Wednesday Watch

Evening Recommendations
Citigroup:

• Reiterated Buy on (AZO), raised estimates, boosted target to $224.
• Reiterated Buy on (CVS), target $40.
• Reiterated Buy on (JCP), target $40.
  

Night Trading

• Asian indices are +.25% to +1.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 160.50 +2.5 basis points.
• S&P 500 futures +.08%.
  
• NASDAQ 100 futures +.18%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (TOL)/-.20
• (AEO)/.17
• (DBRN)/.57
• (NTAP)/.43
• (RUE)/.19
• (JAS)/.44
• (PAY)/.26
• (FRED)/.20
  

Economic Releases
8:30 am EST

• Durable Goods Orders for April are estimated to rise +1.3% versus a -1.3% decline in March.
• Durables Ex Transports for April are estimated to rise +.5% versus a +2.8% gain in March.
  

10:00 am EST

• New Home Sales for April are estimated to rise to 425K versus 411K in March.

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory build of +250,000 barrels versus a +162,000 barrel gain the prior week. Gasoline supplies are estimated to rise by +300,000 barrels versus a -294,000 barrel decline the prior week. Distillate inventories are expected to rise by +500,000 barrels versus a -979,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise by +.03% versus a -.48% decline the prior week.

Upcoming Splits

• (EW) 2-for-1
  

Other Potential Market Movers

• The Fed's Lacker speaking, Fed's Evans speaking, weekly MBA mortgage applications report, $40 Bln 5-Year T-Note Auction, Barclays Capital Communications/Media/Tech Conference, Citi Healthcare Conference, BofA Merrill Services Conference, Janney Montgomery Scott Consumer Conference, Stephens Spring Investment Conference, UBS Oil/Gas Conference, Kaufman Cloud Computing Conference, (ITRI) Investor Day, (NWL) Analyst Day, (VQ) Analyst Meeting, (ARW) Analyst Meeting, (FSR) Investors Day, (SFG) Investor Meeting, (TMO) Analyst Meeting, (NTRS) Investor Conference, (YHOO) Investor Day and the (EW) Analyst Reception could also impact trading today.
  

BOTTOM LINE: Asian indices are mostly higher, boosted by commodity and shipping 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.

Stocks Falling into the Afternoon on North Korea Concerns, Rising Sovereign Debt Angst, Tax Hike Worries, Forced Selling

Broad Market Tone:

• Advance/Decline Line: Substantially Lower
  
• Sector Performance: Almost Every Sector Declining
  
• Volume: Above Average
  
• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• VIX 39.53 +3.13%
  
• ISE Sentiment Index 90.0 -14.29%
  
• Total Put/Call 1.24 +33.33%
  
• NYSE Arms 1.23 -35.84%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 128.78 bps +8.77%
  
• European Financial Sector CDS Index 158.63 bps +7.07%
  
• Western Europe Sovereign Debt CDS Index 144.50 bps +5.47%
  
• Emerging Market CDS Index 315.84 bps +3.91%
  
• 2-Year Swap Spread 54.0 +7 bps
  
• TED Spread 38.0 +2 bps
  

Economic Gauges:

• 3-Month T-Bill Yield .15% unch.
  
• Yield Curve 240.0 -5 bps
  
• China Import Iron Ore Spot $143.50/Metric Tonne -3.24%
  
• Citi US Economic Surprise Index +25.0 +4.5 points
  
• 10-Year TIPS Spread 1.89% -6 bps
  

Overseas Futures:

• Nikkei Futures: Indicating -80 open in Japan
• DAX Futures: Indicating +3 open in Germany

Portfolio:

• Slightly Lower: On losses in my Technology, Medical and Biotech long positions
  
• Disclosed Trades: Covered some of my (IWM)/(QQQQ) hedges and some of my (EEM) short
  
• Market Exposure: Moved to 75% Net Long

BOTTOM LINE: Today's overall market action is very bearish as the S&P 500 breaks to the lowest level since November of last year on good volume despite an improvement in consumer confidence. On the positive side, Gold, Airline and Retail stocks are holding up relatively well. Weekly retail sales rose +2.8% this week versus a +3.1% gain the prior week. This is also down from a +3.9% gain the week of April 6th, but up from a +2.4% increase the week of May 4th. Oil continues to trade very heavy and its decline is a large positive for the consumer heading into the summer. Investor angst gauges are surging again, which is also a big positive. On the negative side, Gaming, Coal, Alt Energy, Oil Tanker, Ag, Steel, Paper, Disk Drive, Road&Rail, Homebuilding, Construction, HMO, Medical and Energy shares are under significant pressure, falling 2.5%+. Cyclical and small-cap stocks are underperforming. Gauges of credit angst are rising significantly again. The Spain sovereign cds is soaring +17.5% to 245.9 bps, the China sovereign cds is surging +15.5% to 102.69 bps and the Russia sovereign cds is jumping +10.2% to 206.36 bps. Moreover, the Euro Investment Grade CDS Index is rising +7.6% to 126.21 bps. The Bloomberg Financial Conditions Index(BFCIUS:Index), which combines yield spreads and indices from the money markets, equity markets and bond markets into a normalized index fell to -1.26 yesterday, the lowest level since July of last year. Overseas stocks continue to fare far worse than US shares. Russia and Ukraine indices plunged over -6.0% today. The North Korean situation has added another significant uncertainty to the stock market and has the potential to spin out of control. The 10-year yield continues to fall too far, too fast, for the market's liking. As well, the euro continues to trade very heavy and while it is getting oversold again short-term, I still expect it to head substantially lower over the longer-term. Stocks have trimmed morning losses considerably. I will closely monitor broad market action in the final hour and may put some more hedges back on. I expect US stocks to trade modestly lower into the close from current levels on rising sovereign debt angst, increasing economic fear, North Korea worries, more shorting, technical selling, forced selling, tax hike worries and regulatory concerns.

Bear Radar

Style Underperformer:

• Mid-Cap Value (-2.21%)

Sector Underperformers:

• Alternative Energy (-3.74%), Agriculture (-3.20%) and Gaming (-3.15%)

Stocks Falling on Unusual Volume:

• CPY, ECOL, AIXG, KB, TXT, BBD, SKM, CBEY, LGCY, REP, LLY, NVS, ABFS, CSGP, SPMD, VECO, GTIV, POOL, HSII, CBRL, CEDC, ASMI, STX, TZOO, VPRT, ASML, PSMT, CMED, BLUD, SANM, SIVB, EWQ, FEZ, GRR, JKH, AIR, REP, VPU, PUI, IXN, DGT, UIL, NPK, IVW, DSG, LUX and IWS
  

Stocks With Unusual Put Option Activity:

• 1) FRE 2) PHM 3) CAM 4) AZO 5) XLNX
  

Stocks With Most Negative News Mentions:

• 1) BP 2) XOM 3) WMT 4) GS 5) PJC
  

Bull Radar

Style Outperformer:

• Large-Cap Growth (-2.07%)

Sector Outperformers:

• Gold (+.56%), Defense (-1.39%) and Retail (-1.67%)

Stocks Rising on Unusual Volume:

• AU, GFI, OSIS, ADTN, DCTH and AZO
  

Stocks With Unusual Call Option Activity:

• 1) ATVI 2) CVS 3) CTIC 4) AEO 5) AXL
  

Stocks With Most Positive News Mentions:

• 1) AAPL 2) AZO 3) BA 4) MDT 5) YHOO

Tuesday Watch

Night Trading

• Asian indices are -2.75% to -1.75% on average.
• Asia Ex-Japan Investment Grade CDS Index 158.0 +9.0 basis points.
• S&P 500 futures -1.65%.
  
• NASDAQ 100 futures -1.45%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (FLO)/.43
• (DSW)/.51
• (CBRL)/.58
• (AZO)/3.59
• (MDT)/.88

Economic Releases
9:00 am EST

• S&P/Case-Shiller US HPI YOY% for 1Q is estimated to rise +3.2% versus a -2.5% decline in 4Q.

10:00 am EST

• Consumer Confidence for May is estimated to rise to 58.5 versus a reading of 57.9 in April.
• The House Price Index for March is estimated unch. versus a -.2% decline in February.

Upcoming Splits

• (EW) 2-for-1
  

Other Potential Market Movers

• The Fed's Bernanke speaking, Fed's Plosser speaking, Fed's Bullard speaking, Treasury Secretary Geithner speaking, 2-Year Treasury Note Auction, Richmond Fed Manufacturing Index, weekly retail sales reports, ABC Consumer Confidence reading, (NICE) analyst day, (FLEX) analyst day, (MFE) analyst meeting, Stephens Spring Investment Conference, BofA Merrill Services Conference, UBS Global Oil & Gas Conference and the UBS Electronic Payments Summit could also impact trading today.
  

BOTTOM LINE: Asian indices are sharply lower, weighed down by financial and technology shares in the region. I expect US stocks to open lower and to maintain losses into the afternoon. The Portfolio is 50% net long heading into the day.

Stocks Slightly Lower into Afternoon on Disorderly Euro Decline, Rising Sovereign Debt Angst, Increasing Financial Sector Pessimism

Broad Market Tone:

• Advance/Decline Line: Lower
  
• Sector Performance: Most Sectors Declining
  
• Volume: Slightly Below Average
  
• Market Leading Stocks: Outperforming
  

Equity Investor Angst:

• VIX 32.76 +2.25%
  
• ISE Sentiment Index 113.0 +22.83%
  
• Total Put/Call .90 -27.42%
  
• NYSE Arms 1.29 -42.46%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 120.68 bps +3.41%
  
• European Financial Sector CDS Index 159.96 bps +7.51%
  
• Western Europe Sovereign Debt CDS Index 132.50 bps +.38%
  
• Emerging Market CDS Index 279.92 bps +.76%
  
• 2-Year Swap Spread 45.0 -1 bp
  
• TED Spread 39.0 unch.
  

Economic Gauges:

• 3-Month T-Bill Yield .15% unch.
  
• Yield Curve 249.0 -2 bps
  
• China Import Iron Ore Spot $144.0/Metric Tonne -.83%
  
• Citi US Economic Surprise Index +18.10 -3.6 points
  
• 10-Year TIPS Spread 2.0% -3 bps
  

Overseas Futures:

• Nikkei Futures: Indicating -26 open in Japan
• DAX Futures: Indicating -30 open in Germany

Portfolio:

• Slightly Higher: On gains in my Medical, Technology and Retail long positions
  
• Disclosed Trades: None
  
• Market Exposure: 75% Net Long

BOTTOM LINE: Today's overall market action is bearish as the S&P 500 trades near session lows despite some more positive economic data and a bounce in the euro. On the positive side, Gold, Software, Telecom, Drug, Retail, Food and Tobacco stocks are slightly higher on the day. Oil continues to trade very poorly, despite a significant escalation in Middle-East tensions, a bounce in the euro, the recent plunge in oil spec longs and today's positive economic reports. Several key stocks, such as (AAPL), are trading very well today. On the negative side, Gaming, Homebuilding, Construction, Networking, Disk Drive, Paper, Steel, Oil Service, Energy and Coal shares are under significant pressure, falling 2.0%+. Cyclicals and Small-Caps are underperforming. The Spain sovereign cds is jumping +10.3% to 235.95 bps, the Portugal sovereign cds is surging +11.3% to 340.30, the UK sovereign cds is rising +5.1% to 84.4 bps and the Russian sovereign cds is gaining +6.5% to 183.42 bps. Underneath the surface, the market's action is more bearish than the major averages indicate. Energy-related stocks are crashing in many cases and breadth is very poor. A test of recent market lows is looking increasingly more likely. I expect US stocks to trade mixed-to-lower into the close from current levels on rising sovereign debt angst, technical selling, rising energy sector pessimism, tax hike worries and regulatory fears.