Morning Market Internals

NYSE Composite Index:

• Volume Running 17.8% Above 100-day average
• 9 Sectors Rising, 1 Sector Declining
• 65.3% of Issues Advancing, 32.0% Declining
• 128 New 52-Week Highs, 98 New Lows
• 37.7% of Issues Above 200-day Moving Average
• Average 14-Day RSI 39.6
• Vix 11.9
• Total Put/Call .90
• TRIN/Arms 1.0

Wednesday Watch

Evening Headlines 

Bloomberg:

• China Stock Trading Falls as State Intervention Deters Investors. China stock trading slumped, with turnover on the Shanghai Composite Index falling 33 percent below the 30-day average, amid increasing government intervention and as hundreds of companies remained halted from trading. The benchmark Shanghai Composite slipped 0.2 percent to 3,750.93 at 10:51 a.m. local time, after gaining as much as 0.6 percent. Financial companies fell, while industrial shares advanced. The value of shares traded on the index has fallen 65 percent from this year’s high in June as trading halts, regulatory measures to curb bearish transactions and a suspension of initial public offerings drives investors away. A total of 515 mainland companies, or 18 percent of all listings, remain halted from trading. “The government’s unprecedented, rushed market intervention may have supported prices initially but at the expense of its long-term credibility,” Alex Wolf, an economist for emerging markets at Standard Life Investments Ltd., wrote in a report e-mailed Wednesday.

• China to Set Up ‘Security Offices’ Inside Internet Companies. China plans to set up “network security offices” staffed by police inside major websites and Internet companies, a move to strengthen the government’s grip on the world’s largest population of Web users. The Ministry of Public Security will add police officers at “critical” Internet companies to help boost defenses against cyber-attacks and fight criminal activity, the state-run Xinhua News Agency reported, citing a ministry conference.  

• Asian Stocks Fall as Investors Weigh Fed Moves, U.S. Jobs Data. Asian stocks fell as investors weighed comments from a Federal Reserve official ahead of U.S. employment data. The MSCI Asia Pacific Index slipped 0.3 percent to 141.24 as of 9:02 a.m. in Tokyo.

• Copper Drops With Aluminum as Bets Climb on Fed Rate Increase. Copper declined for the fourth time in five days as metals fell on speculation U.S. interest rates will be increased as soon as next month. The metal lost 0.9 percent after Federal Reserve Bank of Atlanta President Dennis Lockhart said he would only endorse putting it off should there be a significant deterioration in economic data. The Bloomberg Dollar Spot Index advanced to its highest since March. That makes commodities more expensive for buyers in other currencies and mining cheaper for producers located outside the U.S.

Wall Street Journal: 

• Atlanta Fed’s Lockhart: Fed Is ‘Close’ to Being Ready to Raise Short-Term Rates. Lockhart says September could be ‘appropriate time’ to lift interest rate. Federal Reserve Bank of Atlanta President Dennis Lockhart said the economy is ready for the first increase in short-term interest rates in more than nine years and it would take a significant deterioration in the data to convince him not to move in September.

• The Biden Advantage. To beat Hillary, he’d have to run against her dishonesty. This is the summer of Democratic discontent with Hillary Clinton’s presidential campaign. So it was only a matter of time before nervous partisans looked for alternatives who might save the progressive great and good from the national trauma of another Republican President. This explains the weekend recruiting flurry for Vice President Joe Biden, who has...

Fox News:

• Fox News announces candidate line-up for prime-time debate. (video) Fox News has announced the line-up for the prime-time Republican presidential debate this Thursday, and here's who qualified: Real estate magnate Donald Trump; former Florida Gov. Jeb Bush; Wisconsin Gov. Scott Walker; former Arkansas Gov. Mike Huckabee; retired neurosurgeon Ben Carson; Texas Sen. Ted Cruz; Florida Sen. Marco Rubio; Kentucky Sen. Rand Paul; New Jersey Gov. Chris Christie; and Ohio Gov. John Kasich.

• Planned Parenthood official: Abortion procedures, prices altered to meet demand. (video) A Planned Parenthood executive admits in an undercover video that her doctors alter abortion procedures and she manipulates prices to accommodate specific fetal tissue harvesting requests -- including delivering fully intact fetuses -- though doing so may violate federal law.

CNBC:

• IMF review recommends delaying adoption of yuan. The International Monetary Fund should put off any move to add the yuan to its Special Drawing Rights currency basket until September 2016, an IMF staff report said, a move that would effectively end the Chinese currency's chances of an early inclusion.

• Short seller who called financial crisis sees calamity ahead. (video)

Zero Hedge:

• Fed Lunacy Is To Blame For The Coming Crash.

• Chinese Stock Short Squeeze Stalls After IMF Delays Decision On Yuan SDR Inclusion. (graph)

• Twin Trillion-Dollar Bubbles Prompt Dramatic Rise In Non-Mortgage Debt.

• Chart Of The Day - Americans Are Not Happy. (graph)

• Inflation Nation: College Textbook Prices Soar 1000% Since 1977. (graph)

• Politicians Seek Short-Term Advantages By Lecturing Capitalists About The Long Term.

• Goldman Is Confused: If The Economy Is Recovering, Then How Is This Possible. (graph)

• Japan's Real Wages Just Plunged The Most In Six Years. (graph)

• AAPLocalypse & Lockhart-nado Spoil Stock Party; Dollar & Bond Yields Surge. (graph)

Business Insider:

• RAY DALIO: 'If you don’t own gold, you know neither history nor economics'.

• TRUMP: The Fed has created a bubble that 'could explode'.

• Skyrocketing rents are blowing into bubble territory.

• Starbucks CEO Howard Schultz is reportedly thinking about running for president by aiming at 'Hillary Clinton's right flank'.

• Today's stock market bubble is bigger than the dotcom boom. (graph)

• Drones are threatening security at prisons across the country.

• The US government may be partly to blame for skyrocketing tuition.

Reuters: 

• Disney(DIS) shares drop after company lowers cable outlook. Walt Disney Co lowered profit guidance for its cable networks unit and reported quarterly revenue slightly below Wall Street forecasts, sending its shares down 6 percent on Tuesday. The media company now expects annual operating income growth at the unit in the mid-single digits for fiscal years 2013 to 2016, Chief Financial Officer Christine McCarthy said on a conference call. It previously had forecast growth in the high single digits. The company cut its forecast because it expects lower revenue from a decline in subscribers and the impact of foreign exchange rates, McCarthy said. Sports network ESPN has experienced "modest" subscriber losses as viewing habits have shifted to digital platforms, Disney Chief Executive Officer Bob Iger said. Walt Disney shares dropped 6 percent to $114.10 in after-hours trading. 

• Japan PM adviser sees no need for BOJ easing, looks toward tapering. An economic adviser to Japan's prime minister said on Tuesday that he saw no need for the Bank of Japan to deploy additional stimulus to meet its 2 percent inflation goal next year, warning that it could cause the yen to weaken and prices to overshoot.

Financial News:

• Economic Slowdown Adds Uncertainty to China Reforms. Global economic depression and China's slowdown add uncertainty to financial reforms, Li Yang, former Vice President of the Chinese Academy of Social Sciences, writes in a commentary.

Evening Recommendations 

• None of note

Night Trading

• Asian equity indices are -.25% to +.50% on average.

• Asia Ex-Japan Investment Grade CDS Index 112.75 -.5 basis point.

• Asia Pacific Sovereign CDS Index 64.25 -.5 basis point.

• S&P 500 futures +.15%.

• NASDAQ 100 futures +.15%.

Morning Preview Links

Earnings of Note

Company/Estimate

• (CHK)/-.11

• (DNR)/.12

• (DISCA)/.47

• (DISH)/.46

• (D)/.73

• (HCA)/1.34

• (ICE)/2.77

• (LL)/.04

• (RL)/.98

• (PCLN)/11.85

• (PWR)/.44

• (RDC)/.55

• (SODA)/.32

• (SUP)/.17

• (TWX)/1.03

• (WCG)/.97

• (WEN)/.09

• (AGU)/4.79

• (CBS)/.72

• (CF)/1.50

• (HLF)/1.11

• (ICPT)-2.00

• (JACK)/.73

• (JAZZ)/2.41

• (GMCR)/.79

• (MRO)/-.22

• (PRU)/2.47

• (RGLD)/.28

• (TSLA)/-.59

• (TSO)/4.02

• (RIG)/.51

Economic Releases

8:15 am EST

• The ADP Employment Change for July is estimated at 215K versus 237K in June. 
  

8:30 am EST

• The Trade Deficit for June is estimated at -$43.0B versus -41.87B in May.

9:45 am EST

• The Final US Markit Services PMI for July is estimated at 55.2 versus a prior estimate of 55.2.

10:00 am EST

• The ISM Non-Manufacturing Composite for July is estimated to rise to 56.2 versus 56.0 in June.

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory decline of -1,406,670 barrels versus a -4,203,000 barrel decline the prior week. Gasoline supplies are estimated to fall by -133.330 barrels versus a -363,000 barrel decline the prior week. Distillate inventories are estimated to rise by +1,755,560 barrels versus a +2,588,000 gain the prior week. Finally, Refinery Utilization is estimated to fall -.13% versus a -.4% decline prior.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Eurozone Services PMI, Australia Unemployment report, weekly MBA Mortgage Applications report, (FAST) monthly sales update, CSFB Gaming/Lodging/Leisure/Restaurant conference and the (IDXX) analyst day could also impact trading today.

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

Stocks Reversing Lower into Final Hour on Fed Rate Hike Worries, Global Growth Fears, Earnings Outlook Concerns, Homebuilding/Tech Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: About Even
  

• Sector Performance: Mixed
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 12.74 +1.43%

• Euro/Yen Carry Return Index 141.43 -.30%

• Emerging Markets Currency Volatility(VXY) 9.28 -1.38%

• S&P 500 Implied Correlation 57.93 unch.

• ISE Sentiment Index 88.0 +11.39%

• Total Put/Call .95 -5.0%

• NYSE Arms 1.17 -26.18% 

Credit Investor Angst:

• North American Investment Grade CDS Index 72.25 +.43%

• America Energy Sector High-Yield CDS Index 1,777.0 +12.61%

• European Financial Sector CDS Index 73.75 +.61%

• Western Europe Sovereign Debt CDS Index 22.38 -2.10%

• Asia Pacific Sovereign Debt CDS Index 64.14 -.79%

• Emerging Market CDS Index 325.95 +.18%
  

• iBoxx Offshore RMB China Corporates High Yield Index 120.93 -.14%

• 2-Year Swap Spread 23.0 -.75 basis point

• TED Spread 24.25 -.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -20.5 -.75 basis point

Economic Gauges:

• 3-Month T-Bill Yield .08% +2.0 basis points

• Yield Curve 149.0 -1.0 basis point

• China Import Iron Ore Spot $55.29/Metric Tonne -.61%

• Citi US Economic Surprise Index -14.0 unch.

• Citi Eurozone Economic Surprise Index 6.1 +.5 point

• Citi Emerging Markets Economic Surprise Index -8.8 +1.5 points

• 10-Year TIPS Spread 1.70 unch.
• # of Months to 1st Fed Rate Hike(Morgan Stanley) 5.48 +.11

Overseas Futures:

• Nikkei 225 Futures: Indicating +25 open in Japan 
• China A50 Futures: Indicating -270 open in China

• DAX Futures: Indicating +8 open in Germany

Portfolio: 

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

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

• Market Exposure: 25% Net Long

Today's Headlines

Bloomberg:

• Lenders at Record Low Drag Greek Equities Down for Second Day. Greek lenders fell to their lowest levels since at least 1995, sending the nation’s stocks lower for a second day. Piraeus Bank SA slumped 30 percent, the daily maximum allowed by the Athens Stock Exchange. Eurobank Ergasias SA and Alpha Bank AE also tumbled that much, while National Bank of Greece SA fell 28 percent. The benchmark ASE Index lost 1.2 percent to 659.94 at the close of trading in Athens, paring a retreat of as much as 4.9 percent.

• China: Who's to Blame for the Stock Market Collapse? (video)

• Puerto Rico Debt-Crisis Grows as Payments Halt, Bond Prices Fall. Puerto Rico’s debt crisis escalated as it suspended deposits into a fund that pays its general-obligation bonds and one of its agencies defaulted for the first time, jeopardizing the cash-strapped government’s ability to raise money. The price of the commonwealth’s newest general-obligation bonds fell near a record low, with the island pushed to the brink from years of borrowing to cover budget deficits. Governor Alejandro Garcia Padilla is seeking to restructure Puerto Rico’s $72 billion of debt, saying bondholders need to share in the commonwealth’s sacrifices.

• BMW Says Chinese Slowdown May Force It to Revise Forecast. (video) BMW AG said slowing sales in China may force it to revise this year’s profitability goals, challenging new Chief Executive Officer Harald Krueger as he seeks to defend his lead in the global luxury-car industry. Earnings before interest and taxes from automaking are still expected at 8 percent to 10 percent of sales, though “if conditions on the Chinese market become more challenging, we cannot rule out a possible effect” on the forecast, the Munich-based manufacturer said Tuesday.

• The Devastation in Global Commodity Currencies Is Far From Over. Canada, Australia, New Zealand currencies set to plunge, OppenheimerFunds says. A bounce in crude oil and other commodity prices Tuesday halted a plunge in currencies of countries linked to natural-resource exports. The respite will be short-lived, according to OppenheimerFunds Inc. The Canadian, Australian and New Zealand dollars are off to the worst start to a year since the financial crisis. The nations are grappling with a 29 percent drop in raw-material prices amid swelling supplies and slowing demand in China. Next up, they'll have to contend with the Federal Reserve's plan to raise interest rates this year, which is forecast to boost the U.S. dollar.

• Bank Shares Lead European Stock Drop as Greece Falls for 2nd Day. European stocks snapped a five-day winning streak as declines in banks outweighed a surge in miners. Greek shares slid for a second day. Credit Agricole SA dragged lenders to the worst performance on the Stoxx Europe 600 Index, tumbling 10 percent after signaling it failed to win backing from regulators for a reorganization that may free up capital to repay investors. Total SA and Eni SpA pulled oil-and-gas companies down, as crude traded in a bear market. BHP Billiton Ltd and Rio Tinto Group rose at least 1.6 percent, pushing commodity producers to the biggest gain on the equity gauge as some metal prices rebounded. The Stoxx 600 retreated 0.2 percent to 398.75 at the close of trading, after earlier losing as much as 0.6 percent. Italy’s FTSE MIB Index and Spain’s IBEX 35 Index dropped 1 percent.

• Oil’s Below $50 and About to Get Worse. (video) The slump may have further to go. U.S. refineries, which turned a record amount of crude into gasoline during July, typically slow down from August through October for maintenance.  

• Commodities Rout Signaling Structural Shift in Demand. (video)

• The Oil Crash Has Caused a $1.3 Trillion Wipeout. It’s the oil crash few saw coming, and few have been spared as it erased $1.3 trillion, the equivalent of Mexico’s annual GDP, in little more than a year. Take billionaire Carl Icahn. When crude was at its peak in June 2014, the activist investor’s stake in Chesapeake Energy Corp. was worth almost $2 billion. Today, oil has lost more than half its value, Chesapeake is the worst performer in the Standard & Poor’s 500 Index and Icahn has a paper loss of $1.3 billion. 

• Milk Powder Prices Plunge to New Low at Auction. Whole milk powder plunged to the lowest in at least seven years at an international auction, the latest indication yet of chronic oversupply in the global daily industry. The average price in the auction fell 14 percent, GlobalDairyTrade, the organizer, said Tuesday on its website.

• The Painful Lesson of Selling Risky, Esoteric Debt in a Downturn. There’s a big difference between investors who have the luxury of keeping their money in risky debt for the long haul versus those who are forced to sell. An example: the first-loss piece of collateralized loan obligations, which bundle junk-rated loans and slice them into pieces of varying risk and return. These were popular with credit hedge funds in the past few years as one of the few debt investments offering potential returns above 10 percent in an era of historically low yields. That changed in the first six months of this year as oil plunged.

• BofA(BAC) Governance Worst Since Pre-Crisis Citigroup, Mayo Says. Bank of America Corp., which overruled a shareholder vote mandating an independent chairman, has the worst corporate governance of any big bank since Citigroup Inc. before the financial crisis, CLSA Ltd. analyst Mike Mayo said. Bank of America shareholders as of Aug. 10 will be allowed to vote on last year’s change that enabled Chief Executive Officer Brian Moynihan to add the chairman title, the Charlotte, North Carolina-based lender said last week in a regulatory filing.

 Zero Hedge:

• Louis Farrakhan Urges Black Community To "Rise Up And Kill Those Who Kill Us".

• US Shale: How Smoke And Mirrors Could Cost Investors Millions.

• Fed's Lockhart Sends Stocks Reeling; Dollar, Bond Yields Soaring. (graph)

• "Please Ignore Oil". (graph)

• The Failure of Politics: Merkel's Euro Debacle?

• Axel Merk Comes Out... As A Bear.

• AAPL(AAPL) Down 15% From Highs - Worst Drop In 30 Months.

• This Is Your "New Economy": These 10 Startups Are Valued At $156 Billion On $4 Billion In Revenue.

• One Furious Greek Sums It All Up: "My Country & Its People Are Falling Apart".

• US Recession Imminent As Factory Orders Plunge For 8th Consecutive Month. (graph)

• Meet Solyndra 2.0: This US-Taxpayer-Subsidized Spanish "Renewables" Firm Is Collapsing.

• US Consumer Spending Declines For Third Consecutive Month, Down 5 Of Past 7 Months. (graph)

Telegraph:

• Cost of a third Greek bail-out is likely to be too high for Europe. It is not out of the question now that the final figure for a third Greek bail-out might exceed €100bn.

Bear Radar

Style Underperformer:

• Small-Cap Value -.42%

Sector Underperformers:

• 1) Coal -10.08% 2) Homebuilders -2.04% 3) Semis -1.65%

Stocks Falling on Unusual Volume:

• TNET, STON, ELGX, ONDK, CRTO, BKD, CGNX, CPF, SHPG, LXRX, HYH, TRS, PH, TMH, VECO, MDAS, ALL, WOOF, NLS, TXRH, DWRE, RSP, FSTR, SGMS, ABY, FNB, SGNT, SSYS, HZO, SCOR, AIG, ITG, NCLH, SERV, BOX, LC, RSPP, SWKS, BKD, WOOF, EIGI, NRG, ANIP, UIHC, NYLD, WSTC and AAC

Stocks With Unusual Put Option Activity:

• 1) ESI 2) GPS 3) IWO 4) COP 5) CVS
  

Stocks With Most Negative News Mentions:

• 1) CNX 2) ALL 3) CGNX 4) V 5) EMR
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Mid-Cap Growth -.03%

Sector Outperformers:

• 1) Gaming +1.78% 2) Hospitals +1.57% 3) Biotech +.67%
  

Stocks Rising on Unusual Volume:

• IPCM, LMNX, TREE, ABMD,  VA, QLYS, AF, RRD, TSN, TSRA, MGM, WWE, ALR, EXP, CTRP, TAST, VMC, WWE, QEP., AF, IDTI, TSN, REGN, ETFC, ALJ and SABR

Stocks With Unusual Call Option Activity:

• 1) ETFC 2) CCE 3) LC 4) AWAY 5) WWAV
  

Stocks With Most Positive News Mentions:

• 1) RTEC 2) LMNX 3) COH 4) REGN 5) MOS
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume