Morning Market Internals

NYSE Composite Index:

• Volume Running 11.1% Below 100-day average
• 8 Sectors Rising, 2 Sectors Declining
• 54.1% of Issues Advancing, 42.8% Declining
• 50 New 52-Week Highs, 25 New Lows
• 52.6% of Issues Above 200-day Moving Average
• Average 14-Day RSI 42.9
• Vix 13.79
• Total Put/Call .88
• TRIN/Arms .83

Wednesday Watch

Evening Headlines 

Bloomberg: 

• Greek Stalemate Leaves Tsipras Facing Final Offer From Creditors. Greek Prime Minister Alexis Tsipras heads to Brussels for talks after finding himself boxed into a corner as creditors prepare to deliver a final proposal to end the stalemate over a financial lifeline. After European leaders and the head of the International Monetary Fund held talks in Berlin on Monday night, creditors agreed on a document designed to avert a default that will be presented to Greece. Tsipras, who said the only plan on the table was one his government submitted, will meet European Commission President Jean-Claude Juncker on Wednesday.
• Hong Kong PMI Gauge Slumps to Lowest Since 2011 on China Drag. A gauge of Hong Kong’s economic health worsened to the weakest level since September 2011 last month as the drag from a slowdown in mainland China intensified. The Hong Kong Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics fell to 47.6 in May, from 48.6 a month earlier. Weaker client demand in mainland China was a key factor driving new business lower, with new order intakes from the mainland falling at the sharpest rate since December 2008, according to the report. Numbers below 50 signal contraction. Hong Kong’s high-end stores have been weighed by slower economic growth in China and a campaign against corruption. Retail sales in the city fell 2.2 percent from a year earlier in April, data Tuesday showed. 
• Who Cares About China’s Economy When Stocks Are Rising This Much. (graph)
• China Stocks Drop for First Time in Three Days in Volatile Trade. Chinese stocks fell for the first time this week amid rising volatility. Utilities and consumer companies led losses as all 10 industry groups in the CSI 300 Index dropped. Huadian Power International Corp. and dairy producer Inner Mongolia Yili Industrial Group Co. lost more than 3 percent. China Construction Bank Corp. dropped 1.4 percent and Shanghai Pudong Development Bank Co. declined 1 percent after the government said it will allow them to issue certificates of deposits, raising concern the cost of attracting deposits will increase. The Shanghai Composite Index dropped 1 percent to 4,860.58 at the 11:30 a.m. break after changing directions about nine times.
• Most Asia Stocks Fall Amid Greece Standoff as Japan Drops on Yen. Most Asian stocks fell as Japanese shares slid on a stronger yen and investors awaited the outcome of talks between Greece and its creditors. About three shares dropped for every two that advanced on the MSCI Asia Pacific Index, which slipped less than 0.1 percent to 150.41 as of 9:02 a.m. in Tokyo. Japan’s Topix index sank 0.3 percent after the yen gained 0.5 percent against the dollar on Tuesday.
• Goldman Sachs(GS) to Companies: Stop Buying Back Your Stock.

Wall Street Journal:

• The Least Transparent Administration. How Team Obama stymies freedom of information requests.

Fox News:

• HRC EMAILS: Federal officials voiced growing alarm over Clinton’s compliance with records laws, documents show. (video) Over a five-year span, senior officials at the National Archives and Records Administrations (NARA) voiced growing alarm about Hillary Clinton’s record-keeping practices as secretary of state, according to internal documents obtained by Fox News.
• ISIS' frightening arsenal: Remote-controlled sniper rifles, steel plated suicide trucks. (video) Captured ISIS weapons show the black-clad militants are developing an arsenal of sophisticated arms, and Kurdish fighters told FoxNews.com they fear the terrorist force's expanding manufacturing capability is making it more formidable by the day.

Zero Hedge:

• Fed Mouthpiece Jon Hilsenrath Furious "Stingy" US Consumers Refuse To Buy The "Recovery" Propaganda.
• Sounding The Alarm On The Country's Vulnerability To An EMP.
• The Defaults Continue In China As Duck Producer Sinks. (graph)
• Greece Faces Moment Of Truth: Troika To Present Final Offer On Wednesday.
• Caught On Tape: Hillary Puts "Everyday American" In Her Proper Place. (video)
• This Is What Market Mania Looks Like. (graph)
• From Whence Cometh Our Wealth - The People's Labor Or The Fed’s Printing Press?
• Auto Sales Reach 10 Year Highs On Record Credit, Record Loan Terms, & Record Ignorance. (graph)
• Blood On The Street In The Big Boys' Markets: Bonds & Dollar "Blatter"-ed.
• Crude Slides After API Shows Another Inventory Build. (graph)
• Chinese Stocks Stumble As Hanergy Debt Debacle Looms Over All The 500%-Club. (graph)

Business Insider:

• Stocks crashed the last two times this happened.
• Denial has become the most crowded trade on Wall Street.
• WikiLeaks offers $100,000 bounty for the secret chapters of Obama's landmark Pacific trade deal.

Evening Recommendations 

• None of note

Night Trading

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

• Asia Ex-Japan Investment Grade CDS Index 106.5 -1.0 basis point.

• Asia Pacific Sovereign CDS Index 59.5 -.25 basis point.

• S&P 500 futures +.04%.

• NASDAQ 100 futures +.01%.

Morning Preview Links

Earnings of Note

Company/Estimate

• (BF/B)/.66
• (NX)/.00
• (VRA)/.02
• (DRC)/.12

Economic Releases

8:15 am EST

• The ADP Employment Change for May is estimated at 200K versus 169K in April.
  

8:30 am EST

• The Trade Deficit for April is estimated at -$44.0B versus -$51.4B in March.

9:45 am EST

• The Final Markit US Services PMI for May is estimated at 56.4 versus a prior reading of 56.4.

10:00 am EST

• The ISM Non-Manufacturing Composite for May is estimated to fall to 57.0 versus 57.8 in April.

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory decline of -2,077,780 barrels versus a -2,802,000 barrel decline the prior week. Gasoline supplies are estimated to rise by 11,110 barrels versus a -3,309,000 barrel decline the prior week. Distillate inventories are estimated to rise by 1,277,780 barrels versus a +1,115,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to rise by +.69% versus a +1.2% gain the prior week.

2:00 pm EST

• US Fed Beige Book release.

Upcoming Splits

• None of note

Other Potential Market Movers

• The ECB's Draghi speaking, Fed's Evans speaking, ECB rate decision, Eurozone retail sales reports, Eurozone Services PMI report, weekly MBA mortgage applications report, Deutsche Bank Industrials/Basic Materials conference, Sandler O'Neill Brokerage conference and the (FAST) May sales release could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by industrial and commodity shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the day.

Stocks Slightly Lower into Final Hour on Rising Long-Term Rates, Fed Rate Hikes Fears, Profit-Taking, Healthcare/Utility Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Modestly Higher
  

• Sector Performance: Mixed
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 14.24 +1.93%

• Euro/Yen Carry Return Index 144.64 +1.59%

• Emerging Markets Currency Volatility(VXY) 9.51 unch.

• S&P 500 Implied Correlation 60.66 -1.80%

• ISE Sentiment Index 135.0 +35.0%

• Total Put/Call .88 +2.33%

• NYSE Arms .60 -43.65% 

Credit Investor Angst:

• North American Investment Grade CDS Index 63.91 +.32%

• America Energy Sector High-Yield CDS Index 1,146.0 +2.34%

• European Financial Sector CDS Index 74.75 -3.76%

• Western Europe Sovereign Debt CDS Index 24.28 -.45%

• Asia Pacific Sovereign Debt CDS Index 59.61 -.18%

• Emerging Market CDS Index 293.06 -.16%
  

• iBoxx Offshore RMB China Corporates High Yield Index 119.99 -.01%

• 2-Year Swap Spread 23.75 -.25 basis point

• TED Spread 28.25 +.25 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -19.0 +1.75 basis points

Economic Gauges:

• 3-Month T-Bill Yield .00% unch.

• Yield Curve 161.0 +6.0 basis points

• China Import Iron Ore Spot $63.02/Metric Tonne +1.89%

• Citi US Economic Surprise Index -53.10 -.6 point

• Citi Eurozone Economic Surprise Index -5.5 +8.4 points

• Citi Emerging Markets Economic Surprise Index -19.90 +1.4 points

• 10-Year TIPS Spread 1.85 +2.0 basis points

Overseas Futures:

• Nikkei 225 Futures: Indicating -107 open in Japan 
• China A50 Futures: Indicating -123 open in China

• DAX Futures: Indicating +9 open in Germany

Portfolio: 

• Slightly Lower: On losses in my biotech/tech sector longs

• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges, then added them back

• Market Exposure: 50% Net Long

Today's Headlines

Bloomberg:    

• Greek Standoff Takes Another Twist as Dueling Plans Are Drafted. The impasse over Greece’s future lingered as both sides worked on rival proposals for the conditions of a financial lifeline with debt payments looming. Greek Prime Minister Alexis Tsipras said his government submitted a new plan, while officials from the country’s creditors were said to be finalizing what would be a final offer to avoid the country defaulting. While the euro rallied on optimism over a deal, Dutch Finance Minister Jeroen Dijsselbloem, who leads the euro-area finance ministers’ group, said institutions are still far from any agreement.  
• European Stocks Fall to Two-Week Low Amid Greece Debt Standoff. (video) European stocks fell for the third time in four days as investors speculated whether Greece will reach an agreement with creditors before it runs out of time and money. The Stoxx Europe 600 Index declined 1 percent to 396.45 at the close of trading, after losing as much as 1.3 percent. The ASE Index dropped 2.5 percent to the lowest level in almost a month, as Greek markets reopened after a holiday.
• Treasuries Fall by Most in Two Weeks as European Bonds Sell Off. Treasuries fell by the most in two weeks as a European bond-market selloff intensified and stronger U.S. economic data added to speculation the Federal Reserve may raise interest rates this year. Yields are climbing along with those on German bunds as European leaders aim to avert a default by Greece, damping demand for a refuge. The shift from haven assets comes as reports such as one Monday showing an improvement in manufacturing add to expectations of U.S. growth before the release of the May employment report at the end of the week.
• Russia Oil Output Near Record Swells Global Glut Before OPEC. Russian oil output neared a record in May, damping speculation before OPEC meets this week that major producers may cooperate to curb a global supply glut. Production of oil and natural-gas condensate climbed 1.6 percent from a year earlier to 10.708 million barrels a day, close to January’s post-Soviet high of 10.713 million barrels a day, according to preliminary data from the Energy Ministry’s CDU-TEK unit.
• Amazon(AMZN) Debuts Free Shipping on Small Goods Without Minimum Order.

MarketWatch.com:

• More find Hillary Clinton untrustworthy in new poll.

ZeroHedge: 

• It's Official: The "Helicopter Money" Calls Have Begun.
• EURUSD Up 300 Pips In Last 24 Hours, Dollar's 2nd Biggest Drop In 6 Years. (graph)
• Who's On The Other Side Of The Trade?
• German Bund Carnage Ends With Worst Day In 3 Years. (graph)
• China Goes Full BTFD-tard: Record New Trading Account Openings Send Stocks Up 16% In 2 Days. (graph)
• Expect The Recent Oil Rally To End Badly If OPEC Doesn’t Cut. (graph)
• Albert Edwards: Yen Collapse Will Lead To "New Round Of Currency Turmoil", Deflation In US And Eurozone.
• A Bubble On Thin Ice. (graph)
• Recovery 2015: Use Of Non-Bank Credit (e.g. Payday Loans) Continues To Soar. (graph)
• TSA Agents Failed To Catch 95% Of Mock Bombs And Weapons.

Business Insider: 

• FIFA PRESIDENT SEPP BLATTER TO RESIGN.
• Iraqi prime minister: 'We lost 2,300 Humvees' to ISIS in Mosul alone.
• ISIS could win if these 4 things happen.

Telegraph:

• Greece and creditors still at odds as country slides towards abyss. Jeroen Dijsselbloem, head of the Eurogroup of finance ministers, says deal unlikely this week as creditors will not meet Greece "half way" while Syriza vows never to "succumb to blackmail".

Bear Radar

Style Underperformer:

• Mid-Cap Value -.06%

Sector Underperformers:

• 1) Utilities -1.77% 2) HMOs -1.63% 3) Semis -.94%

Stocks Falling on Unusual Volume:

• BXMT, PBYI, RGLS, SIAL, FGP, CG, IMGN, BTI, CTRP, CMT, AMBA, HUBS, TOUR, VCLT, ACOR, TUBE, IRM, LNT, IHS, CTLT, DAL, CI, USCR, AAWW, KANG and PPL

Stocks With Unusual Put Option Activity:

• 1) ETFC 2) EWC 3) CZR 4) BRCM 5) EWY
  

Stocks With Most Negative News Mentions:

• 1) CTRP 2) IRM 3) ITC 4) MO 5) GLF
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Small-Cap Value +.09%

Sector Outperformers:

• 1) Steel +3.78% 2) Oil Service +2.72% 3) Gold & Silver +1.85%
  

Stocks Rising on Unusual Volume:

• RXDX, ZION, CONN, JUNO, VNDA, PVH, YOKU and KITE

Stocks With Unusual Call Option Activity:

• 1) CTXS 2) FFIV 3) ETFC 4) KKR 5) FTR
  

Stocks With Most Positive News Mentions:

• 1) ZION 2) PVH 3) CBRL 4) TRN 5) JEC
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume