Stocks Higher into Final Hour on Earnings Optimism, Less European/Emerging Markets/US High-Yield Debt Angst, Short-Covering, Tech/Homebuilding Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Slightly Higher
  

• Sector Performance: Most Sectors Rising
  

• Volume: Around Average

• Market Leading Stocks: Outperforming
  

Equity Investor Angst:

• Volatility(VIX) 10.03 -2.24%

• Euro/Yen Carry Return Index 135.83 -.31%

• Emerging Markets Currency Volatility(VXY) 7.49 +.13%

• S&P 500 Implied Correlation 28.55 -4.3%

• ISE Sentiment Index n/a
  

• Total Put/Call .85 -6.59%

• NYSE Arms 1.18 +29.4%

Credit Investor Angst:

• North American Investment Grade CDS Index 56.44 -1.5%
  

• America Energy Sector High-Yield CDS Index 435.0 +.4%

• European Financial Sector CDS Index 50.07 -.52%

• Western Europe Sovereign Debt CDS Index 5.1 +4.18%

• Asia Pacific Sovereign Debt CDS Index 18.82 -1.16%

• Emerging Market CDS Index 190.22 -.02%
  

• iBoxx Offshore RMB China Corporate High Yield Index 140.57 +.01%

• 2-Year Swap Spread 24.0 -.75 basis point

• TED Spread 24.25 +.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -27.0 +.5 basis point

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 73.89 -.15%
• 3-Month T-Bill Yield 1.07% unch.
  

• Yield Curve 91.0-3.0 basis points

• China Import Iron Ore Spot $73.56/Metric Tonne -.19%

• Citi US Economic Surprise Index -44.80 -1.7 points

• Citi Eurozone Economic Surprise Index 16.10 -3.0 basis points

• Citi Emerging Markets Economic Surprise Index 20.30 +4.0 basis points

• 10-Year TIPS Spread 1.79 -3.0 basis points
  
• 21.1% chance of Fed rate hike at Nov. 1 meeting, 46.1% chance at Dec. 13 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +35 open in Japan 
• China A50 Futures: Indicating +28 open in China

• DAX Futures: Indicating +3 open in Germany

Portfolio: 

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

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

• Market Exposure: Moved to 100% Net Long

Today's Headlines

Bloomberg:

• Euro-Area Economy Steams Ahead as ECB Waits for Inflation. (video) The euro-area economy expanded apace in the second quarter, a sign the bloc’s upswing is becoming increasingly robust and self-sustaining. Gross domestic product in the 19-country region rose 0.6 percent in the three months through June, after increasing 0.5 percent at the start of the year. That’s in line with the median estimate in a Bloomberg survey of economists.

• Your Evening Briefing.

• Why a Little Economic Overheating Won't Spoil the Market Rally. The “Goldilocks” rally still has juice. That perfect environment to sustain broad market gains -- when global growth is fast enough to lift corporate profits, but tame enough to keep inflation muted -- should be in effect for at least another 12 months, according to Kevin Gaynor, the head of international economics at Nomura Holdings Inc

• Facebook(FB) Is Working on a Video Chat Device.

• July Violence Pushes Chicago's 2017 Homicide Total Past 400.

Wall Street Journal:

• Senate Democrats Lay Out Conditions for Working With GOP on Tax Policy. Principles laid out in a letter dated Tuesday will be hard for Republicans to meet.

• Sprint(S) Says a Merger Decision Is Near. Wireless carrier has talked to ‘several parties,’ CEO says, adding an announcement is coming soon.

• Venezuela’s Opposition Leaders Dragged From Homes. Armed officers take Leopoldo Lopez and Antonio Ledezma a day after President Nicolás Maduro promises to jail rivals.

• Inside Goldman’s(GS) Struggle to Climb Out of Last Place in Trading. A 40% second-quarter decline in fixed-income activity sparks charm offensive designed to showcase a more customer-friendly Goldman.

• ETFs Now Have $1 Trillion More Than Hedge Funds. Investment flows show how Wall Street’s cheapest and priciest funds are diverging fast.

• The Calm Before the iPhone Boosts Wireless Industry. Second-quarter results for wireless carriers made it look like competitive pressures have died down. Investors shouldn’t be fooled.

Fox News:

• MS-13's most wanted: The violent gangsters the feds want behind bars. (video)

• Lock up the leakers? Sessions to unveil crackdown, as Kelly gets White House staff in line. (video)

MarketWatch.com: 

• European stocks log gains on wave of upbeat earnings, GDP growth.

CNBC:

• Alan Greenspan: The bubble is in bonds, not stocks. (video)

• Four numbers to watch in Apple's earnings — and four words to listen for.

• No clicks required: Artificial-intelligence is changing how we shop, Boxed CEO says. (video)

Zero Hedge:

• A Quarter Trillion Dollars In US Savings Was Just "Wiped Away". (graph)

• These Were The Best Performing Assets In July And YTD.

• Senator Graham: Trump Is Prepared To Strike; "There Is A Military Option To Destroy North Korea".

• Goldman(GS) Issues First Warning On Q3 Results.

• Investors Redeem Half Of Paul Tudor Jones' Main Fund In Past Year.

• House Judiciary Member Calls For Mueller Resignation Over Conflict, "Clear Violation Of Federal Code".

• Oil Just Plunged To A $48 Handle After Survey Suggests OPEC Output Jumped In July. (graph)

• Manufacturing Surveys Signal Economy "Still Stuck In Low Gear" Amid Collapse In 'Hard' Data. (graph)

• GM(GM) Auto Sales Crash, Dealer Inventory Near All Time High.

• Americans' Income Growth Slumps To Weakest Since November. (graph)

Bear Radar

Style Underperformer:

• Mid-Cap Value +.1%

Sector Underperformers:

• 1) Hospitals -1.5% 2) Oil Service -1.1% 3) Steel -.9%

Stocks Falling on Unusual Volume: 

• YRD, GNMK, UA, INVA, PBI, NLS, CMI, UAA, ICPT, TBI, ETN, DVAX, ICHR, HCP, GPRE, GOOD, IDXX, MLM, MOS, BKD, SLCA and SABR

Stocks With Unusual Put Option Activity:

• 1) KSS 2) SGMS 3) CHK 4) UA 5) COP

Stocks With Most Negative News Mentions:

• 1) IDTI 2) REGN 3) OIS 4) F 5) SNAP

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Growth +.3%

Sector Outperformers:

• 1) Homebuilders +1.5% 2) Disk Drives +1.5% 3) Telecom +.1.2%

Stocks Rising on Unusual Volume:

• LL, OXFD, NVTA, HZN, TNET, TRU, CGNX, SIMO, SHOP, MEDP, SCG, TXRH, PLSE, CMCO, ROG, TREX, IPGP, NSP, IPHS, FMS, BTU, MEDP, RCL, JOBS, BP, IGT, GVA, CACC, MTH, TRI, APD, XRX, SAVE, SCG, MDC and COL

Stocks With Unusual Call Option Activity:

• 1) HCLP 2) LL 3) HL 4) GGP 5) IGT

Stocks With Most Positive News Mentions:

• 1) CGNX 2) CACC 3) CLDX 4) SAVE 5) RCL

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running +13.8% Above 100-Day Average

• 8 Sectors Rising, 2 Sectors Declining

• 53.6% of Issues Advancing, 42.8% Declining

• 130 New 52-Week Highs, 21 New Lows

• 46.8% of Issues Above 200-day Moving Average

• Average 14-Day RSI 37.4%

• Vix 10.3 +.6%

• Total Put/Call .8 -14.3%

• TRIN/Arms 1.16 +26.3%

Tuesday Watch

Night Trading 

• Asian equity indices are unch. to +.5% on average.
• Asia Ex-Japan Investment Grade CDS Index 82.25 -.5 basis point. 
• Asia Pacific Sovereign CDS Index 19.0 -1.0 basis point.
• Bloomberg Emerging Markets Currency Index 74.02 +.02%.
• S&P 500 futures +.07%.
• NASDAQ 100 futures +.11%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (APD)/1.59
• (ADM)/.52
• (BZH)/.18
• (BP)/.05
• (CME)/1.21
• (CMI)/2.56
• (HCP)/.47
• (HMC)/88.87
• (IGT)/.32
• (IDXX)/.85
• (LPX)/.58
• (LL)/-.08
• (MLM)/2.35
• (MDC)/.61
• (MOS)/.23
• (BTU)/1.09
• (PFE)/.66
• (PSX)/1.01
• (RCL)/1.67
• (SMG)/2.51
• (SPG)/2.44
• (SNE)/56.17
• (S)/-.05
• (UAA)/-.06
• (ALL)/.92
• (AAPL)/1.57
• (COHR)/3.45
• (ILMN)/.69
• (PZZA)/.64
• (TRUP)/-.02

Economic Releases  

8:30 am EST

• Personal Income for June is estimated to rise +.4% versus a +.4% gain in May.
• Personal Spending for June is estimated to rise +.1% versus a +.1% gain in May.
• The PCE Core MoM for June is estimated to rise +.1% versus a +.1% gain in May.

10:00 am EST

• ISM Manufacturing for July is estimated to fall to 56.5 versus 57.8 in June. 
• ISM Prices Paid for July is estimated to rise to 55.6 versus 55.0 in June.
• Construction Spending MoM for June is estimated to rise +.4% versus unch. in May.
  

Afternoon:

• Wards Total Vehicle Sales for July are estimated to rise to 16.8M versus 16.41M in June.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The Eurozone GDP report, Eurozone Manufacturing PMI report, weekly US retail sales reports, Keefe Bruyette Woods Community Bank Conference, (F) July sales conference call and (SQM) Non-deal Roadshow could also impact trading today.

BOTTOM LINE:  Asian indices are modestly higher, boosted by commodity and technology shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed.  The Portfolio is 75% net long heading into the day.