Today, El Mihdawy is part of a Wall Street demographic whose own trial by fire awaits: traders who’ve never known anything but a post-crisis world of rock-bottom interest rates and ever-rising markets.

• Bullard Warns Delaying Fed Rate Rise Boosts Asset-Bubble Threats. Federal Reserve Bank of St. Louis President James Bullard warned that keeping interest rates near zero risks inflating asset-price bubbles, saying officials should raise borrowing costs this year as the economy improves. A prolonged accommodative stance is a “recipe for asset-price bubbles and a lot of mischief to happen,” Bullard said Thursday in a Bloomberg Radio interview from St. Louis. “Asset price bubbles have been a devastating feature for the U.S. economy in the last 15 years.”

Wall Street Journal:

• NYSE Looks to Ease Late-Day Pileup. Exchange plans midday auction for thinly traded shares. The New York Stock Exchange is preparing a new plan to make it easier to buy or sell the shares of thousands of listed companies, an effort to counter the slow midday trading and uneven liquidity plaguing U.S. stock markets. Officials at the NYSE, a unit of Intercontinental Exchange Inc., plan to launch a midday auction for thinly traded shares after winning the blessing of the Securities and Exchange Commission last week. Already, the NYSE and its chief rival, the Nasdaq Stock Market, operated by Nasdaq OMX Group Inc.,...

• Wipeout in Europe Bond Funds Tests Investors’ Resolve. Recent rout in government debt pummels funds’ strong start to the year. A strong start to the year for many of Europe’s biggest bond funds was all but wiped out by an abrupt selloff in the region’s credit market, testing the mettle of investors who rely on the asset class for its steady returns. Europe has been at the center of the global bond-market turmoil that began in mid-April. About €344 billion ($375 billion) was wiped off the value of eurozone-government bonds when prices fell abruptly after rising for several months to record levels, according to...

Fox News:

• Feds indict ex-House Speaker Hastert for allegedly hiding payments to apparent blackmailer. Federal prosecutors indicted former U.S. House Speaker Dennis Hastert Thursday on charges he allegedly hid payments he made to an apparent blackmailer in order to compensate for and conceal “prior misconduct.” 

• 'Sales are next to nothing': Merchants worry crime crisis could cast pall over Baltimore downtown. (video) An epidemic of murder that has gripped Baltimore in the month following the Freddie Gray riots is threatening to undo decades of rebirth in the city's popular downtown -- and in the process, wipe away tens of millions of tourist dollars.

Zero Hedge:

• In Shocking Move, Goldman Slashes America's Long-Run "Potential GDP" From 2.25% To 1.75%.

• Putting The 'Great' In Great Depression, Stephen Roach Warns On TPP's Currency Rules.

• States Turn To Pension Ponzi Scheme To Close Funding Gaps.

• Martin Armstrong Warns "This Time Is Very Different".

• Dead Markets Drifting As Dollar Drops. (graph)

• Chinese Housewives Displeased After Biggest Stock Market Drop In 2 Years. (graph)

• Emergency Powers Give Barack Obama Authority Over Just About Everything During A Major National Crisis.

• Paul Craig Roberts Rages "Free Financial Markets Are A Hoax".

• Elizabeth Warren Needs You To Help Her "Blow Debt Free College Wide Open".

• The Clinton Foundation Paid Sidney Blumenthal $10K/Month As He Gave Horrible Libya Advice To State Dept.

Business Insider:

• One of Putin's leading critics was just poisoned.

• Social media apps are tracking your location in shocking detail.

• Putin just made troop deaths during peacetime a 'state secret' and now people are worried.

• 3 uber-bearish studies predict doom for this bull market. (graph)

• GameStop(GME) is surging after earnings beat expectations.

• 570 hedge funds are members of the $1 billion club.

• The US is spending $100 million to get more ethanol to gas stations.

• South Korean industrial production just posted a big miss for April.

NY Post:

• Intel(INTC) Nears $15B Deal to Purchase Altera(ALTR).

Reuters:

• Unexpectedly weak household spending casts doubt on BOJ's optimism. Japan's household spending unexpectedly slumped in April and consumer inflation was roughly flat, casting doubt on the central bank's view that a steady economic recovery will help accelerate inflation toward its 2 percent target. Households spent less on leisure, travel and dining out even as real income rose for the first time in 19 months and the jobless rate fell to a 18-year low, underscoring the challenges of eradicating the sticky "deflationary mindset" that has beset Japan for nearly two decades.

• Google(GOOG) shows off virtual reality collaboration with GoPro(GPRO). Action camera maker GoPro Inc and Google Inc introduced a virtual reality system using 16 cameras and Google software, sending GoPro shares up nearly 7 percent on Thursday.

Financial Times:

• Greek exit from euro is ‘a potential’, says Lagarde. The head of the International Monetary Fund has acknowledged that Greece could leave the euro, while insisting that this would not mark the end of the single currency.

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 +1.0 basis point.

• Asia Pacific Sovereign CDS Index 58.25 -.25 basis point.

• S&P 500 futures -.03%.

• NASDAQ 100 futures -.01%.

Morning Preview Links

Earnings of Note

Company/Estimate

• (BIG)/.59

• (FRO)/.12

• (GCO)/.68 

Economic Releases 

8:30 am EST

• 1Q GDP is estimated to fall -.9% versus a prior estimate of a +.2% gain.

• 1Q Personal Consumption is estimated to rise +2.0% versus a prior estimate of a +1.9% gain.

• 1Q GDP Price Index is estimated to fall -.1% versus a prior estimate of a -.1% decline.

• 1Q Core PCE is estimated to rise +.9% versus a prior estimate of a +.9% gain.

9:00 am EST

• ISM Milwaukee for May is estimated to rise to 50.0 versus a reading of 48.08 in April.
  

9:45 am EST

• Chicago Purchasing Manager for May is estimated to rise to 53.0 versus a reading of 52.3 in April.

10:00 am EST

• Final Univ. of Mich. Consumer Sentiment for May is estimated to rise to 89.5 versus 88.6 in April.

Upcoming Splits

• None of note

Other Potential Market Movers

• The UK GDP report, ASCO annual meeting and the (TOT) annual meeting could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by commodity and technology 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.

Stocks Slightly Lower into Final Hour on Rising Emerging Markets Debt Angst, Fed Rate Hike Fears, Global Growth Worries, Transport/Biotech Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Modestly Lower
  

• Sector Performance: Most Sectors Declining
  

• Volume: Below Average

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• Volatility(VIX) 13.62 +2.64%

• Euro/Yen Carry Return Index 141.73 +.60%

• Emerging Markets Currency Volatility(VXY) 9.55 +1.17%

• S&P 500 Implied Correlation 60.64 +.45%

• ISE Sentiment Index 62.0 -28.74%

• Total Put/Call 1.07 +.94%

• NYSE Arms 1.09 +36.24% 

Credit Investor Angst:

• North American Investment Grade CDS Index 63.82 +1.56%

• America Energy Sector High-Yield CDS Index 1,083.0 -1.15%

• European Financial Sector CDS Index 74.48 +1.40%

• Western Europe Sovereign Debt CDS Index 22.08 -2.28%

• Asia Pacific Sovereign Debt CDS Index 59.02 +.87%

• Emerging Market CDS Index 290.78 +1.64%
  

• iBoxx Offshore RMB China Corporates High Yield Index 119.96 +.06%

• 2-Year Swap Spread 23.75 +.5 basis point

• TED Spread 27.5 unch.

• 3-Month EUR/USD Cross-Currency Basis Swap -21.0 +1.25 basis points

Economic Gauges:

• 3-Month T-Bill Yield .00% -1.0 basis point

• Yield Curve 151.0 +2.0 basis points

• China Import Iron Ore Spot $62.33/Metric Tonne -1.22%

• Citi US Economic Surprise Index -56.80 -1.2 points

• Citi Eurozone Economic Surprise Index -11.80 -.8 point

• Citi Emerging Markets Economic Surprise Index -18.8 -1.5 points

• 10-Year TIPS Spread 1.81 -1.0 basis point

Overseas Futures:

• Nikkei 225 Futures: Indicating +2 open in Japan 
• China A50 Futures: Indicating -27 open in China

• DAX Futures: Indicating +9 open in Germany

Portfolio: 

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

• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges, added to my emerging markets shorts

• Market Exposure: 50% Net Long

Today's Headlines

Bloomberg:  

• ECB Warns of Contagion Risk If Greece Deal Not Reached Fast. A failure to reach an agreement on Greece’s aid program soon may drive yields on bonds issued by other euro-area countries higher, the European Central Bank said. “In the absence of a quick agreement on structural implementation needs, the risk of an upward adjustment of the risk premia demanded on vulnerable euro-area sovereigns could materialize,” the ECB said in its twice-yearly Financial Stability Review published Thursday in Frankfurt. “The lengthy and uncertain process of negotiations between the newly formed Greek government and its creditors” has already contributed to bouts of extreme volatility in Greek markets, it said.
• Ukraine Seeks Arms as Putin Makes Russian Troop Losses Secret. Ukrainian Prime Minister Arseniy Yatsenyuk appealed to the U.S. and Europe to arm his country in its conflict with pro-Russian separatists, as the Kremlin ordered an information blackout on deaths among troops sent on special operations. “We are not asking for offensive weapons, we are asking for defensive weapons just to defend our country,” Yatsenyuk told an international security conference in Kiev on Thursday. “We do understand that to use our military capacity to regain Donetsk or Luhansk is unacceptable.”
• How an Equity Reversal Could Undo China's Recent Economic Growth. Is the rally over? The wild rally in China's equity markets may be coming to an end. The Shanghai Composite Index fell 6.5 percent Thursday as margin calls from brokers and a liquidity drain from the central bank spooked investors. A boom in the equity market has helped prevent a sharper slowdown in China's economic growth. What would a stock slump mean? 
• China Stock Market Turnover Surges to Record. If volume dies, so will the index. More money is changing hands trading stocks in China than in the U.S., a market more than twice its size. Combined turnover in Shanghai and Shenzhen rose to a record $380 billion on Thursday, exceeding the value of shares traded in the U.S on Wednesday by $132 billion, as the attached chart shows. Turnover in London was $8.9 billion on Wednesday.
• Aussie Firms Shun Investment as RBA’s Growth Reboot Sputters. Australian businesses plan to cut investment in the next 12 months by the most on record as the economy struggles to find new sources of growth after the end of a decade-long mining investment boom. 
• China Stock Boom Built on Leverage Shows How Fast It Can Reverse. China’s equity investors are getting a reminder that leverage has a downside. Losing days on the Shanghai exchange this month have been deeper than at any other time since 2009, punctuated by the benchmark index’s 6.5 percent tumble on Thursday. At 1.65 percent, the gauge’s average retreat on down days this year is the largest among the world’s top 10 markets. It’s also bigger than the mean move of 1.44 percent when the index gains.
• Emerging Stocks Slump as Shanghai Shares Halt Seven-Day Advance. Emerging-market stocks fell to a seven-week low as Chinese shares slid for the first time in eight days after brokerages curbed margin lending. The MSCI Emerging Markets Index retreated 1.1 percent to 1,008.21 at 11:12 a.m. in New York. Shanghai-listed stocks slumped the most since mid-January. Brazil’s equity benchmark declined as lenders slid after data showed faster-than-forecast inflation. Qatar’s benchmark tumbled the most this year as the country’s soccer World Cup plans came under scrutiny. A gauge of developing-nation currencies slid for a ninth day, the longest streak of declines in more than two months. Speculation that the U.S. is moving closer to an interest-rate increase has pushed the MSCI developing-nation stock gauge down 2.8 percent in the last four days. The Shanghai Composite Index slumped 6.5 percent, ending a 15 percent rally. Citic Securities Co. sank 9.4 percent after several rivals increased their margin requirement, the collateral put up by an investor when borrowing. Changjiang Securities Co. dropped 9.5 percent after joining competitors in the move. China Construction Bank Corp. lost 3.7 percent as the Hang Seng China Enterprises Index slid 3.5 percent. Record growth in margin debt helped fuel a 127 percent gain in the Shanghai index over the past year, the most among global gauges tracked by Bloomberg. Margin lending by Chinese brokerages exceeded 2 trillion yuan ($322 billion) as of May 27, five times the level of a year earlier, exchange data showed.
• Europe Stocks Decline on Concern Greece Far From Reaching Deal. European stocks fell for the fourth time in five days amid concern Greece may not reach an accord with creditors before a payment due next week. The Stoxx Europe 600 Index lost 0.5 percent to 406.83 at the close of trading, paring a drop of as much as 1 percent. All but two of 19 industry groups slipped.
• Investors Pulling Energy Sector Bets for First Time in 8 Months. Investors are cautiously pulling money out of energy producers for the first time in eight months, taking short-term gains after oil rebounded from a six-year low. More than $1.55 billion has been withdrawn this month from exchange-traded funds concentrated on energy stocks such as Exxon Mobil Corp. and Chevron Corp. It’s on pace for the first monthly setback for the group since investors began pouring into the sector in October with an eye toward profiting from an eventual recovery in prices.
• Fed’s Williams Sees Rate Rise This Year as Growth to Recover. Federal Reserve Bank of San Francisco President John Williams said the U.S. will likely raise interest rates later this year as the world’s biggest economy recovers from a weak first quarter. The Fed will probably increase rates gradually and move them to normal levels over the next few years, he said in answer to questions after speaking at a regulatory symposium in Singapore Thursday. An increase is on the table at every meeting, including June’s, he said. “I expect they will be raising rates later this year,” Williams told reporters. “The U.S. economy’s doing well, we’re moving back towards our goals.”
• Consumer Comfort in U.S. Slumps on Views of Buying Climate. Consumer confidence in the U.S. fell for a seventh consecutive week and attitudes about whether it was a good time to spend slumped by the most since 2011. The Bloomberg Consumer Comfort Index decreased to 40.9 in the period ended May 24, the lowest level since late November, from 42.4 the prior week. The decline in Americans’ assessments of the buying climate was accompanied by the biggest drop in sentiment among women in more than seven years.
• Mortgage Rates in the U.S. Increase to Highest for 2015. Mortgage rates in the U.S. rose to a 2015 high this week as bond investors reacted to reports showing the housing market is heating up. The average rate for a 30-year fixed mortgage was 3.87 percent, up from 3.84 percent last week and matching the level at the end of 2014, Freddie Mac said in a statement Thursday. The average 15-year rate increased to 3.11 percent from 3.05 percent, according to the McLean, Virginia-based mortgage financier.

ZeroHedge:

• Welcome To The Recovery 2015: JP Morgan To Fire 5000.
• Will The Real Hillary Clinton Please Stand Up? (video)
• Poroshenko Threatens To Declare Martial Law In Ukraine Within Hours "To Demonstrate Readiness For War".
• The Stock Market - A Picture Of Excess. (graph)
• "The Greek Endgame Is Here": Probability Of IMF Default Now 70%, Says Deutsche Bank.
• How Healthcare Is Dooming the U.S. Economy (In Just 3 Charts).
• Oil Prices Drop To 7-Week Lows - Here's Why. (graph)
• Pending Home Sales Jump Most Since September 2012 To Highest Since 2006, Driven By The Northeast. (graph)
• Financial Insanity Grips The World.
• Initial Jobless Claims Rise, Miss Expectations - Gone Nowhere Since The End Of QE3. (graph)
• Bull Market Dealt A Significant Blow? (graph)

Business Insider: 

• Here's what happens when you compare the Clintons' vast wealth to that of average Americans.
• US containerized exports have plunged off the chart. (graph)
• The Federal Reserve poses a huge threat to the biotech merger 'feeding frenzy'.
• This is how you know China is worried.

Reuters:

• Saudi Aramco may raise rigs in 2016 if oil prices rise -sources. Saudi Aramco may raise the number of its oil and gas drilling rigs to as high as 250 next year if oil prices continue to firm and as domestic demand for gas increases, industry sources said on Thursday. Currently the national energy giant has 212 rigs of both types in operation and that could rise to between 220 and 250 if conditions permit, sources familiar with the plans said. "It all depends on the oil price of course," said one.

Telegraph:

• IMF openly warns of Grexit threat as judgment day approaches. Christine Lagarde admits that a Greek exit from eurozone 'is a possibility' as bail-out talks take Athens to the edge of the abyss.

ARD TV:

• IMF's Lagarde Says Much Work Remains on Greece. Greece and its creditors aren't close to a financing deal, IMF Managing Director Christine Lagarde said in an interview. Sees "a lot of ground to cover if we want to reach a comprehensive approach to putting the Greek economy in a better position, making sure that at some stage the investors are interested again in investing in Greece, that the Greek economy creates jobs."

Bear Radar

Style Underperformer:

• Mid-Cap Growth -.57%

Sector Underperformers:

• 1) Coal -3.85% 2) Steel -2.20% 3) Oil Service -1.92%

Stocks Falling on Unusual Volume:

• BRCM, AVGO, SERV, SMTC, CGI, CPRT, MPAA, CP, URI, TDF, MOMO, AAXJ, SIG, CAF, SAFM, WDAY, TEX, LVNTA, HAWK, TOUR, MIC, RAI, LINE, CENX, UHS, AAWW and OSK

Stocks With Unusual Put Option Activity:

• 1) OCR 2) JOY 3) ALXN 4) CRR 5) JNK
  

Stocks With Most Negative News Mentions:

• 1) SMTC 2) TFM 3) UNP 4) YHOO 5) PAA
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume