Bear Radar

Style Underperformer:

• Mid-Cap Value -.8%

Sector Underperformers:

• 1) Oil Tankers -5.1% 2) Coal -4.4% 3) Gold & Silver -3.6%

Stocks Falling on Unusual Volume:

• WGP, RVNC, SYF, IHG, ZBH, WATT, DEO, CMTL, TILE, OSG, WNC, COF, NAV, UN, NVO, SNX, SWHC, VOD, LQ, AGIO, SAP, BTI, KNOP, SAIC, DFS, NSAM, MPC, AXP, RGR, FLXN, NRE, FIT, ONCE, JW/A, TREE and MCRB

Stocks With Unusual Put Option Activity:

• 1) LRCX 2) JNK 3) AXP 4) RCL 5) OIH

Stocks With Most Negative News Mentions:

• 1) NAV 2) RVNC 3) APPS 4) LQ 5) CGNX

Charts:

• ETFs Falling on Unusual Volume
• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Large-Cap Growth -.7%

Sector Outperformers:

• 1) Utilities +.1% 2) Gaming -.1% 3) HMOs -.2%

Stocks Rising on Unusual Volume:

• MPAA

Stocks With Unusual Call Option Activity:

• 1) AMLP 2) GEL 3) VHC 4) CAG 5) UUP

Stocks With Most Positive News Mentions:

• 1) MSA 2) VG 3) AKAO 4) CDNA 5) YGE

Charts:

• ETFs Rising on Unusual Volume
• Stocks Rising on Unusual Volume

Morning Market Internals

NYSE Composite Index:

• Volume Running -12.8% Below 100-Day Average
• 0 Sectors Rising, 10 Sectors Declining
• 30.2% of Issues Advancing, 65.3% Declining
• 24 New 52-Week Highs, 32 New Lows
• 54.6% of Issues Above 200-day Moving Average
• Average 14-Day RSI 40.5%
• Vix 21.6 +2.8%
• Total Put/Call .91 +6.5%
• TRIN/Arms 1.68 +28.9%

Tuesday Watch

Evening Headlines
Bloomberg: 

• Four Polls Put U.K. on Course to Leave EU as ‘Sun’ Backs Brexit. Britain appeared to be on course to leave the European Union, with four polls from three companies putting the “Leave” campaign ahead of “Remain.” Monday saw a day of intense volatility on the currency markets, as the pound swung between losses of 1 percent and gains of 0.5 percent. Then in the evening came a series of polls putting “Leave” ahead. In the day’s final blow to “Remain,” the Sun, Britain’s biggest-selling newspaper, backed a so-called Brexit on its front page. “Outside the EU we can become richer, safer and free at long last to forge our own destiny -- as America, Canada, Australia, New Zealand and many other great democracies already do,” the newspaper said. “If we stay, Britain will be engulfed in a few short years by this relentlessly expanding ­German dominated federal state.”
• Brexit Anxiety Goes Epidemic in Europe as Stock Swings Turn Wild. Concern Britain will leave the European Union has wrought havoc in markets from Tokyo to Frankfurt and London. For Europe, the stress has reached levels not seen in almost a year. As the Euro Stoxx 50 Index fell to its lowest level since February, a measure tracking the cost of hedging via options jumped to the highest since last July relative to a similar gauge for the U.S. European equity markets, previously calm in comparison to surges in pound volatility, are joining in after recent polls showed a lead for the “Leave” campaign.
• Kyle Bass Predicts China Bank Woes. (video)
• Baidu(BIDU) Reduces Revenue Forecast on Advertising Restrictions. Baidu Inc., China’s biggest internet search engine, cut its revenue forecast for the second quarter, saying regulatory restrictions cut advertising from drug companies and other health-care groups. Shares declined as much as 8.9 percent in extended trading after the announcement. The company said it projects sales of 18.1 billion yuan ($2.81 billion) to 18.2 billion yuan compared with its previous forecast of 20.1 billion to 20.6 billion yuan. The new regulations on online marketing by health-care companies have caused a reduction or delay in advertising “from a significant portion” of medical customers, Baidu said in a statement Monday. The company said the lower revenue also is a result of the cut in the number of sponsored links, which Baidu announced last month. While these actions will have a negative impact in the short term, Baidu said it expects users to become accustomed to the changes and health-care advertising will eventually recover.
• Asian Stocks Retreat for Fourth Day as Brexit Concerns Intensify. Asian stocks slipped, after the biggest three-day drop since February, amid investor anxiety before central bank meetings and Britain’s vote on European Union membership. Australian shares led declines as trading resumed after a holiday. The MSCI Asia Pacific Index declined 0.2 percent to 127.17 as of 9:13 a.m. in Tokyo. The gauge tumbled 3.7 percent in the past three days amid mounting anxiety the U.K. will vote to leave the EU on June 23, with a survey by the Independent newspaper showing 55 percent of voters favoring a so-called Brexit. Investors are also cautious ahead of this week’s policy decisions from the Federal Reserve and the Bank of Japan.
• Oil Extends Decline From One-Week Low Before U.S. Stockpile Data. Oil extended declines from the lowest close in more than a week before U.S. crude stockpile and production data. Futures lost as much as 1.2 percent in New York after falling 4.6 percent the previous three sessions. Inventories probably dropped by 2.45 million barrels last week, according to a Bloomberg survey before an Energy Information Administration report Wednesday. Nigeria is in talks with militants to end attacks on oil installations that have cut output, Emmanuel Kachikwu, minister of state for petroleum resources, said in a television broadcast.

Wall Street Journal:

• LinkedIn(LNKD) and the Tech Valuation Boom. Microsoft(MSFT) is paying $26 billion for a money-losing social-media site.

Fox News:

• FBI searching Orlando gunman's computer for digital evidence he scouted Disney World. (video)

Zero Hedge: 

• How Wall Street Is Strangling The Economy.
• Julian Assange Warns WikiLeaks Will Publish "Enough Evidence" To Indict Hillary Clinton.
• Dramatic Footage Emerges From Inside Orlando Nightclub During Deadly Shooting.
• Why SocGen Thinks That "For Long-Term Investors The Outlook Is Dire".
• Coal Production Collapses To 35-Year Low. (graph)
• Why The Next Decade Will Foil Financial Plans. (graph)
• VIX Soars Most In 10 Months As Stocks Dump, Gold Jumps. (graph)

Telegraph:

• Why the euro is a long way from challenging the dollar's dominance.

Night Trading 

• Asian equity indices are -1.25% to unch. on average.
• Asia Ex-Japan Investment Grade CDS Index 147.25 +3.25 basis points. 
• Asia Pacific Sovereign CDS Index 54.50 +1.5 basis points.
• Bloomberg Emerging Markets Currency Index 71.59 -.03%. 
• S&P 500 futures -.04%. 
• NASDAQ 100 futures -.06%.

Morning Preview Links

Earnings of Note
Company/Estimate 

• (ISLE)/.59
• (JW/A)/.67
• (BOBE)/.43
• (ITRI)/.34

Economic Releases
6:00 am EST

• The NFIB Small Business Optimism Index for May is estimated at 93.6 versus 93.6 in April. 
  

8:30 am EST

• The Import Price Index MoM for May is estimated to rise +.7% versus a +.3% gain in April. 
• Retail Sales Advance MoM for May are estimated to rise +.3% versus a +1.3% gain in April.
• Retail Sales Ex Autos MoM for May are estimated to rise +.4% versus a +.8% gain in April.
• Retail Sales Ex Autos and Gas MoM for May are estimated to rise +.3% versus a +.6% gain in April. 

10:00 am EST

• Business Inventories for April are estimated to rise +.2% versus a +.4% gain in March.

Upcoming Splits 

• None of note

Other Potential Market Movers

• The UK CPI report, US weekly retail sales reports, Deutsche Bank Consumer Conference, RBC Mining/Materials Conference,  William Blair Growth Stock Conference, Citi Industrials Conference, Piper Consumer Conference, Morgan Stanley Financials Conference, (MET) annual meeting, (TM) annual meeting and the (BABA) investor day could also impact trading today.

BOTTOM LINE:  Asian indices are mostly lower, weighed down by commodity and industrial shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 25% net long heading into the day.

Stocks Falling into Final Hour on Escalating Brexit Concerns, Terrorism Fears, Rising European/Emerging Markets/US High-Yield Debt Angst, Transport/Homebuilding Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Lower
  

• Sector Performance: Most Sectors Declining
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 19.83 +16.44%

• Euro/Yen Carry Return Index 125.29 -.34%

• Emerging Markets Currency Volatility(VXY) 10.95 +3.69%

• S&P 500 Implied Correlation 60.02 +5.28%

• ISE Sentiment Index 95.0 +15.85%

• Total Put/Call 1.08 +13.68%

• NYSE Arms 1.0 -27.12% 

Credit Investor Angst:

• North American Investment Grade CDS Index 81.07 +4.7%
  

• America Energy Sector High-Yield CDS Index 752.0 +2.4%

• European Financial Sector CDS Index 108.07 +6.8%

• Western Europe Sovereign Debt CDS Index 28.5 +4.3%

• Asia Pacific Sovereign Debt CDS Index 54.15 +2.17%

• Emerging Market CDS Index 296.84 +2.73%
  

• iBoxx Offshore RMB China Corporate High Yield Index 129.49 +.09%

• 2-Year Swap Spread 14.25 +.25 basis point
  

• TED Spread 39.75 +.75 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -32.25 -2.0 basis points
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 71.61 -.39%
• 3-Month T-Bill Yield .25% unch.

• Yield Curve 90.0 unch.
  

• China Import Iron Ore Spot $52.91/Metric Tonne +.67%

• Citi US Economic Surprise Index -22.90 -.1 point

• Citi Eurozone Economic Surprise Index -4.70 -2.2 points

• Citi Emerging Markets Economic Surprise Index -1.1 -6.7 points

• 10-Year TIPS Spread 1.51% -5.0 basis points
  
• 13.7% chance of Fed rate hike at July 27 meeting, 27.2% chance at September 21 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -20 open in Japan 
• China A50 Futures: Indicating -343 open in China

• DAX Futures: Indicating -38 open in Germany

Portfolio: 

• Slightly Higher: On gains in my index hedges and emerging market shorts
  

• Disclosed Trades: None

• Market Exposure: 25% Net Long

Today's Headlines

Bloomberg:

• Brexit Polls by ICM Show ‘Leave’ Widening Lead Over ‘Remain’. Two new polls by ICM suggested the U.K. is on course to quit the European Union, with both phone and online surveys showing the “Leave” side opening up a 5 percentage-point lead over “Remain.”
• Corporate Bond Risk Surges in Europe as Brexit Concerns Increase. Credit risk surged in Europe as concern grew that the U.K. will vote to leave the European Union. The Markit iTraxx Europe Senior Financial Index of credit-default swaps on 30 banks and insurers rose six basis points to 106 basis points, the highest since Feb. 29, according to data compiled by Bloomberg. The cost of insuring high-yield bonds jumped to the highest since March and the region’s investment-grade benchmark climbed to a more than two-month high. 
• German Government Bonds in ‘Bubble Territory,’ Allianz Says. (video)
• ‘Smoldering Bonfire’ Shows Where Kyle Bass May Be Right on China. Kyle Bass, the U.S. investor known for betting against subprime mortgages, is among famous money managers who expect turmoil in a Chinese banking industry struggling with bad loans. It’s in the least-known corners of the financial system that their predictions could start to come true. Dotted across the country from Harbin in the north to the tropical island of Hainan in the south, China’s 134 city commercial banks have multiplied their risks by piling into opaque investment products just as bad loans are rising. Warning signs are flashing at lenders such as China Resources Bank of Zhuhai Co., which posted a 90 percent slump in profit in 2015 after almost tripling loan-loss provisions. “It’s a smoldering bonfire,” said Keith Pogson, a senior partner for Asia-Pacific financial services at Ernst & Young LLP. “If the wind changes and inflames it rapidly it could burst into flames quite easily.” City commercial banks are the legacy of a 1990s clean-up of thousands of struggling credit unions, and many of them are vulnerable in part because their fortunes are closely tied to areas suffering the most from China’s economic slowdown. While analysts say it’s unlikely that the collapse of a small lender would spark a financial panic, the repercussions could be substantial -- from a loss of confidence to disruptions in the interbank funding market. For a heat map of risks across China’s provinces, click here.
• Hong Kong Reign as China's Wall Street Has Never Been So Fragile. (video) The future of capitalism’s Asian citadel is far from certain as Shanghai and Shenzhen exchanges gain ground.
• China’s Crude Steel Output Rises in Teeth of Trade Tensions. Output rose to 70.5 million metric tons, up 1.8 percent from a year earlier and 1.6 percent higher than April, the National Bureau of Statistics said Monday. The figure is just below March’s record 70.65 million tons and brings the total for the first five months to 330 million tons, down 1.4 percent on year. China accounts for about half of global supply for the metal used in everything from cars to skyscrapers.
• Record Junk-Debt Mountain Hangs Over Corporate Canada. Corporate Canada is nursing a monumental junk-debt hangover that’s unlikely to let up until the end of the year. Driven by energy and mining industries that leveraged up during the commodity boom, Canadian companies have racked up a record of at least $69.6 billion of high-yield debt, including $61.3 billion of U.S. dollar-denominated bonds, according to Bank of America Merrill Lynch data. That’s a 133 percent increase from five years ago, according to Bloomberg calculations.
• China’s Stocks Sink Most Since February on Eve of MSCI Decision. China’s stocks tumbled the most in three months as concern grew about the nation’s economic outlook and investors awaited MSCI Inc.’s decision on whether to include mainland shares in its global indexes. The Shanghai Composite Index dropped 3.2 percent as mainland markets traded for the first time since Wednesday. The ChiNext index of smaller companies sank 6 percent to its lowest level in almost a month, as Leshi Internet Information & Technology Corp. plunged by the 10 percent daily limit. China’s fixed-asset investment in the first five months of 2016 trailed all 38 economists’ forecasts, reports showed Monday, while yuan approached a five-year low.
• Emerging-Market Assets Drop as Brexit Concern Damps Risk Demand. The MSCI Emerging Markets Index fell 1.8 percent to 808.81 at 11:41 a.m. in New York, pushing the three-day decline to 4 percent. All 10 industry groups dropped.
• Europe Stocks Slide for Fourth Day as Brexit Concerns Intensify. (video) European stocks slid to their lowest in almost four months as investor anxiety that the U.K. will leave the European Union deepened. The Stoxx Europe 600 Index fell 1.8 percent to 326.8 at the close of trading. Shares Friday slumped the most since the nadir of the February selloff as risky assets were shunned before a slew of monetary-policy and political events. The equity gauge has traded in a range of less than 25 points since March, struggling to hold on to gains after surging 16 percent from its February low to an April 20 high. A measure of stock volatility jumped 14 percent today, for its biggest four-day increase since August.

Wall Street Journal:

• China Private-Investment Slowdown Fuels Fears of Weaker Growth. Latest economic data show industrial sector weighed by overcapacity, while consumption remained a bright spot.

Fox News:

• Orlando gunman's descent into Islamic terror comes into focus. (video)

CNBC:

• Citron's Andrew Left is shorting Facebook(FB). Citron's Andrew Left, who gained notoriety for successful bets against companies like Valeant Pharmaceuticals, said he is short shares of Facebook. "Facebook is losing an extensive amount of relevancy," Left said in a phone interview Monday morning. "I am short Facebook."
• We are warning people to stay away from these yield plays: Strategist. (video)

Zero Hedge:

• Multiple Suspects On The Loose In Orlando - Why The Media Blackout Of Eyewitness Accounts? (video)
• Obama Denies Orlando Shooter Had Links To External "Radicalized Islam", Blames Gun Control.
• Deutsche Bank Throws In The Bullish Towel, Says "Next 5% Move Is Likely Lower".
• Orlando Gunman Reportedly Scouted Disney World As Potential Target.
• Stocks, Bond Yields, & Cable Tumble After ICM 'Brexit' Poll Swings Dramatically To "Leave". (graph)
• Deutsche Bank Tumbles Near Record Lows As Yield Curve Crashes. (graph)
• Puerto Rico Bonds Jump As Supreme Court Strikes Down Debt Restructuring: Only Congress Can Bail Them Out Now.
• €348 Million: ECB Releases First Total Of Corporate Bond Purchases.
• Microsoft(MSFT) Buys LinkedIn For $196/Share In $26.2 Billion Deal.
• "Summer Of Shocks" - 6 Scenarios That El-Erian Sees Slamming Stocks.

Business Insider:

• LIVE: Apple's biggest conference of the year.
• We're witnessing 'the death of investment'.
• ISIS releases another statement claiming responsibility for the Orlando nightclub shooting.
• The Japanese yen is skyrocketing.

The Telegraph:

• Brexit vote is about the supremacy of Parliament and nothing else: Why I am voting to leave the EU.
• Italy’s failure to thrive puts the boot into eurozone goal.

Automobilwoche:

• BMW Sees U.S. Stagnate 2016 'At Best'. "The US market will stagnate in 2016 at best", BMW's Sales Chief Ian Robertson says in an interview. Will probably even "shrink a little", he said. BMW US Jan-May sales fell -7.9%.

Nikkei:

• Apple's iPhone Sales Said to Fall for First Time in 2016. iPhone annual shipments to fall for first time since 2007 this year due to lukewarm demand for a new model, citing people familiar with the data. Overall, iPhone shipments will total 210m-220m this year, falling as much as 8.6% from 2015, citing a person at a major supplier. Hon Hai Precision Industry Chairman Terry Gou has told his staff that demand for iPhones will remain feeble until at least early next year, citing unidentified source.

Kyodo:

• Most Polled Say Abenomics Won't Improve Japan's Economy. 62% of those polled by Kyodo say they don't think the economy will improve under the Abenomics program of Japanese Prime Minister Shinzo Abe, vs. 28% of respondents who said it would improve.