Stocks Lower into Afternoon on Trade War Worries, Emerging Markets Debt Angst, Profit-Taking, Pharma/Homebuilding Sector Weakness

 Broad Equity Market Tone:

• Advance/Decline Line: Lower
  

• Sector Performance: Most Sectors Declining
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 12.78 +6.7%

• Euro/Yen Carry Return Index 133.45 -.19%

• Emerging Markets Currency Volatility(VXY) 9.90 +.71%

• S&P 500 Implied Correlation 35.39 +2.08%

• ISE Sentiment Index 47.0 -58.0%
  

• Total Put/Call .93 unch.

• NYSE Arms 1.07 -7.12%

Credit Investor Angst:

• North American Investment Grade CDS Index 61.31 +1.22%
  

• America Energy Sector High-Yield CDS Index 394.0 +3.02%

• European Financial Sector CDS Index 78.56 +2.34%

• Italian/German 10Y Yld Spread 215.5 -5.25 basis points
  

• Asia Pacific Sovereign Debt CDS Index 13.21 +1.58%

• Emerging Market CDS Index 198.80 +5.2%
  

• iBoxx Offshore RMB China Corporate High Yield Index 149.95 +.06%

• 2-Year Swap Spread 26.75 +.25 basis point

• TED Spread 40.0 -1.5 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -8.75 -5.0 basis points

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 69.71 -.31%

• 3-Month T-Bill Yield 1.92% -1.0 basis point
  

• Yield Curve 37.75 +.75 basis point

• China Iron Ore Spot 65.86 USD/Metric Tonne unch.

• Citi US Economic Surprise Index 12.20 -2.9 points

• Citi Eurozone Economic Surprise Index -90.50 +6.7 points

• Citi Emerging Markets Economic Surprise Index -21.90 +5.2 points

• 10-Year TIPS Spread 2.13 +1.0 basis point
  

• 84.5% chance of Fed rate hike at Sept. 26th meeting, 85.4% chance at November 8th meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -45 open in Japan 

• China A50 Futures: Indicating -172 open in China

• DAX Futures: Indicating -29 open in Germany

Portfolio: 

• Slightly Higher: On gains in my retail sector longs, index hedges and emerging market shorts

• Disclosed Trades: None

• Market Exposure: 75% Net Long

Bear Radar

Style Underperformer:

•   Large-Cap Value -.3%

Sector Underperformers:

• 1) Tobacco -1.8% 2) Homebuilding -1.6% 3) Foods -1.1%

Stocks Falling on Unusual Volume: 

• CBIO, GLMD, IONS, IMMR, SUPV, BIIB, LCI, GGAL and TNDM

Stocks With Unusual Put Option Activity:

• 1) SVU 2) PXD 3) LNG 4) PCG 5) ETE

Stocks With Most Negative News Mentions:

• 1) IMMR 2) DIS 3) DNB 4) CAKE 5) GE

Charts:

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

Bull Radar

Style Outperformer:

• Small-Cap Growth +.1%

Sector Outperformers:

• 1) Energy +1.6% 2) Shipping +1.0% 3) Retail +.8%

Stocks Rising on Unusual Volume:

• PTCT, RCII, OBSV, CBPO, SOGO, GOOS, FLT, REDU, DBX, PVAC, TPIV, TILE, SLDB, ARWR, IQ, INTL, GFF, IQV, ATNX, BHF, ETSY, ATRC, BILI, GBT, AQXP, SURF, COOL, AMD, ROKU, ZUO, AXL, BOX and BCEI

Stocks With Unusual Call Option Activity:

• 1) MBI 2) PGNX 3) TRN 4) PAH 5) ACAD

Stocks With Most Positive News Mentions:

• 1) PTCT 2) OBSV 3) TNK 4) GOOS 5) DHT

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running -5.99% Below 100-Day Average
• 4 Sectors Rising, 7 Sectors Declining
• 52.5% of Issues Advancing, 44.1% Declining
• 66 New 52-Week Highs, 51 New Lows
• 49.7% of Issues Above 200-day Moving Average
• Average 14-Day RSI 49.0%
• Vix 12.9 +8.4%
• Total Put/Call .94 +1.1%
• TRIN/Arms 1.05 -8.9%

Monday Watch

Today's Headlines

Bloomberg:   

• Xi to Counter Trump Blow for Blow in Unwanted Trade War.   

• Japan’s May Exports Hold Steady Amid Trade-War Anxiety.

• Merkel Fate Hangs in Balance With Asylum Policy Deadline.

• Italy to Turn Away New Migrant Ships From Libya.

• Bitcoin Could Break Internet, Central Banks' Body Says.  

• Asian Stocks Open Mixed; Oil Drops Ahead of OPEC: Markets Wrap. Asian stocks declined amid investor concern the exchange of threats between China and the U.S. is the precursor of a full-blown trade war. Oil dropped, while the dollar edged higher as Treasury yields steadied just above 2.90 percent. Stocks fell in Japan as the yen advanced, while S&P 500 Index futures pointed to losses. South Korean equities also slipped , while they fluctuated in Australia. China and Hong Kong, markets more sensitive to deepening trade tensions, were closed for holidays. Oil extended a decline as Saudi Arabia and Russia prepared for a clash with other OPEC members and allies over whether to raise production. The pound ticked lower ahead of a parliament debate on the Brexit withdrawal bill. The Topix index fell 0.8 percent as of 9:48 a.m. in Tokyo. Australia’s S&P/ASX 200 Index was little changed. Kospi index fell 0.2 percent. S&P 500 Index futures lost 0.4 percent. The MSCI Asia Pacific Index declined 0.5 percent.

• Saudi-Proposed Supply Boost Faces Vetoes in OPEC, Iran Says. 

• Quiet Surface Masks Hints of Fervor in Stocks.

Wall Street Journal:

• The Bull Market’s Next Test: Slower Earnings Growth.

• The Force Behind Europe’s Populist Tide: Frustrated Youth.

• Market Worry Shifts to Nafta’s Fate.

Fox News:

• DOJ watchdog, FBI boss to face livid lawmakers in Senate hearing on Clinton probe, Comey.

Zero Hedge:

• Second FBI Informant Tried To Entrap Trump Campaign With $2 Million Offer For Hillary Dirt: Roger Stone.  

• The Bubble's Revenge: China's Stock Market Is Littered With 'Pledged-Share Land-Mines' Buried During 2015 Mania. 

• The Sources Of Tax Revenue For Every US State, In One Chart.

• The Biggest Misconceptions About Working For A Hedge Fund.

• Jatras: It's Time For America To Cut Loose Our Useless So-Called "Allies".

• The 4 Stages Of The Collapse Of Venezuela.

• Wealthy Blue-Staters Are Using Shady Alaskan Trusts To Dodge SALT-Deduction Caps.

• Optimism.

• "Terrified" San Francisco Tourists Shocked By Aggressive Vagrants, Discarded Needles, Dead Bodies.

• The Biggest Misconceptions About Working For A Hedge Fund.

• These European Countries Are Refusing To Accept The Unchecked Influx Of Migrants.

• As Labor Shortage Worsens, Small Businesses Are "Recruiting In The County Jail".

• Graphic Video Of The Moment A Russian Taxi Driver Slams Into Pedestrians Before Sprinting Away.

• "We Had Whistleblowers": Nunes Reveals "Good FBI Agents" Tipped Off Congress About Comey Team.

• Giuliani: "Comey Should Go To Jail" , Biased FBI Agents "Fired And Imprisoned This Week".

• FBI Agents Called Hillary "President" While Investigating Her, Texted "Screw You Trump" On Election Day.

• OIG Report On FBI/Clinton Shows Secrecy Threatens Democracy.

• IG Report Confirms Obama Lied About Hillary Email Server.

• From 'Steve Jobs' To No Job: Theranos Fires CEO Holmes As US Files Criminal Charges.

• Weekend Reading: Merger Mania.

• Dovish Draghi Dominates Powell As Dollar Spike Wreaks Global Havoc,

Night Trading

• Asian indices are -1.25% to -.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 77.50 +.5 basis point.

• Asia Pacific Sovereign CDS Index 13.0 +.25 basis point.

• Bloomberg Emerging Markets Currency Index 69.86 -.11%.

• FTSE 100 futures -.13%

• S&P 500 futures -.46%.

• NASDAQ 100 futures -.63%.

Morning Preview Links

Earnings of Note

Company/Estimate 
Before the Open: 

• None of note

After the Close:

• None of note

Economic Releases
10:00 am EST

• The NAHB Housing Market Index for June is estimated at 70.0 versus 70.0 in May.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Bostic speaking, Eurozone Trade Balance report and the JPMorgan Energy Conference could also impact trading today.

BOTTOM LINE: Asian indices are lower, weighed down by financial and technology shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed.  The Portfolio is 75% net long heading into the week.

Weekly Outlook

• Wall St. Week Ahead by Reuters. 
• Stocks to Watch Next Week by Seeking Alpha.
• Weekly Economic Calendar by Briefing.com.

BOTTOM LINE: I expect US stocks to finish the week mixed as stable long-term rates, less European debt angst and economic optimism offsets trade war fears, lower energy prices and profit-taking. My intermediate-term trading indicators are giving neutral signals and the Portfolio is 75% net long heading into the week.