Stocks Reversing Slightly Lower into Final Hour on China Trade Deal Concerns, Technical Selling, Profit-Taking, Homebuilding/Defense Sector Weakness

 Broad Equity Market Tone:

• Advance/Decline Line: Lower
  

• Sector Performance: Mixed
  

• Volume: Below Average

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• Volatility(VIX) 16.3 +2.51%

• Euro/Yen Carry Return Index 127.74 +.23%

• Emerging Markets Currency Volatility(VXY) 8.43 -.94%

• S&P 500 Implied Correlation 39.96 +3.42%

• ISE Sentiment Index 71.0 -19.3%
  

• Total Put/Call .98 +25.6%

• NYSE Arms .65 -.48%

Credit Investor Angst:

• North American Investment Grade CDS Index 60.42 -.33%
  

• America Energy Sector High-Yield CDS Index 615.0 -.63%

• European Financial Sector CDS Index 77.39 +1.01%

• Italian/German 10Y Yld Spread 262.5 +4.75 basis points
  

• Asia Ex-Japan Investment Grade CDS Index 71.29 -2.4%
  

• Emerging Market CDS Index 192.79 -.93%
  

• iBoxx Offshore RMB China Corporate High Yield Index 163.64 +.09%

• 2-Year Swap Spread 5.0 -1.5 basis points

• TED Spread 19.75 +.25 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -11.5 +1.75 basis points

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 66.84 +.24%
• 3-Month T-Bill Yield 2.24% -3.0 basis points

• Yield Curve 22.0 -2.5 basis points

• China Iron Ore Spot 102.36 USD/Metric Tonne +4.48%

• Citi US Economic Surprise Index -52.20 +3.8 points

• Citi Eurozone Economic Surprise Index -25.5 +1.2 points

• Citi Emerging Markets Economic Surprise Index -28.40 unch.

• 10-Year TIPS Spread 1.73 -1.0 basis point
• 75.0% chance of Fed rate cut at July 31st meeting, 92.4% chance of cut at Sept. 18th meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -49 open in Japan 
• China A50 Futures: Indicating -100 open in China

• DAX Futures: Indicating -27 open in Germany

Portfolio:

• Slightly Higher: On gains in my retail sector longs and index hedges

• Disclosed Trades: None

• Market Exposure: 50% Net Long

Bear Radar

Style Underperformer:

• Small-Cap Growth -1.0%

Sector Underperformers:

• 1) Homebuilding -2.1% 2) Defense -1.9% 3) Road & Rail -1.2%

Stocks Falling on Unusual Volume: 

• PRVB, LOVE, GNFT, QURE, HDS, DATA, FIZZ, THO, NSTG, AGX, KOD, SWAV, CRM, ARVN, AAT, SNY, UTX, TLRY, RTN, SYMC, UPLD, GBT, ARCE, SITE, STT, ZM and BYND

Stocks With Unusual Put Option Activity:

• 1) SWN 2) ODFL 3) HTZ 4) TLRD 5) RF

Stocks With Most Negative News Mentions:

• 1) INSY 2) SYMC 3) CREE 4) BYND 5) FIZZ

Charts:

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

Bear Radar

Style Outperformer:

• Large-Cap Value +.2%

Sector Outperformers:

• 1) Steel +4.2% 2) Retail +1.3% 3) Oil Service +1.2%

Stocks Rising on Unusual Volume:

• JAGX, CASY, MRNA, ZYNE, SFIX, HEAR, PAM, GRUB, CC, POL, MT, WIFI, JW/A, POL, RRR and RF

Stocks With Unusual Call Option Activity:

• 1) ED 2) GPOR 3) HRB 4) HST 5) SFLY

Stocks With Most Positive News Mentions:

• 1) ZYNE 2) JW/A 3) JBLU 4) AVTR 5) HRB

Charts:

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

Mid-Day Market Internals

NYSE Composite Index:

• Volume Running -7.9% Below 100-Day Average
• 6 Sectors Rising, 5 Sectors Declining
• 51.0% of Issues Advancing, 45.4% Declining
• 149 New 52-Week Highs, 51 New Lows
• 51.5% of Issues Above 200-day Moving Average
• Average 14-Day RSI 48.7%
• Vix 16.3 +2.1%
• Total Put/Call .76 -2.6%
• TRIN/Arms .66 -47.2%

Tuesday Watch

Evening Headlines
Bloomberg:     

• U.S. Weighs More Iran Sanctions Over Potential Trade With Europe.

• This Chinese Newspaper Editor Is Moving Markets With His Tweets.

• Asian Stocks Set for Mixed Open After U.S. Gains. Asian stocks look set for a mixed start as investor focus turns to the U.S.-China trade arena, while Treasuries will open with yields off of their recent lows. Futures in Japan slipped, with contracts in Australia and Hong Kong showing modest gains. The S&P 500 Index rose for a fifth straight session, though closed below its highs of the day. President Donald Trump threatened to raise tariffs on China again if President Xi Jinping doesn’t meet with him at the Group of 20 summit at month-end. The yuan is trading near its lows of the year with little sign of progress on U.S.-China talks. Crude oil is trading above $53 a barrel in New York. Futures on the Nikkei 225 dipped in Singapore. Australia’s S&P/ASX 200 Index futures rose 0.3%. Hong Kong’s Hang Seng Index futures added 0.3%. S&P 500 futures were little changed in early Asia trading.  

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

• The Fear Gauge Is Sounding an Alarm Even as U.S. Stocks Surge.  

• Top Steelmaker Warns of Price Hikes as Iron Ore Near 5-Year High.   

• Gasoline Prices Set to Plunge at the Pump.  

• Morgan Stanley Sees No 2020 Rebound in S&P 500 Company Profits.

Wall Street Journal:

• Mexico’s Border Pact Bought Time on U.S. Asylum Demand.

• China’s Million New Dissidents.

• U.S. Targets Efforts by China, Others to Recruit Government Scientists. 

• Italy, Short of Euros, Flirts With a Different Way to Pay.

Fox News:

• John Dean accused by GOP of obstruction, Watergate 'cottage industry,' at fiery hearing.

MarketWatch.com:

• Four reasons why antitrust actions will likely fail to break up Big Tech.

• How AI is catching people who cheat on their diets, job searches and school work.

CNBC:

• Salesforce(CRM) is paying top dollar for growth — and not just in the cloud.

• Robots are breaking out of their cages on the factory floor, and here’s what they are doing.

• Stocks making the biggest moves after hours: Shutterfly, Broadcom and more.

Zero Hedge:

• Texas Governor Signs Sweeping New Law Protecting Free Speech On College Campuses.

• In California, Illegals Come First; Californians Don't Matter.

• Seismologist Warns "People Ought To Be Concerned" About SoCal Quake Swarm.

• Morning Market Melt-Up Momentum Fades But Bonds & Bullion Slide.

Business Insider:

• The news industry joins the attack against big tech companies like Google and Facebook.

• YouTube's crackdown on extremist videos has inadvertently shut down educational channels featuring old Nazi footage.

Night Trading 

• Asian equity indices are -.25% to +.5% on average.

• Asia Ex-Japan Investment Grade CDS Index 72.25 -1.75 basis points.

• China Sovereign CDS 50.0 -5.0 basis points.

• Bloomberg Emerging Markets Currency Index 66.66 -.02%.

• S&P 500 futures -.06%.

• NASDAQ 100 futures -.04%.

Morning Preview Links 

Earnings of Note 
Company/Estimate

Before the Open:

• (CHS)/.03

• (HRB)/4.15

• (HDS)/.81

• (JW/A)/1.03

After the Close:

• (PLAY)/1.14

Economic Releases
6:00 am EST

• The NFIB Small Business Optimism Index for May is estimated to fall to 102.0 versus 103.5 in April.
  

8:30 am EST

• The PPI Final Demand MoM for May is estimated to rise +.1% versus a +.2% gain in April.

• The PPI Ex Food and Energy MoM for May is estimated to rise +.2% versus a +.1% gain in April.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The Japan inflation data report, $38B 3Y T-Note auction, weekly US retail sales reports, Morgan Stanley Financials Conference, Wells Fargo Energy Conference and the Goldman Sachs Healthcare Conference could also impact trading today.

BOTTOM LINE: Asian indices are slightly higher, boosted by commodity and technology 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 Higher into Afternoon on Diminished Mexico Tariff Fears, China Trade Deal Hopes, Less European/Emerging Markets/US High-Yield Debt Angst, Tech/Financial Sector Strength

 Broad Equity Market Tone:

• Advance/Decline Line: Substantially Higher
  

• Sector Performance: Most Sectors Rising
  

• Volume: Below Average

• Market Leading Stocks: Outperforming

Equity Investor Angst:

• Volatility(VIX) 16.2 -.61%

• Euro/Yen Carry Return Index 127.54 +.12%

• Emerging Markets Currency Volatility(VXY) 8.49 -2.41%

• S&P 500 Implied Correlation 38.76 -1.3%

• ISE Sentiment Index 95.0 +26.7%
  

• Total Put/Call .79 unch.

• NYSE Arms 1.21 -14.2%

Credit Investor Angst:

• North American Investment Grade CDS Index 60.58 -3.18%
  

• America Energy Sector High-Yield CDS Index 619.0 -.27%

• European Financial Sector CDS Index 76.61 -4.02%

• Italian/German 10Y Yld Spread 257.75 -3.5 basis points
  

• Asia Ex-Japan Investment Grade CDS Index 72.84 -3.14%
  

• Emerging Market CDS Index 194.54 -1.72%
  

• iBoxx Offshore RMB China Corporate High Yield Index 163.49 +.02%

• 2-Year Swap Spread 6.5 -.25 basis point

• TED Spread 19.5 +1.75 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -13.25 -2.25 basis points

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 66.70 +.10%
• 3-Month T-Bill Yield 2.27% +1.0 basis point

• Yield Curve 24.5 +1.0 basis point

• China Iron Ore Spot 97.70 USD/Metric Tonne +.55%

• Citi US Economic Surprise Index -56.0 +.4 point

• Citi Eurozone Economic Surprise Index -24.3 +.9 point

• Citi Emerging Markets Economic Surprise Index -28.40 +3.2 points

• 10-Year TIPS Spread 1.74 -1.0 basis point
• 77.1% chance of Fed rate cut at July 31st meeting, 94.3% chance of cut at Sept. 18th meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -24 open in Japan 
• China A50 Futures: Indicating -20 open in China

• DAX Futures: Indicating +43 open in Germany

Portfolio:

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

• Disclosed Trades: None

• Market Exposure: 75% Net Long