Stocks Higher into Final Hour on Weak Russia Sanctions, Yen Weakness, Short-Covering, Drug/Retail Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Lower
  

• Sector Performance: Most Sectors Declining
  

• Volume: Around Average

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• Volatility(VIX) 14.29 +1.64%

• Euro/Yen Carry Return Index 148.10 +.41%

• Emerging Markets Currency Volatility(VXY) 8.27 -1.43%

• S&P 500 Implied Correlation 56.71 -2.83%

• ISE Sentiment Index 81.0 unch.

• Total Put/Call .90 -20.36% 

• NYSE Arms 1.29 -15.45% 

Credit Investor Angst:

• North American Investment Grade CDS Index 66.46 -1.25%

• European Financial Sector CDS Index 83.03 -.78%

• Western Europe Sovereign Debt CDS Index 35.19 -.37%

• Asia Pacific Sovereign Debt CDS Index 88.88 unch.

• Emerging Market CDS Index 290.01 -.97%

• China Blended Corporate Spread Index 354.89 +1.43%

• 2-Year Swap Spread 11.5 +.75 basis point

• TED Spread 22.0 +.25 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -2.0 -1.0 basis point

Economic Gauges:

• 3-Month T-Bill Yield .01% unch.

• Yield Curve 226.0 +3.0 basis points

• China Import Iron Ore Spot $108.60/Metric Tonne -2.16%

• Citi US Economic Surprise Index -21.40 +3.9 points

• Citi Emerging Markets Economic Surprise Index -26.10 -.5 point

• 10-Year TIPS Spread 2.19 -1.0 basis point

Overseas Futures:

• Nikkei Futures: Indicating +114 open in Japan

• DAX Futures: Indicating +11 open in Germany

Portfolio: 

• Higher: On gains in my tech/medical/retail sector longs and index hedges 

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

• Market Exposure: Moved to 50% Net Long

Today's Headlines

Bloomberg:

• EU Adds 15 Names to Sanctions List Over Russia’s Ukraine Moves. European Union governments added 15 names to the list of people sanctioned to protest the Kremlin’s backing of separatists in eastern Ukraine and its refusal to pull troops away from the border. The EU “has imposed sanctions on 15 additional persons responsible for actions undermining Ukraine’s territorial integrity,” EU spokeswoman Susanne Kiefer said in a posting on Twitter. The identities of the individuals weren’t disclosed. 

• Wimpy Sanctions Will Embolden Putin. The U.S. government has unveiled a new set of sanctions allegedly aimed at punishing Russian President Vladimir Putin for his country's actions in Ukraine. In contrast to the West's tough-sounding rhetoric, the sanctions -- which include such targets as a mineral water company -- seem carefully designed to have little impact.

• Roubini: Ukraine Could Tip Europe Back to Recession. (video)

• Panasonic Forecast Misses Estimates as Tax Weakens Demand. Panasonic Corp. (6752) forecast full-year profit 14 percent below analysts’ estimates as Japanese consumers reduce purchases of electronics and housing-related products after a sales-tax increase. Japanese consumers flocked to make purchases ahead of the sales tax increase in April, shifting revenue into the fourth quarter and crimping the start of the new financial year.

• China Vanke’s Profit Drops as Revenue Slumps Amid Property Curbs. China Vanke Co. (000002), the nation’s biggest developer by market value traded on mainland exchanges, said first-quarter profit dropped 5 percent as revenue slumped after it completed fewer new projects than planned. 

• China’s Stocks Decline Most in Seven Weeks on IPO Concern. The Shanghai Composite Index (SHCOMP) fell for a fourth day, losing 1.6 percent to 2,003.49 at the close, the most since March 10. 

• European Stocks Rise Amid Deals, U.S. Sanctions on Russia. European stocks advanced as companies from AstraZeneca (AZN) Plc to Bayer AG rose amid an increase in mergers-and-acquisitions activity, offsetting new U.S. sanctions against Russian individuals and companies. AstraZeneca jumped 14 percent to a record after Pfizer Inc. confirmed its interest in taking over the U.K. drugmaker for almost $99 billion. Bayer climbed 3.3 percent after it posted first-quarter profit that beat estimates and as it was said to explore a sale of its plastics unit. BP Plc, which holds a stake in OAO Rosneft, fell 1 percent as the Russian company’s chief executive officer came under U.S. sanctions. Siemens AG slipped 2.5 percent after it was said to have made an offer for Alstom SA to beat a bid from General Electric Co. The Stoxx Europe 600 Index added 0.2 percent to 334.13 at the close.

• Iron Ore Drops in China Amid Reports of Financing Curbs. Iron ore futures in China, the biggest buyer of the steel-making commodity, fell the most in more than a month after a report that banks will raise the cost of financing for purchasing the raw material. The contract for September delivery on Dalian Commodity Exchange retreated 4.4 percent to 760 yuan ($122) per metric ton, the largest loss since March 10 and lowest close since March 27. Steel reinforcement-bar and hot-rolled coil futures also declined. Banks will increase the size of deposits required “by large measure” from May 1 for letters of credit used to finance purchasing iron ore, the Guangzhou-based Southern Metropolis Daily reported, citing sources it didn’t identify. Iron ore stockpiles at Chinese ports jumped to a record amid demand to use the ingredient as collateral to get credit while spot ore prices declined 17 percent this year.

• Fear Muted in Nasdaq Amid Biggest Swings in Two Years: Options. The fear gauge for technology stocks shows little panic among investors even after the Nasdaq 100 Index’s wildest swings in two years. The Chicago Board Options Exchange’s measure of expectations for future volatility on the Nasdaq 100 fell 4.1 percent to 18.59 last week, the lowest level since 2012 compared with a gauge tracking the magnitude of recent share-price moves. That shows traders aren’t too worried that declines will dramatically worsen after stocks from Amazon (AMZN:US).com Inc. to Netflix Inc. slid more than 5 percent last week.

• Junk-Bond Skeptics Squeezed as JPMorgan Sees Tears in 2015. It may seem inevitable that the riskiest corporate debt will lose value, since investors are getting paid about the least ever to own such bonds. Yet after bearish wagers on the biggest junk-bond exchange-traded funds surged to a record last month, the market just keeps on rallying. “Will the search for yield come to tears?” JPMorgan Chase & Co. strategists led by Jan Loeys wrote in an April 25 report. “Eventually, yes.”

Wall Street Journal: 

• Ukraine Mayor Gennady Kernes Shot in Attack, Kharkiv City Council Says. Attack Comes Amid Rising Tensions as Pro-Russian Separatists Sought to Extend Control to Another City.

CNBC:

• Stocks may get rude awakening: Mohamed El-Erian. (video)

• Watch Art Cashin: Why stocks retreated from highs. (video)

ZeroHedge: 

• Donetsk Riots Break Out In "Scenes Of Absolute Brutality". (video)

• Goldman Sachs Strongly Suggests Clients Sell Them Their Treasury Bonds. (graph)

• Russell 2000 Loses Critical Support As MoMo Massacre Accelerates. (graph)

• Meanwhile In China, Bayonets At The Ready. (pics)

• Dallas Fed Surges To 7-Month Highs But Job Outlook Tumbles To Lowest In 2014. (graph)

• Pending Home Sales Slam Expectations After End Of "Harsh Weather" In South And West. (graph)

• Russia Voices "Disgust" At New US Sanctions, Warns "Won't Go Unanswered".

Business Insider: 

• ANALYST: Bank Of America(BAC) Just Completed The Wall Street 'Trifecta Of Misery'.

• In One Paragraph, Why Putin Is Probably Chuckling At The Latest Sanctions.

• Pfizer(PFE) Confirms It Wants To Do A Blockbuster Takeover Of AstraZeneca.

The Interpreter:

• For Putin, Ukraine is ‘Personal, Not Just Business,’ Belkovsky Says.

Reuters:

• BofA suspends buyback, dividend increase after capital error. Bank of America Corp said on Monday it will suspend a planned increase in its quarterly dividend as well as its latest stock buyback program because it miscalculated a measure of the capital on its books. The second-largest U.S. bank said because of the mistake it had to reduce by $4 billion the capital level that regulators watch. The figure equals about three-quarters of the extra money that regulators had approved for returning to shareholders over the next four quarters.

S&P Capital IQ:

• Asia-Pacific Economic Outlook: Risks Abound, Led By China's Financial Sector.

AP:

• AP Survey: China's Lending Bubble a Global Threat. Just as the global economy has all but recovered from debt-fueled crises in the United States and Europe, economists have a new worry: China. They see a lending bubble there that threatens global growth unless Beijing defuses it. That's the view that emerges from an Associated Press survey this month of 30 economists.

Bear Radar

Style Underperformer:

• Small-Cap Growth -2.22%

Sector Underperformers:

• 1) Gaming -5.15% 2) Alt Energy -4.72% 3) Social Media -4.62%

Stocks Falling on Unusual Volume:

• WB, ICLR, BFAM, SI, YOKU, PRXL, EDU, HAE, CNA, AMZN, BAC, DV, CVLT, VLCCF, YELP, EXP, SOHU, MSTR, TQQQ, GIMO, CRM, NOV, OZM, CUDA, TEN, PZZA, TEN, CVD, ADVS, CNO, LVS, EXP, WDAY, AMZN, CSGP, CREE, GIMO, VEEV, SPWR, CAMP, BAC, NFLX, WGO, GWRE, FUEL, MPAA, P, HAE, LNKD, NMBL, OZM and ECOM

Stocks With Unusual Put Option Activity:

• 1) FSL 2) NOV 3) COH 4) XLI 5) BAC
  

Stocks With Most Negative News Mentions:

• 1) CAR 2) BWLD 3) MAR 4) BAC 5) TYC
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Large-Cap Growth +.09%

Sector Outperformers:

• 1) Drugs +1.18% 2) Computer Services +.77% 3) Retail +.63%
  

Stocks Rising on Unusual Volume:

• FURX, SUSS, AZN, NRF, POM, CHTR, AFOP, RCII, GWPH, PFE, CST, ROP and AVX

Stocks With Unusual Call Option Activity:

• 1) NRF 2) MDLZ 3) BSX 4) KERX 5) CCI

Stocks With Most Positive News Mentions:

• 1) CHTR 2) AOL 3) IBM 4) AAPL 5) GLW
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Monday Watch

Weekend Headlines 
Bloomberg:

• U.S. Plans to Hit Putin Inner Circle With New Sanctions. The U.S. and European Union will impose new sanctions as early as today on Russian companies and individuals close to President Vladimir Putin over the escalating crisis in Ukraine, officials said. “We will be looking to designate people who are in his inner circle, who have a significant impact on the Russian economy,” Deputy White House National Security Adviser Tony Blinken said on CBS’s “Face the Nation” program yesterday. “We’ll be looking to designate companies that they and other inner-circle people control. We’ll be looking at taking steps as well with regard to high-technology exports to their defense industry. All of this together is going to have an impact.”
• Europe Lacks Founding Father Glue as Russia, Syria Sow Division. What the European Union needs is someone like John Jay. Appealing in 1787 for the ratification of the U.S. constitution, the American founding father said “a cordial Union, under an efficient national government” would provide “the best security that can be devised against hostilities from abroad.” From Ukraine’s upheaval and the renewed Russian menace to Syria’s civil war and chaotic post-revolutionary Libya, today’s EU confronts no shortage of external dangers. But instead of knitting the bloc’s 28 countries together, the threats have exposed what is keeping them apart.
• Russian Markets Have Worst Week Since Crimea as S&P Cuts Rating. Russian bonds and stocks suffered their worst weekly rout since mid-March as the truce forged to ease tension in eastern Ukraine unraveled, fueling concern that President Vladimir Putin faces stiffer international sanctions. 
• China’s Hebei Reports Growth Slump on Capacity, Pollution Curbs. China’s Hebei province said economic expansion slumped to 4.2 percent in the first quarter from a year earlier, as steel output fell and factories closed amid government efforts to clean up the environment. The increase in gross domestic product compares with national growth of 7.4 percent and the province’s previously reported 9.1 percent pace a year earlier. Hebei’s industrial output rose 3.5 percent in the first three months, down from 12 percent a year earlier, as the province pursued “structural changes to its growth model,” according to a statement on the government’s website dated April 23. The slowdown in Hebei’s expansion underscores the impact of the government’s campaign to reduce industrial overcapacity and contamination of the environment in the world’s second-biggest economy. Premier Li Keqiang said last month he will “declare war” on pollution and pledged to reduce emissions, impose a ceiling on energy consumption and boost clean-water supplies.
• Japan Loses to South Korea Even With Yen Slide: Chart of the Day. South Korea’s product innovation and the rise of the nation’s global brands such as Samsung Electronics Co. have helped it to outperform Japan on exports even after the yen’s slide. 
• IMF Says Asia Must Pursue Structural Changes Amid Volatility. Asian policy makers must push ahead with structural changes to ensure the region continues to lead global growth and withstand volatility as the U.S. reduces monetary stimulus, the International Monetary Fund said. Asian economies will face higher interest rates and bouts of volatility in capital flows and asset prices as global liquidity tightens amid a recovery in advanced nations, the Washington-based lender said in its Regional Economic Outlook for Asia and Pacific released today.
• German Ship Captain Swamped in Debt Underscores Bank Risk. As it tries to clean up the region’s banks, the ECB is taking a closer look at whether they need more capital to absorb possible losses on loans like Robrahn’s. Shipping loans are among the riskiest assets on banks’ balance sheets and among those most prone to misstatement, an ECB spokeswoman said. German lenders including Hamburg-based HSH Nordbank, Commerzbank AG (CBK) and Norddeutsche Landesbank Girozentrale controlled about one-third of the $475 billion global ship-finance market at the end of 2012, according to Swen Metzler, an analyst at Moody’s Investors Service in Frankfurt.
• Toyota Said to Plan to Move U.S. Sales Office to Texas. Toyota Motor Corp. (7203) is moving substantial parts of its U.S. headquarters in Torrance, California, to suburban Dallas as the world’s largest automaker seeks savings from its U.S. sales unit, said people familiar with the matter. The surprise move is a blow to the Golden State, the biggest U.S. auto market and proponent of the strictest clean-air rules. Toyota’s Prius hybrid has been California’s top-selling model for the past two years and helped secure a leading 22 percent market share. It also represents a victory for Texas Governor Rick Perry, who’s made repeated visits to California to lure businesses to his state with promises of lower taxes and easier regulations.
• Chinese Stocks Fall to Five-Week Low on IPO Concerns, China Life. China’s stocks fell, sending the benchmark index to a five-week low, after the nation’s biggest life insurer reported a drop in profit and concern grew that new share sales will divert funds. China Life Insurance Co. tumbled the most in six weeks after first-quarter profit slid 28 percent. China International Marine Containers (Group) Co. lost 2.1 percent after net income dropped 42 percent. Huayi Brothers Media Corp. plunged 4.1 percent, dragging down the ChiNext index of small-cap shares. The Shanghai Composite Index (SHCOMP) fell for a fourth day, losing 1 percent to 2,016.41 at 9:57 a.m. and heading for the lowest close since March 20.
• Asian Stocks Fall Third Day as Russia Faces New Sanctions. Asian stocks fell for a third day, with the regional benchmark index heading for a two-week low, amid prospects Russia will be subject to new sanctions as tensions over Ukraine intensify. Honda Motor Co. sank 4.7 percent as Japan’s third-largest carmaker forecast a full-year profit that missed analysts’ estimates. Japan Display Inc. tumbled 11 percent after the supplier of screens for Apple Inc.’s iPhones posted operating profit and sales that fell short of expectations. Newcrest Mining Ltd., Australia’s largest gold producer, rose 3.8 percent as the bullion traded near a two-week high. The MSCI Asia Pacific Index lost 0.4 percent to 137.64 as of 9:31 a.m. in Tokyo, with nine of 10 industry groups falling.
• Gold Bulls Return in Time for Rally on Ukraine Tensions. Investors returned to gold just in time for the longest price rally in a month amid mounting tension over Ukraine. Money managers increased their net-long position in gold in the week ended April 22, snapping a four-week retreat that was the longest this year. The metal climbed in the next three days, sending futures to the best start to a year since 2006.
• Saudi Arabia Reports Eight More Deaths in MERS Outbreak. Saudi Arabia reported eight more deaths from Middle East Respiratory Syndrome as the number of cases in the outbreak climbed to 339.

Wall Street Journal:

• U.S. Beefs Up Military Options for China as Obama Reassures Allies in Asia. The U.S. military has prepared options for a muscular response to any future Chinese provocations in the South and East China seas, ranging from displays of B-2 bomber flights near China to aircraft-carrier exercises near its coastal waters, officials said. The menu of options, described by officials briefed on the action plan, reflects concerns that U.S. allies in Asia have questions about the Obama administration's... 
• Highflying Small Caps Get Clipped. Last year's blistering rally in shares of smaller companies may have cooled off, but many investors say the group still appears pricey. In recent weeks, investors have pulled back from the riskier corners of the stock market, and small-company stocks are typically more vulnerable to wide price swings than are large company shares. Investors say they are skeptical that small-company stocks will be able to live up to earnings... 
• Big U.S. Banks Make Swaps a Foreign Affair. As regulators tighten rules on the U.S. swaps market, large American banks are maneuvering to take some of the business overseas. Banks including Bank of America Corp., Citigroup Inc., Goldman Sachs Group Inc., J.P. Morgan Chase & Co. and Morgan Stanley are changing the terms of some swap agreements made by their offshore units so they don't get caught by U.S. regulations, according to people with knowledge of the situation.
• Asia's Export Engine Sputters. Economic Expansion Threatened in Four Major Countries. For decades, Asia fueled its development by selling products to the West. That engine is now sputtering, threatening to sap the region's economic expansion.
  
  Combined exports from Asia's four export powerhouses—China, Japan, South Korea and Taiwan—slid 2% in the first three months of this year from the same period last year.
  China's drop is...
• Microsoft(MSFT) Plots Original TV Shows for Xbox. 
• Siemens' New Alstom Bid Disrupts GE Deal. French Government Taps Brakes on Energy-Assets Sale. Siemens AG of Germany barged in on Alstom SA's plans to sell its energy assets to General Electric Co. Sunday, proposing a counter offer that would forge a global behemoth while keeping a symbol of French industry firmly rooted in Europe. Helping Siemens crash the party was France's sharp-elbowed economy minister, Arnaud Montebourg, who cleared a path for the German firm by reminding Alstom Chairman and Chief Executive Patrick...
• The Russia Problem. Putin's Kremlin is not a status quo power with a few historical grievances.  

MarketWatch.com:

• South Korea: North may be planning nuclear test. South Korea said it was seeing indications that North Korea could be preparing to carry out a fourth nuclear weapons test, as Washington warned Pyonyang against doing so.

Fox News:

• Housing – Looking Over the Edge of a Cliff. After underperforming during winter 2014, March’s housing market data was expected to rebound.  That did not happen, and housing remains crucially poised at the edge of a cliff, with higher home prices it seems the only protection.

CNBC:

• Killer virus spreads unchecked as pork hits record.
• What the Fed will do this week—and why it matters.

Zero Hedge:

• Pro-Russian Forces "Parade" OSCE Hostages On TV As Ukraine Air-Force In "Full Operational Readiness" & EU Preps Sanctions 2.0. 
• Satellite Images Reveal Massing Of 15,000 Ukraine Troops, Hundreds Of Tanks Around Slavyansk.
• Ukraine Blocks Crimea Water Supply With Russia Set To Halt Ukraine Gas.
• Martin Armstrong Fears World War III Is On The Horizon.
• Someone Is Betting That The Chinese Currency Collapses By The End Of 2014? (graph)
• BofA(BAC) Warns Treasury Regime Change Is Coming.
• America's Consumers Are Dropping, Not Shopping. (graph)
• 5 Things To Ponder: Smorgasbord. 
• Mortgage Companies Face "Tremendously Difficult" Year As Housing Recovery Crumbles.
• CEO 'Post-Weather' Optimism Collapses To 5-Month Lows. (graph)
• What Lumber's Impending Trend Test Means For Housing. (graph)
• Bitcoin Tumbles After BTC China Halts Funding Amid Concerns PBOC About To Get Serious. (graph)
• The Canadian Housing Bubble Puts Even The US To Shame. (graph)
• This Is Crazy! Current Leveraged Recap Binge Is Clone Of 2007 Mania.

Business Insider:

• Is It Time To Freak Out About Housing?
• Stunning Yet Eerie Photos Show 'Ground Zero' Of Chernobyl Years After The Nuclear Disaster.
• China's President Hints He's Incredibly Anxious About Ethnic Unrest.
• Kim Jong-un To North Korean Troops: 'Nothing Is More Important Than Preparing For Combat Now'.
• CODE RED: Central Banks Will Frantically Pound The Panic Button And Eventually Become Executioners To The World's Currencies.
• BREMMER: Russia Is Looking For Any Excuse For Trouble In Ukraine.
• Why The EU Is Malfunctioning.
• Why A New Skyscraper In Saudi Arabia Could Mean Doom For The Global Economy.
• 17 Emerging Energy Technologies That Will Change The World.

Wall Street All-Stars:

• Indicator Update: Sell in May?

Commentary Magazine:

• Reality Is Crushing the Obama Presidency.

Financial Times:

• Misery continues for trend-following hedge funds.
• European corporates thwart analysts’ optimism. For the fourth year in a row, consensus expectations for European companies’ earnings growth at the beginning of the year have proved wildly over-optimistic.

Telegraph:

• BP and Shell exposed as US prepares first warning shot against Russia's oil and gas industry. Firms may be forced to curtail operations as G7 powers prepare to launch new sanctions.

Weekend Recommendations

Barron's:

• Bullish commentary on (AAPL), (OCN), (GM), (AIG), (PFE), (TRIB) and (ZTS).

• Bearish commentary on (TSLA), (BAC), (LNKD) and (JPM).

Night Trading

• Asian indices are -1.0% to unch. on average.

• Asia Ex-Japan Investment Grade CDS Index 127.50 +1.5 basis points.

• Asia Pacific Sovereign CDS Index 89.75 +2.0 basis points.

• FTSE-100 futures +.17%.

• S&P 500 futures +.03%.

• NASDAQ 100 futures -.05%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (TEN)/.86
• (GLW)/.30
• (NOV)/1.38
• (LH)/1.58
• (CNA)/.83
• (L)/.70
• (CRI)/.71
• (TCS)/.27
• (JEC)/.89
• (PCL)/.15
• (HIG)/.93
• (ADVS)/.32
• (PPS)/.63
• (GGP)/.30
• (HLF)/1.29
• (BWLD)/1.34
• (SCCO)/.43 

Economic Releases 
10:00 am EST

• Pending Home Sales for March are estimated to rise +.7% versus a -.8% decline in February.

10:30 am EST

• Dallas Fed Manufacturing Activity Index for April is estimated to rise to 6.0 versus 4.9 in March.

Upcoming Splits

• None of note

Other Potential Market Movers

• The German Retail Sales report could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by technology and financial shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 25% net long heading into the week.

Weekly Outlook

Wall St. Week Ahead by Reuters.
Stocks to Watch Monday by MarketWatch.
Weekly Economic Calendar by Briefing.com.

BOTTOM LINE: I expect US stocks to finish the week modestly lower on Russia/Ukraine tensions, rising emerging markets/European debt angst, yen strength, technical selling and earnings concerns. My intermediate-term trading indicators are giving neutral signals and the Portfolio is 25% net long heading into the week.