Bull Radar

Style Outperformer:

• Small-Cap Growth +1.1%

Sector Outperformers:

• 1) Software +3.0% 2) Biotech +2.3% 3) Alt Energy +1.5%

Stocks Rising on Unusual Volume:

• OPTT, AWH, MRVL, MDSO, CTAS, HAWK, ISRG, PII, TUP, MSFT, EDU, SAP, WBC and PCRX

Stocks With Unusual Call Option Activity:

• 1) PGNX 2) NRG 3) ESRX 4) GD 5) GLUU

Stocks With Most Positive News Mentions:

• 1) EDU 2) PZZA 3) ISRG 4) VRX 5) ITW

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running -8.4% Below 100-Day Average
• 4 Sectors Rising, 6 Sectors Declining
• 65.8% of Issues Advancing, 31.7% Declining
• 112 New 52-Week Highs, 3 New Lows
• 61.3% of Issues Above 200-day Moving Average
• Average 14-Day RSI 45.3%
• Vix 11.5 -3.8%
• Total Put/Call 1.06 +12.8%
• TRIN/Arms 1.57 +40.1%

Wednesday Watch

Evening Headlines
Bloomberg:

• May, Merkel Face Brexit Red Lines on U.K. Premier’s Berlin Debut. Theresa May’s first meeting with Angela Merkel in Berlin will involve more pleasantries than hard bargaining. A week after taking office as U.K. prime minister, May, 59, will be keen to size up the woman who will be one of her main interlocutors as she navigates Britain’s exit from the European Union. The German chancellor, in office for almost 11 years, insists that while May needs some time to formulate how she wants to proceed, no concrete negotiations will take place until the U.K. triggers the EU’s exit clause.
• China’s Consumer Boom Risks Slowing as Income Gains Moderate. Chinese consumers, whose spending helped underpin the first-half expansion this year, may not be able to deliver a repeat performance in the second as income growth slows. Household income growth slumped to 6.5 percent in the first six months from 7.6 percent a year earlier, data released Friday showed. Headwinds on consumer spending may increase as officials signal they will step in to curb pay gains to keep manufacturing competitive with rival nations that have cheaper production costs. As shoppers become an increasingly crucial growth driver, any erosion of their strength would weaken the ability for the consumer-led expansion to offset weakness in exports and investment. That threatens the government goal of raising gross domestic product by 6.5 percent a year through 2020 and slow the rebalancing away from factory-led growth.
• BOJ Is Running Out of Room to Buy Bonds Amid Stimulus: Chart.
• Asian Stocks Retreat After Global Rally as Japan Shares Decline. Asian stocks fell as a global rally in equities stalled, with the S&P 500 Index slipping from a record and investors weighing corporate earnings and the prospects for global growth. The MSCI Asia Pacific Index dropped 0.2 percent to 133.59 as of 9:04 a.m. in Tokyo as Japanese shares fell for the first time in seven days. Global equities added more than $4.5 trillion in value since the U.K. shock decision to leave the European Union, pushing valuations on Asia-Pacific stocks close to the highest level this year. Investors are assessing corporate earnings amid concern sluggish global growth will persist as the International Monetary Fund scrapped its forecast for a pickup this year.

Wall Street Journal:

• How the GOP Platform Has Changed in the Trump Era. As Donald Trump has taken over the Republican Party, his influence is being felt in the party’s platform, which has adjusted from past conventions, in some cases strikingly so. On other issues, the party has been consistent. We compare and contrast highlights in this year’s GOP platform with those of recent decades on the following issues: trade, immigration, guns, Social Security, China, abortion, taxes and government.
• 21st Century Fox Negotiating Exit of Fox News Chief Roger Ailes.

Fox News:

• GOP Convention: Live Blog.

Zero Hedge:

• Prominent Gold Skeptic Willem Buiter Says "Gold Looks Pretty Good".
• "I Will Slaughter You With An Axe" - Terrorist Behind German Train Attack Leaves Chilling Suicide Video. (video)
• America Is Being Divided And Conquered Into Oblivion.
• 'Pokemon Go' Bubble Bursts: Nintendo Tumbles As Indonesia Issues "National Security Threat". (graph)
• Police Officer Killed After Kansas City Shooting, Suspects At Large.
• 'Elevator Down' Looms As Market Reaches 3-Standard Deviation Extreme. (graph)
• So What Did The ECB Buy? "In Short, Almost Everything".
• Microsoft Misses On GAAP Revenue, EPS; Beats On Non-GAAP After Using Lower Tax Rate; Stock Soars.
• Oil Slides After Unexpected Gasoline Inventory Build.
• Last-Minute Algo-Driven VIX-Crash Lifts Dow Green For 8th Straight Day. (graph)

Business Insider:

• Marissa Mayer made a cryptic comment about Apple that's raising eyebrows.
• The US is about to embark on 'a very questionable operation' with Russia in Syria.
• Housing markets are starting to look like they did before the 2008 crisis. (graph)
• BMW's new rechargeable home battery could rival Tesla's Powerwall.

Fortune:

• Investors Pull $600M After Ackman's Bad Bets.

Night Trading 

• Asian equity indices are -.50% to +.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 121.25 +2.0 basis points.
• Asia Pacific Sovereign CDS Index 48.0 +.5 basis point.
• Bloomberg Emerging Markets Currency Index 72.39 -.13%. 
• S&P 500 futures -.14%. 
• NASDAQ 100 futures -.13%.

Morning Preview Links

Earnings of Note
Company/Estimate 

• (ABT)/.53
• (ASML)/.80
• (CP)/2.01
• (HAL)/-.19
• (ITW)/1.40
• (MTB)/2.07
• (MS)/.59
• (STJ)/1.06
• (TUP)/1.11
• (AXP)/1.73
• (EBAY)/.42
• (FFIV)/1.79
• (INTC)/.53
• (KMI)/.15
• (MAT)/-.06
• (NEM)/.30
• (QCOM)/.97
• (RJF)/.90
• (TSCO)/1.16
• (URI)/1.81
• (VMI)/1.73 
  

Economic Releases  
10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory decline of -1,295,450 barrels versus a -2,546,000 barrel decline the prior week. Gasoline inventories are estimated to fall by -204,550 barrels versus a +1,213,000 barrel gain the prior week. Distillate inventories are estimated to rise by +959,450 barrels versus a +4,058,000 barrel gain prior. Finally, Refinery Utilization is estimated to rise by +.12% versus a -.2% decline prior.

Upcoming Splits 

• None of note

Other Potential Market Movers

• The UK Unemployment Rate report, weekly MBA mortgage applications report and the (CPB) investor day could also impact trading today.

BOTTOM LINE:  Asian indices are mostly lower, weighed down by technology 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 50% net long heading into the day.

Stocks Lower into Final Hour on Rising European/Emerging Markets/US High-Yield Debt Angst, Oil Decline, Earnings Outlook Concerns, Commodity/Healthcare Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Lower
  

• Sector Performance: Almost Every Sector Declining
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 12.66 +1.77%

• Euro/Yen Carry Return Index 122.04 -.63%

• Emerging Markets Currency Volatility(VXY) 10.94 +1.62%

• S&P 500 Implied Correlation 48.81 +.99%

• ISE Sentiment Index 92.0 -41.03%
  

• Total Put/Call .93 unch.

• NYSE Arms 1.23 +58.84% 

Credit Investor Angst:

• North American Investment Grade CDS Index 71.49 +.72%
  

• America Energy Sector High-Yield CDS Index 723.0 +.81%

• European Financial Sector CDS Index 98.62 +3.13%

• Western Europe Sovereign Debt CDS Index 26.80 +1.44%

• Asia Pacific Sovereign Debt CDS Index 47.93 +1.08%

• Emerging Market CDS Index 255.64 +.92%
  

• iBoxx Offshore RMB China Corporate High Yield Index 130.84 -.04%

• 2-Year Swap Spread 21.0 +.25 basis point
  

• TED Spread 39.0 +1.25 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -48.25 +.75 basis point
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 72.40 -.63%
• 3-Month T-Bill Yield .31% +1.0 basis point

• Yield Curve 87.0 -3.0 basis points
  

• China Import Iron Ore Spot $56.02/Metric Tonne -1.48%

• Citi US Economic Surprise Index 27.90 +2.8 points

• Citi Eurozone Economic Surprise Index 2.8 -2.1 points

• Citi Emerging Markets Economic Surprise Index -10.70 +.5 point

• 10-Year TIPS Spread 1.48% -3.0 basis points
• 21.0% chance of Fed rate hike at Sept. 21 meeting, 22.7% chance at Nov. 2 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -73 open in Japan 
• China A50 Futures: Indicating -41 open in China

• DAX Futures: Indicating -23 open in Germany

Portfolio: 

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

• Disclosed Trades: Added to my (IWM)/(QQQ) hedges

• Market Exposure: Moved to 25% Net Long

Today's Headlines

Bloomberg: 

• Erdogan Crackdown Continues Before ‘Important’ Announcement. Turkey ordered faculty heads at all the country’s universities to resign, a day before President Recep Tayyip Erdogan makes an “important announcement” and as authorities expanded their roundup of thousands of soldiers with alleged links to the weekend’s failed coup. The lira plunged after state-run TRT reported that Turkey’s Council of Higher Education is seeking the resignation of 1,577 deans at both state and private universities -- a measure reminiscent of a coup in 1980, after which the council was set up to increase state control over education. Erdogan refused to elaborate on the objective of Wednesday’s announcement, which a presidential official said would boost social cohesion and Turkey’s democratic credentials. Erdogan clashed with academics earlier this year, when more than 1,000 of them signed a petition criticizing the government’s handling of the long-running battle with the Kurds and calling for peace.
• Hollande Cautions French on Climate of Fear After Terror in Nice. President Francois Hollande urged the French not to give in to panic as minor security incidents get national media play and political debate about his government’s counter-terrorism measures intensifies. Among the incidents receiving widespread attention Tuesday were a woman and her daughters who were hospitalized after a knife attack at a holiday village in the French Alps and the evacuation of a hotel after a client threatened violence. “Terrorists want to disseminate fear, they want to divide us, to spread a message of hatred, make us rise up against each other and create havoc,” Hollande said at a press conference in Lisbon. “My duty is to see that we’re united.”
• 'Toxic' Italy Could Pull Europe Down, Warns Fratzscher. (video)
• Cameron Watt: Italian Banks 'Material Issue' for Italy. (video)
• Ukrainian Army Deaths at Most Since 2015 as Conflict Worsens. Ukraine’s army suffered its deadliest month since August 2015 as international diplomacy fails to stem more than two years of fighting in the nation’s east. Seven soldiers were killed and 14 wounded in the past 24 hours, the biggest daily death toll since May, military spokesman Andriy Lysenko said Tuesday. That brings the number of fatalities in July to 30. The casualties were spread across the conflict zone, where government troops have been battling pro-Russian insurgents since April 2014.
• China Fuels Speculation Debt-for-Equity Swaps Starting Soon. China’s cabinet fueled speculation that the nation is pressing ahead with debt-to-equity swaps that would give lenders stakes in some companies as part of tackling a build-up in corporate leverage and bad loans. A brief reference in a statement on Monday to letting financial institutions hold stakes in companies in a trial indicated that the swaps are coming soon, according to China Merchants Securities Co. analyst Ma Kunpeng. Caixin magazine reported that the State Council was signaling the start of the program, citing an unidentified person close to the authorities. Large lenders have previously expressed some wariness, with China Construction Bank Corp. Chairman Wang Hongzhang saying in March that he wouldn’t want to see a plan that simply converted “bad debt into bad equity.” 
• German ZEW Investor Sentiment Deteriorates in Brexit Aftermath. German investor confidence deteriorated in July on concern that Britain’s decision to leave the European Union could weaken the region’s fragile economic recovery. 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 ahead, fell to minus 6.8 from 19.2 in June. That’s the lowest level since November 2012. Economists in a Bloomberg survey predicted a drop to 9.
• Volvo Cuts North American Market Outlook as Orders Slump. Volvo AB cut its outlook for the North American truck market for the third time this year after stagnant freight volumes and excess inventory drove orders in the region down by nearly one-third in the second quarter. Truck orders in North America fell 29 percent, and manufacturers as a whole will probably sell about 240,000 vehicles there this year, the Gothenburg, Sweden-based company said Tuesday in a statement. That’s 10,000 less than its previous forecast and would be 20 percent fewer than in 2015. Slowing demand in the U.S. and the Middle East and recession in Brazil have wreaked havoc on truckmakers’ expectations for the year. 
• Europe Stocks Drop in Thin Trading as Miners, Akzo Nobel Decline. (video) Declines in miners dragged European stocks down from a three-week high, while the earnings season picked up pace. Rio Tinto Group dropped 3.5 percent after a weaker-than-expected increase in its quarterly iron ore production. Chemical producer Akzo Nobel NV, among 18 Stoxx Europe 600 Index companies reporting results today, slid 4.3 percent after its sales missed analyst forecasts. A rebound in the Stoxx 600 is losing steam, with the measure down 0.4 percent at the close. It fell as much as 1 percent earlier.
• Cybersecurity Is Biggest Risk of Autonomous Cars, Survey Finds. Cybersecurity is the biggest concern for companies evaluating risk in the nascent self-driving vehicle industry, according to a survey conducted by Munich Re. The world’s second-biggest reinsurer found that 55 percent of corporate risk managers surveyed named cybersecurity as their top concern about self-driving cars. Cybersecurity included the potential hacking of an automated car’s data systems as well as the failure of smart road infrastructure, Munich Re said in an e-mail.

Wall Street Journal:

• Fed Officials Gain Confidence They Can Raise Rates This Year. A rate increase could come as early as September if economic data hold firm.
• Where Hillary Clinton and Donald Trump Stand on Economic Issues.

Fox News:

• Pence appeals for GOP unity after anti-Trump delegate uproar. (video) Apparently sensing a need to quell any further attempts by anti-Trump forces to sidetrack the Republican National Convention, the Trump campaign turned Tuesday to Mike Pence to deliver an impromptu call for party unity, telling Republicans, “The time has come for us to come together … Let’s get to work.”
• GOP Convention: Live Blog.

Zero Hedge:

• Erdogan Unleashes Unprecedented Crackdown: Fires All University Deans; Suspends 21,000 Private School Teachers.
• Turkey Latest: Tens Of Thousands Purged; "Gulenist Media" Shut Down; Pilots Behind Russian Jet Downing Arrested.
• The Financial System Is Breaking Down At An Unimaginable Pace.
• Confidence In The Economy Slumps To Multi-Year Lows: Gallup. (graph)
• S&P Cuts Deutsche Bank Outlook To Negative On "Challenging Operating Conditions".
• Valuation Fallacies (Or Why The Last Big Bubble Justifies This One). (graph)
• "Whatever It Takes" Has Failed - European Economic Confidence Crashes To 4-Year Lows. (graph)
• BofA Finds Something Odd: With The S&P At Record Highs, Traders Have Never Been More Nervous. (graph)
• Housing Starts Decline Year-Over-Year Amid Downward Revisions. (graph)
• ISIS Flag Found In German Train Axe Attacker's Bedroom. (video)
• Goldman(GS) Beats On Rebound In FICC, Prop Trading As Headcount, Comp Slashed.

Business Insider:

• JOHN McAFEE: Pokémon Go isn't the only app accessing your emails.
• 50 H-bombs are 'waiting to be used or misused' after Turkey cuts power to US airbase.
• Turkey says it has formally requested extradition of Pennsylvania-based cleric accused of inciting coup.
• REPORT: The government is going to ruin more than $91 billion of healthcare mergers.
• The pound is getting smashed.

The Telegraph:

• IMF slashes UK growth forecasts after Brexit - but Britain will still outstrip Germany, France and Italy.

Bear Radar

Style Underperformer:

• Small-Cap Growth -.9%

Sector Underperformers:

• 1) Steel -4.0% 2) Computer Hardware -3.1% 3) Hospitals -2.1%

Stocks Falling on Unusual Volume:

• SMCI, FCAM, ARMH, TTS, HUM, TSEM, NFLX, RYI, SPKE, ANTX, SCLN, AET, SAVE, SXCP, HWW, STMP, NOC, DEO, GOV, GPC, PM, WPPGY, WVE, ASTE, CI, GOV and GWW

Stocks With Unusual Put Option Activity:

• 1) MRK 2) DXJ 3) WFM 4) XHB 5) GT

Stocks With Most Negative News Mentions:

• 1) DD 2) UTX 3) MMM 4) CVX 5) CAT

Charts:

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