Stocks Slightly Higher into Final Hour on Economic Optimism, Bargain-Hunting, Technical Buying, Biotech/Tech Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Modestly Lower
  

• Sector Performance: Mixed
  

• Volume: Slightly Below Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 11.0 -1.96%

• Euro/Yen Carry Return Index 134.14 +.04%

• Emerging Markets Currency Volatility(VXY) 7.93 +1.54%

• S&P 500 Implied Correlation 35.04 -2.88%

• ISE Sentiment Index 106.0 +19.1%
  

• Total Put/Call .92 -2.13%

• NYSE Arms 1.04 +6.0%

Credit Investor Angst:

• North American Investment Grade CDS Index 61.13 +.94%
  

• America Energy Sector High-Yield CDS Index 457.0 -.26%

• European Financial Sector CDS Index 53.08 +1.01%

• Western Europe Sovereign Debt CDS Index 5.76 -5.57%

• Asia Pacific Sovereign Debt CDS Index 22.22 +1.62%

• Emerging Market CDS Index 205.55 +1.92%
  

• iBoxx Offshore RMB China Corporate High Yield Index 139.74 +.02%

• 2-Year Swap Spread 24.0 +1.75 basis points

• TED Spread 26.0 -1.75 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -27.25 -1.25 basis points

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 72.32 -.44%
• 3-Month T-Bill Yield 1.04% +2.0 basis points
  

• Yield Curve 92.0 -1.0 basis points

• China Import Iron Ore Spot $63.23/Metric Tonne n/a

• Citi US Economic Surprise Index -63.10 +.2 point

• Citi Eurozone Economic Surprise Index 38.40 +9.0 points

• Citi Emerging Markets Economic Surprise Index 15.20 +4.2 points

• 10-Year TIPS Spread 1.77 +1.0 basis point
  
• 34.9% chance of Fed rate hike at Sept. 20 meeting, 36.2% chance at Nov. 1 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +29 open in Japan 
• China A50 Futures: Indicating -82 open in China

• DAX Futures: Indicating +7 open in Germany

Portfolio: 

• Higher: On gains in my biotech/tech/medical sector longs 

• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges

• Market Exposure: Moved to 75% Net Long

Bear Radar

Style Underperformer:

• Small-Cap Value -1.1%

Sector Underperformers:

• 1) Oil Service -2.5% 2) Alt Energy -1.5% 3) Energy -1.4%

Stocks Falling on Unusual Volume: 

• DBD, ORLY, AAP, AZO, REGI, CARA and TSLA

Stocks With Unusual Put Option Activity:

• 1) ERX 2) HUN 3) WTW 4) AZO 5) KHC

Stocks With Most Negative News Mentions:

• 1) ORLY 2) AAP 3) AZO 4) BWLD 5) BCOM

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Growth +.5%

Sector Outperformers:

• 1) Semis +1.6% 2) Software +1.2% 3) Biotech +.9%

Stocks Rising on Unusual Volume:

• MORE, AMBA, NVRO, QTEC, SPSC, BBL, AVAV, GOL, AWH, TER, OCUL, PTR, LPL, BIDU, TGS, CALA, MU, TM, VRSN, FTNT, NVCR, TRVG and MRAM

Stocks With Unusual Call Option Activity:

• 1) AKS 2) TRIP 3) AMTD 4) M 5) MOS

Stocks With Most Positive News Mentions:

• 1) TER 2) ISRG 3) ORCL 4) INTC 5) WMT

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running +2.9% Above 100-Day Average
• 6 Sectors Rising, 4 Sectors Declining
• 24.3% of Issues Advancing, 71.9% Declining
• 38 New 52-Week Highs, 13 New Lows
• 49.1% of Issues Above 200-day Moving Average
• Average 14-Day RSI 38.2%
• Vix 11.6 +3.7%
• Total Put/Call .79 -16.0%
• TRIN/Arms 1.08 +14.3%

Wednesday Watch

Evening Headlines

Bloomberg:

• Kim Jong Un Seeks to Exploit U.S.-China Tensions With Missile Claims. (video) When Kim Jong Un gave the order for what North Korea claims to be its first successful intercontinental ballistic missile test, he knew it would ruffle feathers in Washington and Beijing. He may have even timed the launch of the missile, which Pyongyang dubbed the Hwasong-14, for maximum effect, ahead of the July 4 holiday in the U.S. and to throw a wrench into a planned meeting between President Donald Trump and Chinese counterpart Xi Jinping at the G-20 summit in Germany this week.

• U.S. Confirms North Korea Missile Was ICBM, Warns of UN Action. (video) The U.S. confirmed a rocket launched by North Korea on July 4 was an intercontinental ballistic missile, with Secretary of State Rex Tillerson calling it a “new escalation of the threat” to the U.S. and its allies that would be brought before the United Nations Security Council. “Global action is required to stop a global threat,” Tillerson said in a statement. “Any country that hosts North Korean guest workers, provides any economic or military benefits, or fails to fully implement UN Security Council resolutions is aiding and abetting a dangerous regime.”

• China's $162 Billion of Dealmaker Debt Raises Alarm. China struck deal after deal to acquire companies abroad over the last few years. Now the bill is coming due. The nation’s top corporate dealmakers, including HNA Group Co. and Fosun International Ltd., must pay off the equivalent of at least $11.5 billion in bonds and loans by the end of 2018 -- a feat now complicated by government efforts to rein in their aggressive rush overseas.

• ECB's `Flexible' QE Model Falls Short on German Bond Purchases. European Central Bank data showed it fell short of its target for purchases of German bonds under its quantitative-easing program for a third straight month in June, while favoring French and Italian securities as it combats a shortage in the euro region’s benchmark sovereign debt. The ECB fell short of its implied buying target, as dictated by the capital key, by 304 million euros ($345 million) last month, following a shortfall of 277 million euros in May, while the weighted average maturity rose to 5.33 years from a record-low 3.99 years in May.

• Macron's Premier Says France Must Break Spending Addiction. Prime Minister Edouard Philippe said France must break the addiction to public spending that has left its economy trailing peers as he outlined plans to rein in the budget and cut taxes. In his maiden speech at the National Assembly as premier, Philippe promised 20 billion euros ($23 billion) of tax cuts by the end of President Emmanuel Macron’s term in 2022. Spending will drop by the equivalent of 3 percentage points of gross domestic product in that time and taxation will fall by 1 point, he said. “We must face the truth about the financial situation of the country,” Philippe said. “France can no longer be the champion of both public spending and of taxes. France has an addiction to public spending, and like all addictions it requires willpower and courage to kick it.”

• Havens Advance as Missile Test Rattles Traders. A risk-off mood settled over markets on Tuesday, with haven assets including gold and the Japanese yen climbing and stocks slipping in the wake of an apparent milestone in North Korea’s weapons program. Early market optimism in Asia -- sparked by bullish American economic data yesterday -- gave way after North Korea said it successfully test-fired an intercontinental ballistic missile, moving the state closer to its goal of building a device capable of hitting the continental U.S. Gold headed for its first advance in four days. European stocks edged lower as miners rallied but telecom and utility shares dropped. Oil fluctuated between gains and losses.

• Russia Said to Oppose Any Move to Deepen OPEC Cuts at July Talks. Russia wants to stick to the current OPEC deal and would oppose any proposal for deeper production cuts at the group’s ministerial meeting later this month, said four Russian government officials. Any further supply reductions so soon after the existing agreement was extended would send the wrong message to the oil market, said one of the people. Such a move would suggest that OPEC, Russia and their allies are nervous that their pact to reduce output by a combined 1.8 million barrels a day through March 2018 isn’t doing enough to support prices, the official said. All four people spoke on condition of anonymity.

• Five Things You Need to Know to Start Your Day.

Wall Street Journal:

• North Korea Missile Launch Threatens U.S. Strategy in Asia. Apparent success of weapon that could reach Alaska is tough foreign-policy test for Trump.

• Disney’s(DIS) Channels: Children Are Tuning Out. Ratings have fallen sharply at the company’s youth-oriented networks amid the shift to digital viewing and a lack of hits.

• Ill-funded Police Pensions Put Cities in a Bind. Municipalities that try cutting the retirement plans face pushback both from the officers, some of whom quit, and from a generally pro-police public.

• Trump to Face Putin, Discuss North Korean Threat During Europe Trip. Meetings with world leaders could be upstaged by first face-to-face encounter with Russia’s president since election.

Fox News:

• US, world leaders weigh response after North Korea missile test. (video)

CNBC:

• The oldest stock market indicator on Wall Street just flashed a buy signal. (video)

• Tesla(TSLA) deliveries lackluster in second quarter, but all eyes are on Model 3.

• Market will go 'screaming higher,' rallying for a year before 'ugliness' starts: Expert. (video)

• Robots are coming to a burger joint near you.

• Why Apple(AAPL) shares are going ‘much higher,’ according to analyst Gene Munster.

Zero Hedge:

• North Korea Launches Its First Ever ICBM, "Can Reach Alaska".

• North Korea Fires Ballistic Missile Which Lands In Japan's Exclusive Economic Zone.

• Global Stocks Rebound From N.Korea ICBM Jitters; US Markets Closed For "Amexit Day".

• Illinois Tax Rate Soars 32% After Senate Overrides Governor Veto.

• Global Warming Alarmism Goes To '11': Stephen Hawking Claims Trump Could Turn Earth Into Venus.

• Carmageddon: Record Incentives And Financing Terms Fail To Stem The Auto Bleeding In June. (graph)

• Italy Furious After Austria Deploys Troops, Armored Vehicles To Border.

• Citi's Sentiment Indicator Crashes, And Four Other Things That Scare The Bank.

• Trump Responds To N.Korea's Rocket Launch: "Does Kim Have Anything Better To Do With His Life?"

• Italian Ports Bombarded With Migrants; Interior Minister Demands Other EU Nations "Step Up".

• Europe's Migrant Crisis: Views From Central Europe.

• Georgia Sec. Of State Blasts "Fake News"; Says Media Biggest Threat To Democracy Not Russian Hackers.

• Undercover Investigation Exposes Deteriorating Auto Lending Standards In Europe; No Job, No Problem.

• Nasdaq Triggers Market-Wide Circuit-Breaker As AMZN(AMZN) "Crashes" 87% After-Hours.

• The Best And Worst Performing Assets In The First Half Of 2017.

• A War On Globalism.

• Only 4 House Republicans Say They Would Support "Clean" Debt-Ceiling Hike.

• 'Detroit 3' June Auto Sales Crash 6% YoY...Just Enough To Spark A Massive Equity Buying Binge. 

• Emerging Market Mania - Fed 'Tightening' Sparks Best Gains Since 1993.

• The "Big Lie" Of Market Indexes.

• Bonds, Stocks Tumble As Nasdaq 'Fear' Hits 14-Year High. (graph)

Business Insider:

• North Koreans are literally worshipping Kim Jong-un.

Night Trading 

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

• Asia Ex-Japan Investment Grade CDS Index 88.25 +2.0 basis points. 

• Asia Pacific Sovereign CDS Index 21.75 +2.0 basis point.

• Bloomberg Emerging Markets Currency Index 72.66 +.02%.

• S&P 500 futures -.01%.

• NASDAQ 100 futures -.15%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (MLHR)/.55

• (PSMT)/.68

• (YUMC)/.28

Economic Releases 
10:00 am EST

• Factory Orders for May are estimated to fall -.5% versus a -.2% decline in April.

2:00 pm EST

• The June 14 FOMC Meeting Minutes. 
  

Upcoming Splits

• (MRTN) 5-for-3

Other Potential Market Movers

• The Eurozone Manufacturing PMI report, weekly US retail sales reports and the (PSMT)/(ZUMZ)/(COST) monthly sales reports could also impact trading today.

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

Stocks Mostly Higher into Afternoon on Economic Optimism, Oil Gain, Yen Weakness, Energy/Financial Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Higher
  

• Sector Performance: Mixed
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 10.43 -6.7%

• Euro/Yen Carry Return Index 134.40 +.31%

• Emerging Markets Currency Volatility(VXY) 7.85 +.90%

• S&P 500 Implied Correlation 34.54 +1.4%

• ISE Sentiment Index 89.0 -20.5%
  

• Total Put/Call .84 -24.32%

• NYSE Arms .87 -22.67%

Credit Investor Angst:

• North American Investment Grade CDS Index 60.48 -1.17%
  

• America Energy Sector High-Yield CDS Index 462.0 +.71%

• European Financial Sector CDS Index 52.0 -1.49%

• Western Europe Sovereign Debt CDS Index 6.19 -8.78%

• Asia Pacific Sovereign Debt CDS Index 21.07 -1.98%

• Emerging Market CDS Index 200.47 -.62%
  

• iBoxx Offshore RMB China Corporate High Yield Index 139.71 +.06%

• 2-Year Swap Spread 22.50 -.5 basis point

• TED Spread 27.75 -1.0 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -26.0 +1.25 basis points

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 72.67 -.43%
• 3-Month T-Bill Yield 1.02% +1.0 basis point
  

• Yield Curve 93.0 +1.0 basis points

• China Import Iron Ore Spot $64.29/Metric Tonne -1.02%

• Citi US Economic Surprise Index -63.30 +9.3 points

• Citi Eurozone Economic Surprise Index 29.40 -.9 point

• Citi Emerging Markets Economic Surprise Index 11.0 -.9 point

• 10-Year TIPS Spread 1.76 +2.0 basis points
  
• 31.2% chance of Fed rate hike at Sept. 20 meeting, 34.0% chance at Nov. 1 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +144 open in Japan 
• China A50 Futures: Indicating -86 open in China

• DAX Futures: Indicating -26 open in Germany

Portfolio: 

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

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

• Market Exposure: Moved to 50% Net Long