Bull Radar

Style Outperformer:

• Large-Cap Value -.75%

Sector Outperformers:

• 1) Gold  & Silver +1.29% 2) Networking +.39% 3) Oil Tankers +.09%
  

Stocks Rising on Unusual Volume:

• STEI, SCI, SFD, TFM, PWRD, SLM, AEGR, TTM, INFI, BWS and SLM

Stocks With Unusual Call Option Activity:

• 1) ADI 2) ATHN 3) MCHP 4) EMN 5) MON
  

Stocks With Most Positive News Mentions:

• 1) BK 2) TXN 3) LLY 4) MAKO 5) LMT
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Wednesday Watch

Evening Headlines 
Bloomberg: 

• BOJ Seen Failing to Tame Volatility as Sale Slumps. Expectations for the widest bond price swings in more than four years and the weakest demand at an auction in nine months added to signs of waning debt market confidence in Bank of Japan Governor Haruhiko Kuroda. Implied volatility of Japan’s 10-year note futures, a measure of expected moves used to price options, climbed to 7.23 percent yesterday, the highest since November 2008, according to data compiled by Bloomberg. A sale of 20-year debt yesterday drew the lowest demand since August 2012. Expected price fluctuations for U.S. Treasury futures rose to 5.06 percent from 3.61 percent on April 30. 

• Abe Adviser Tells S. Korea to Cope With Yen Not Blame Japan. Koichi Hamada, an economic adviser to Japanese Prime Minister Shinzo Abe, told South Korea to adjust its own monetary policies if officials are concerned at the effects of a yen weakened by unprecedented easing. 

• Shadow Bank Crackdown Halts Record Junk Narrowing: China Credit. The yield premium investors demand to buy China's riskiest bonds is widening, ending a record five-quarter run of declines, after a crackdown on shadow banking strained corporate finances. The yield gap on three-year AA- notes over AAA debt jumped 15 basis points to 137 since March 31, after narrowing 147basis points from the end of 2011, Chinabond indexes show. Chinese regulators are forcing trust funds and wealth management plans to shift assets into publicly traded securities, robbing property developers and local-government finance vehicles of so-called shadow banking funds.

• China Credit-Bubble Call Pits Fitch Against S&P. Chinese banks are adding assets at the rate of an entire U.S. banking system in five years. To Charlene Chu of Fitch Ratings, that signals a crisis is brewing. Total lending from banks and other financial institutions in China was 198 percent of gross domestic product last year, compared with 125 percent four years earlier, according to calculations by Chu, the company’s Beijing-based head of China financial institutions. Fitch cut the nation’s long-term local-currency debt rating last month, in the first downgrade by one of the top three rating companies in 14 years. “There is just no way to grow out of a debt problem when credit is already twice as large as GDP and growing nearly twice as fast,” Chu, 41, said in an interview. Her views have struck a nerve. “Everyone is talking about credit -- about the credit cycle, leverage and credit-quality problems,” said Stephen Green, head of Greater China research at Standard Chartered Plc in Hong Kong, adding that there’s not enough good data available. “It’s a big black box, and it’s quite scary.”    

• China Growth Outlook Cut by IMF as ‘Decisive’ Reforms Urged. The International Monetary Fund lowered its forecasts for China’s growth and said making “decisive” policy changes would put the economy on a more sustainable path.

• Asian Stocks Advance for Second Day on U.S. Data. Asian stocks rose for a second day after improving U.S. consumer confidence and home-price data bolstered optimism in the world’s largest economy. The Australian dollar weakened and the yen strengthened. The MSCI Asia Pacific Index added 0.2 percent by 11:33 a.m. in Tokyo. Japan’s Topix Index advanced 1 percent.

• Rebar Trades Near Lowest in 6 Months on Weak Iron Ore Prices. Steel reinforcement-bar futures were little changed near the lowest level in six months after iron ore prices fell and Chinese Premier Li Keqiang indicated a shift from rapid expansion to stable growth. Rebar for delivery in October on the Shanghai Futures Exchange fell as much as 0.7 percent to 3,465 yuan a ($565) a ton, the lowest level for a most-active contract since Nov. 30, and was at 3,489 yuan at 10:15 a.m. local time. Futures are set for a fourth monthly decline.

• Russia’s Syria Missile Sale Signals Protracted Conflict. Russia’s decision to sell advanced anti-aircraft missiles to Syria complicates efforts to find a swift diplomatic resolution to that country’s civil war and underscores the persistent strains in U.S.-Russian relations. Moscow’s announcement yesterday came less than 24 hours after U.S. Secretary of State John Kerry met Russian Foreign Minister Sergei Lavrov to discuss plans for peace talks on Syria and a day after the European Union lifted its arms embargo on Syrian rebel groups.

Wall Street Journal: 

• Apple's(AAPL) Cook Hints at Wearable Devices. Apple Inc. Chief Executive Tim Cook, defending its prowess as a tech trend-setter, hinted that wearable devices may play a role in future product plans.

• Curious IRS Timing. Did the tax agency also target groups that support Israel? The IRS has admitted targeting groups that wanted to speak on issues during the 2012 election season. But did the agency also target tax-exempt groups that opposed Administration policy priorities?

Fox News: 

• California Dems push anti-fracking bills, aim to curb potential oil bonanza. California is on the verge of a new gold rush. Expanded hydraulic fracturing -- or "fracking" -- at the Monterey Shale formation is sparking estimates that 15 billion barrels of oil could be accessed, along with millions of jobs and huge contributions to the domestic energy supply. Even the state's green-friendly Democratic governor, Jerry Brown, says "the potential is extraordinary." But standing in the way is a flurry of anti-fracking bills. At last count, 10 were on the table, all introduced by Democrats seeking tighter controls over the controversial technology. 

• Issa subpoenas State Department for Benghazi documents. Republican Rep. Darrell Issa issued subpoenas Tuesday for a host of State Department emails and other communications on the Benghazi terror attack, signaling that the Obama administration's recent document dump would not satisfy congressional investigators. Issa, chairman of the House Oversight and Government Reform Committee, claimed in a letter to Secretary of State John Kerry that the department is still "withholding documents."

CNBC: 

• The Fed vs. Congress: Who Is Enabling Whom? The dominant narrative about economic policy has it that the Federal Reserve's easy money policies are enabling congressional intransigence and partisanship. But this might be exactly backward. 

• Australia's Dollar Slides to 19-Month Low. The Australian dollar tumbled to its lowest level since October 2011 in early Asia trade on Wednesday, extending this month's sharp slide against a broadly-stronger U.S. currency. The latest catalyst for move in the Aussie dollar was stronger U.S. economic data overnight that pushed the greenback higher against all major currencies. Data published on Tuesday showed consumer confidence rose in May to its highest level in more than five years.

Zero Hedge: 

• Chart Of The Day: Crushed US Consumer + All Time High New Home Prices = Record Housing Bubble. (graph)

• Haunted By The Last Housing Bubble, Fitch Warns "Gains Are Outpacing Fundamentals". (graph)

• Which Asset Would You Rather Hold As Collateral? (graph)

• NYSE Margin Debt Rises To New All Time High. (graph)

• Hugh Hendry Latest Investments And Outlook.

• JOMO Arigato Mr. Kuroda. (graphs)

Business Insider: 

• Bitcoin Users Will Freak Out When They See The Cruise Missile The Justice Department Just Fired Against Another Digital Currency.

• CONFIRMED: Somalian Extremists Have Captured A US Drone.

• Israel Threatens To Attack Russian Missile Deliveries To Syria.

Reuters:

• Another investor to pull money from SAC as probe continues. Ironwood Capital Management plans to pull about $100 million from embattled hedge fund SAC Capital Advisors, adding to the list of problems for billionaire trader Steven A. Cohen. 

• Money from China? Then "Made in China", shipowners told. Chinese banks have sharply increased loans to global shipowners as European lenders retreat from the market but some are driving a hard bargain: the finance often comes with the condition that vessels be built in China.

Financial Times: 

• US housing lift could crimp Fed buying. The largest rise in house prices for seven years and a surge in consumer confidence have added to a fast-improving US economic outlook, increasing the chances the Federal Reserve will slow its $85bn-a-month in asset purchases.

China Securities Journal:

• China May Expand Property Tax Trial by Large Scope. China's property tax trials may be expanded by a "relatively large scope" targeting newly purchased homes, citing a person familiar with the matter. The effects of a property tax in Shanghai and Chongqing isn't clear after two years of trials, the person said.

Evening Recommendations 

• None of note

Night Trading

• Asian equity indices are -.25% to +.50% on average.

• Asia Ex-Japan Investment Grade CDS Index 107.0 -2.5 basis points.

• Asia Pacific Sovereign CDS Index 90.75 -3.0 basis points.

• FTSE-100 futures -.65%.

• S&P 500 futures -.04%.

• NASDAQ 100 futures +.02%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (CHS)/.36

• (TFM)/.44

• (BWS)/.22

• (DSW)/.89 

Economic Releases

• None of note

Upcoming Splits

• (WFM) 2-for-1

Other Potential Market Movers

• The Fed's Rosengren speaking, 5Y T-Note auction, Bank of Canada rate decision, Germany Unemployment/CPI data, weekly MBA mortgage applications report, weekly retail sales reports, Sanford C. Bernstein Strategic Decisions Conference, Cowen & Company Tech/Media/Telecom Conference, KeyBanc Industrial/Auto/Transports Conference and the Citi Consumer Conference could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by financial and technology shares in the region. I expect US stocks to open modestly higher and weaken into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.

Stocks Rising into Final Hour on Less Eurozone Debt Angst, US Economic Data, Short-Covering, Financial/Healthcare Sector Strength

Broad Market Tone:

• Advance/Decline Line: Higher
  

• Sector Performance: Most Sectors Rising
  

• Volume: Light

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• VIX 14.38 +2.79%

• ISE Sentiment Index 72.0 +2.86%

• Total Put/Call 1.02 -19.69%

• NYSE Arms .74 -36.72%

Credit Investor Angst:

• North American Investment Grade CDS Index 75.25 -.73%

• European Financial Sector CDS Index 136.82 -4.11%

• Western Europe Sovereign Debt CDS Index 81.08 -1.12%

• Emerging Market CDS Index 263.66 +1.42%

• 2-Year Swap Spread 17.50 +1.5 bps

• TED Spread 23.75 unch.

• 3-Month EUR/USD Cross-Currency Basis Swap -14.25 -.25 bp

Economic Gauges:

• 3-Month T-Bill Yield .04% unch.

• Yield Curve 186.0 +10 bps

• China Import Iron Ore Spot $117.80/Metric Tonne -2.56%

• Citi US Economic Surprise Index -14.30 +1.0 point

• 10-Year TIPS Spread 2.27 +2 bps

Overseas Futures:

• Nikkei Futures: Indicating +139 open in Japan

• DAX Futures: Indicating -13 open in Germany

Portfolio: 

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

• Disclosed Trades: None

• Market Exposure: 50% Net Long

Today's Headlines

Bloomberg:

• Rajoy Sees Reprieve as Spanish Recession Evidence Mounts. Spain will probably secure two more years to tame the largest budget deficit in the European Union (EUBDEURO) as first-quarter data show the effects of the toughest austerity measures in its democratic history. The European Commission will decide tomorrow whether to grant Spain until 2016 to bring its deficit back within the EU limit of 3 percent of gross domestic product. Its verdict is due as a series of releases this week including mortgage lending, gross domestic product and inflation may underline that the construction slump that triggered the nation’s economic crisis in 2008 is far from over.

• Europe Banks Sell Once-Toxic Debt for Subprime Return: Mortgages. The U.S. mortgage bonds that were exported around the globe and triggered the worst financial crisis since the Great Depression are now helping Europe’s banks and governments repair balance sheets after jumping in value. While European banks and governments need to sell assets to raise capital or repay taxpayer-funded rescues, investors are seeking riskier, potentially higher-paying securities as central banks globally push down yields on safer debt. With U.S. home prices rising at the fastest pace in seven years, that has turbocharged demand for non-agency bonds, with subprime-backed debt returning 12.7 percent this year after rallying more than 41 percent in 2012, according to Barclays Plc data.

• Commerzbank Downgraded by S&P on Concern Over Profit. Commerzbank AG (CBK), Germany’s second-biggest bank, had its debt rating lowered one step by Standard & Poor’s on concern the lender will struggle to boost earnings on a sustainable basis.

• European Stocks Rise Most in a Month as AstraZeneca Gains. European stocks advanced, with the Stoxx Europe 600 Index climbing the most in more than a month, as U.S. and U.K. markets reopened following a public holiday. The Stoxx 600 increased 1.3 percent to 308.23 at the close of trading, extending its rally this month to 3.9 percent.

• RBC's Yen Bull Battles Hedge Funds on Bearish Bets: Currencies. Royal Bank of Canada's Adam Cole has a message for hedge funds that have built bets against the yen to the highest since 2007 on speculation the currency's 24% slide since September will continue. "Currency moves that are driven by nothing but layer upon layer of leverage are, in the long run, unsustainable," Cole said in an interview. 

• Zoomlion Says It’s Checking Data After Report on Sales. Zoomlion Heavy Industry Science & Technology Co. (1157), China’s second-largest maker of construction equipment, denied that it falsified sales as alleged in a news report published May 27. That article saying sales were improperly accounted for was “distorted” and “misleading,” Zoomlion said in a Shenzhen stock exchange filing yesterday. KPMG and one other auditor signed off on the company’s 2012 financial report, the Changsha, China-based company said in the statement.

• Pernod Ricard Forecasts Slower China Growth on Weak Economy. Pernod Ricard SA, (RI) France’s biggest distiller, forecast weaker growth in China as slower economic growth weighs on demand and the government’s austerity campaign affects spending on entertainment. 

• Dollar Gains as Economic Data Bolster Bets Fed Will Taper Buying. The dollar strengthened versus the euro and the yen as reports showed U.S. consumer confidence reached the highest level since 2008 and home values climbed, bolstering bets the Federal Reserve will slow its bond buying.

• Home Prices in U.S. Rise by Most Since 2006 in March. The S&P/Case-Shiller index of property values increased 10.9 percent from March 2012, the biggest 12-month gain since April 2006, after advancing 9.4 percent in February, a report showed today in New York. The median projection of 30 economists surveyed by Bloomberg called for a 10.2 percent advance.

• Oil Probe That EU Says Mirrors Libor May Reveal Huge Damage. Oil-price manipulation may have wrought “huge” damage to consumers, the European Union’s antitrust chief said today, as he drew comparisons with EU investigations into rigging of bank rates including Libor.

• Morgan Stanley(MS) Said to Move Asia Hedge-Fund Event to U.S. Morgan Stanley (MS) will hold a gathering in New York to showcase Asian hedge funds to investors after pulling its capital introductions event in China because of the bird flu, said three people with knowledge of the matter.

• Global Tablet Shipments to Outpace PCs by 2015, IDC Says. Global tablet shipments will outpace the entire personal-computer market by 2015, fueled by rising demand for lower-priced and smaller alternatives to Apple Inc. (AAPL)’s iPad, market researcher IDC said. Tablet shipments are expected to surge 59 percent to 229.3 million units this year, from 144.5 million in 2012, Framingham, Massachusetts-based IDC said in a statement today. PC sales will decline 7.8 percent this year, IDC said in a separate statement, worse than its prior projection for a 1.3 percent decrease.

Wall Street Journal:

• U.S. Alleges $6 Billion Money-Laundering Operation. Federal prosecutors have filed criminal charges against seven men who allegedly set up an Internet-based currency and used it to launder $6 billion in criminal proceeds, a sign of growing concern among law enforcement about digital cash.

• Bad Debts Rise at Portugal's Bank. Portuguese banks have strengthened their liquidity and capital levels since the country requested a bailout in 2011, but bad debts continue to rise amid a deep recession, the Bank of Portugal said in a report Tuesday. Portugal's main banks have been reporting an increase in bad debts since the government started implementing austerity under a €78 billion ($100 billion) bailout requested in early 2011. In exchange for the loan from European Union peers and the International Monetary Fund, the country has increased taxes, cut public-sector wages and reduced spending on infrastructure, health and education.

Fox News:

• House panel probes whether Holder misled lawmakers on reporter records grab.

MarketWatch:

• Google(GOOG) Fiber could turn cable, phone giants into boiled frogs, analyst says.

• ‘Arrested Development’ reaction stunts Netflix(NFLX) shares.

CNBC:

• Hard to See Smooth QE Exit in US, Japan: Dallara. It is difficult to see a smooth exit out of quantitative easing in the world's largest economy, the U.S. or Japan, said Charles Dallara, former managing director of Washington-based bank lobby group, the Institute of International Finance.

Zero Hedge:

• The New Tapering Normal Optimism In Charts.

• Schaeuble Warns Of "Revolution" If Welfare Model Threatened.

• Got Wood? A Housing Recovery Built On Faith. (graph)

• Despite Plunge In New Orders, Employees, Wages, And Workweek, Richmond Fed Beats Expectations. (graph)

• Surge In Consumer Confidence To 2008 Levels Sends 10 Year Yield To 2013 Highs. (graph)

• Name This European Nation. (graphs)

• Eric Holder Under Investigation By House Judiciary Committee For Lying Under Oath.

Business Insider: 

• REPORT: Chinese Hackers Have Stolen Plans For Pretty Much The Entire US Military.

• OPEC Is Freaking Out About America's Shale Boom.

• CITI(C): The Stock Market Is Getting Dangerously Close To 'Euphoria' Territory. (graph)

• Loud Explosion Heard After Cargo Train Derails Near Baltimore.

• There Was Some Shady Trading Going On Ahead Of Today's Consumer Confidence Data.

Sober Look: 

• Air cargo industry's woes may point to weakness in Asia's growth. (graph)

Market News International:

• Moody's May Downgrade China Rating If GDP Growth Below 6%. Moody's may downgrade China's sovereign rating if the country's annual GDP growth falls below 6%, citing Tom Byrne, senior vice president of Moody's sovereign risk group.

Reuters:

• Drug resistance in new China bird flu raises concern. The new bird flu strain that has killed 36 people in China has proved resistant to Tamiflu for the first time, a development scientists said was "concerning". The H7N9 virus was found to be resistant to Roche's widely used flu drug in three out of 14 patients who were studied in detail by doctors from Shanghai and Hong Kong. Tamiflu, which is given as a pill, belongs to a group of medicines known as neuraminidase inhibitors that currently offer the only known treatment option for bird flu.

• EU trade chief tells China he won't yield on solar panels. The European Union's trade chief bluntly told China on Tuesday it was wasting its time trying to put pressure on him to drop plans to impose punitive import duties on Chinese solar panels. The European Commission, the EU's executive, accuses China of flooding Europe with cheap solar panels sold at below the cost of production, and intends to impose duties.

• Chicago Fed Midwest factory activity slips in April.

Financial Times:

• Germany’s top banks €14bn short of Basel III capital, says BaFin. Germany’s largest banks were €14bn short of the capital needed to meet incoming Basel III banking rules at the end of last year, according to new estimates by BaFin, the country’s financial regulator. The banks, which include the two largest by assets – Deutsche Bank and Commerzbank – managed to cut their collective capital shortfall from €32bn in the second half of 2012, as lenders responded to pressure from investors to improve their balance sheets ahead of the introduction of the Basel III rule book by 2019.

Telegraph:

• Portuguese bestseller calls for euro exit.

Securities Daily:

• China to Collect 20% Tax on Luxury Vehicles. China plans to begin collecting a 20% luxury tax on vehicles that cost more than 1.7m yuan, citing Luo Lei, deputy secretary general of the China Association of Automobile Manufacturers.

Bear Radar

Style Underperformer:

• Mid-Cap Value +.68%

Sector Underperformers:

• 1) Utilities -1.31% 2) Education -1.29% 3) REITs -.23%

Stocks Falling on Unusual Volume:

• IOC, CTCM, BPFH, BHP, DCM, CLMT, UBS, ENOC, PHK, BXMT, PDI, PTY, FE, BAH, CCU, NDRO, AGNC, TE, SHLD, MTGE, NRG, VIPS, EXC, PPL, JMI, DOLE, AEP, DUK, CPA, ACT, STRA, FDX, PTY and DOLE

Stocks With Unusual Put Option Activity:

• 1) EXC 2) CHS 3) BK 4) BID 5) TIF
  

Stocks With Most Negative News Mentions:

• 1) BRCM 2) STJ 3) VRX 4) BA 5) CMCSA
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Small-Cap Growth +1.69%

Sector Outperformers:

• 1) Gaming +2.55% 2) Networking +2.54% 3) Hospitals +2.42%
  

Stocks Rising on Unusual Volume:

• TSLA, TTM, INFN, VRX, YY, PCRX, TIF, AMBA, MAKO, HMA and AMTD

Stocks With Unusual Call Option Activity:

• 1) AVP 2) TIF 3) UUP 4) CLSN 5) HTZ
  

Stocks With Most Positive News Mentions:

• 1) BK 2) TXN 3) LLY 4) MAKO 5) LMT
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume