Bull Radar

Style Outperformer:

• Large-Cap Value -.05%

Sector Outperformers:

• 1) Alt Energy +.52% 2) Road & Rail +.42% 3) Medical Equipment +.29%
  

Stocks Rising on Unusual Volume:

• SNN, PDH, PTRY, QIHU, BWS, TWTR, REXX, RMTI, XON, SYNA, PTCT, ANDE, MEG and JDSU

Stocks With Unusual Call Option Activity:

• 1) SYNA 2) CTXS 3) DOW 4) DLTR 5) VVUS

Stocks With Most Positive News Mentions:

• 1) TOL 2) TWTR 3) AAPL 4) COP 5) AZO
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Wednesday Watch

Evening Headlines 
Bloomberg:

• Ukrainian Forces Inflict Rebel Losses After Poroshenko Win. Ukraine’s government said it will press on with military operations against pro-Russian rebel fighters after its forces retook Donetsk airport and inflicted “significant” losses on the separatists. Troops killed “dozens” of rebels in Donetsk without suffering any losses, Interior Minister Arsen Avakov said yesterday, while the mayor’s office in the eastern city said 40 people died and 31 were wounded. President-elect Petro Poroshenko has vowed to wipe out the rebels and re-establish order across Ukraine after winning office May 25. He must stabilize a shrinking economy and confront separatists who’ve captured swaths of the Donetsk and Luhansk regions. They’ve declared themselves independent and are fighting to join Russia, which annexed Ukraine’s Crimea peninsula in March. 
• China’s ‘Golden Era’ for Property Over, Vanke President Says. China Vanke Co. (3333), the nation’s biggest developer, is focused on developing homes for owner occupiers rather than investors because the country’s property industry has passed its “golden era,” said President Yu Liang. “The period in which everybody makes money out of property is gone,” Yu told reporters May 26 in Dongguan, a southern city in Guangdong province. “Vanke will take a cautiously optimistic approach to face the slowdown and target those buyers who need homes for self-use.” 
• China Banks Bad-Debt Ratio Seen Rising to Most Since 2009. China’s biggest banks are poised to report the highest proportion of bad debts since 2009 after late payments on loans surged to a five-year high, indicating borrowers are struggling amid an economic slowdown. The nation’s 10 largest lenders reported overdue loans reached 588 billion yuan ($94 billion) at the end of 2013, a 21 percent increase from a year earlier to the highest level since at least 2009. The rise in late payments portends more losses on soured loans for banks in coming months as China’s slowing economy crimps companies’ earnings, while a government crackdown on nonbank funding makes it tougher for borrowers to get new credit or finance older debt.
• Thailand Risks Inheriting Asia’s Sick-Man Tag on Unrest: Economy. Thailand, once prized in Southeast Asia for its relative economic stability, is in danger of inheriting the “Sick Man of Asia” tag as the latest coup threatens to send investors scurrying toward once-riskier neighbors such as the Philippines (PHGDPYOY) and Myanmar.
• Asian Stocks Rise With Gold at 15-Week Low; Wheat Slips. Asian stocks resumed gains, with the regional index rising for the fourth time in five days after signs of improvement in the U.S. economy sent the Standard & Poor’s 500 Index to a record. Gold slid to a more than 15-week low, while wheat and corn futures extended declines. The MSCI Asia Pacific Index added 0.3 percent by 10:02 a.m. in Tokyo as Japan’s Topix (TPX) gauge rose 0.4 percent and Australia’s S&P/ASX 200 Index climbed 0.2 percent.
• Australian Mine Project Spending Declines 5% as Boom Wanes. The value of mineral and energy projects being developed in Australia, the world’s biggest iron ore exporter, fell 5 percent to A$229 billion ($212 billion) as investment continued its downturn.
• Fed's Junk-Loan Caution Spurts Accounting Alchemy: Credit Markets. Lenders are increasingly allowing junk-rated borrowers to adjust their earnings to make them look more creditworthy as U.S. regulators increase pressure on banks to refrain from underwriting too-risk deals.
• Tesla(TSLA) Gets Unsolicited S&P Junk Rating on ‘Niche’ Position. Tesla Motors Inc., the electric-car company whose stock climbed fourfold last year, was slapped with a junk credit rating by Standard & Poor’s because of “considerable uncertainty” about its long-term prospects.

Wall Street Journal:

• Crisis in Ukraine: Streaming Coverage.
• New Fund Stars Ride Junk Bonds to the Top. Development Shows Demand for Returns Since 2008 Financial Crisis. A handful of managers have elbowed their way to the top of the bond-fund world by loading up on riskier debt. Among the 10 largest U.S. bond funds at the end of 2013, the four with the fastest growth in assets since 2008 held an average 20% of their investments in bonds rated below investment grade, also known as junk bonds, according to an analysis by The Wall Street Journal of data from Morningstar Inc. At the remaining six funds,...

MarketWatch.com:

• China's real-estate slump worsens. China's property slump is deepening despite growing government efforts to give home sales a lift, adding to concerns over the health of the world's No. 2 economy. Cities ranging from Tianjin in the north to Nanning in the south--Ningbo lies in between--have eased government restrictions on home buying and lending for purchases in recent weeks. The central government is also helping, entreating banks this month to lend more.

CNBC:

• Why Marc Andreessen's 'very nervous, anxious, upset'. (video) Tech venture capitalist Marc Andreessen criticized the Obama administration over its handling of developing global cyber wars Tuesday on CNBC. The co-founder of Silicon Valley venture capital firm Andreessen Horowitz questioned whether U.S. tech companies could remain dominant amid an increasingly "balkanized Internet," which he defined as "different countries like Russia and many others wanting to section off the internet and take a lot more control of it in their countries." "I'm very nervous, upset, and anxious about this," he said on "Fast Money." "I wish the U.S. government—I wish the Obama administration—were more in front of these two issues. I just don't think they are." 

Zero Hedge:

• US Government Proposes To Ease Student Loan Standards Even Further.
• GM's(GM) Latest Flop: Dealers "Stuffed" With 725-Day Supply Of "Tesla Competitor" Cadillac ELR.
• Signs Of An Aging Bull Market. (graph)
• When, Not If. (graph)
• Keynes Would Be Proud: 'Blight Removal Task Force' Calls For 10% Of Detroit Homes Be Torn Down.
• Just Two Charts. (graph)
• "Pop The Corks, She's Going Down, Boys". (graph)
• Chinese Currency Tumbles To 19-Month Lows As Bad Debts Hit 5 Year Highs. (graph)

Business Insider:

• The Bidding For The 2022 Olympics Is A Disaster Because Everyone Figured Out That Hosting Is A Total Waste.
• At Least 50 Killed After Ukraine Launches Major Assault To 'Crush' Pro-Russian Rebels.
• White House Launches Investigation Into How The Identity Of The CIA's Top Afghanistan Official Was Exposed.
• Russia's Aircraft Carrier Crossed Into A NATO Member State's Territory With Total Impunity.

Financial Times: 

• Lagarde and Carney let fire at financial sector. Christine Lagarde, the managing director of the International Monetary Fund, has warned that “a fierce industry pushback” by the financial sector is delaying much-needed reforms and risks destabilising the global economy.

Shanghai Securities News:

• China Warns Banks of LGFV Debt Risks. Chinese regulators recently warned banks on potential risks from local government financing vehicles debts as declining land property prices increase pressure on repayment. Potential risks may also arise from rapidly rising local government bond issuance and embezzlement in some regions. The regulator asks banks to strictly control the entry requirements for new debt and banned banks from increasing lending scale to LGFV, according to the report.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are +.25% to +.75% on average.

• Asia Ex-Japan Investment Grade CDS Index 115.0 +3.0 basis points.

• Asia Pacific Sovereign CDS Index 81.0 -1.25 basis points.

• FTSE-100 futures +.07%.

• S&P 500 futures +.04%.

• NASDAQ 100 futures  +.07%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (TOL)/.26
• (BWS)/.30
• (DSW)/.48
• (CBRL)/1.22
• (CHS)/.28
• (PANW)/.10
• (CPRT)/.48

Economic Releases

• None of note

Upcoming Splits

• None of note

Other Potential Market Movers

• The Eurozone Economic Confidence/Unemployment reports, $35B 5Y T-Note auction, US weekly retail sales, weekly MBA Mortgage Applications report, Raymond James Internet/Software Conference, (PCAR) investor conference, (WCG) annual meeting, Citi Consumer Conference and the Cowen Tech/Media/Telecom Conference could impact trading today.

BOTTOM LINE: Asian indices are higher, boosted by financial and technology shares in the region. I expect US stocks to open modestly higher and to 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, Technical Buying, Short-Covering, Biotech/Tech 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) 11.57 +1.85%

• Euro/Yen Carry Return Index 145.11 -.06%

• Emerging Markets Currency Volatility(VXY) 7.04 +2.03%

• S&P 500 Implied Correlation 55.20 -2.42%

• ISE Sentiment Index 36.0 -4.90%

• Total Put/Call .74 -1.33%

• NYSE Arms 1.18 +25.19% 

Credit Investor Angst:

• North American Investment Grade CDS Index 62.76 -.92%

• European Financial Sector CDS Index 74.59 -3.60%

• Western Europe Sovereign Debt CDS Index 35.75 -4.04%

• Asia Pacific Sovereign Debt CDS Index 81.33 -1.22%

• Emerging Market CDS Index 260.93 -.13%

• China Blended Corporate Spread Index 349.79 n/a

• 2-Year Swap Spread 16.25 +.25 basis point

• TED Spread 20.0 unch.

• 3-Month EUR/USD Cross-Currency Basis Swap -9.25 -2.0 basis points

Economic Gauges:

• 3-Month T-Bill Yield .03% unch.

• Yield Curve 217.0 -2.0 basis points

• China Import Iron Ore Spot $98.10/Metric Tonne -.51%

• Citi US Economic Surprise Index 2.0 +.6 point

• Citi Emerging Markets Economic Surprise Index -20.40 -1.3 points

• 10-Year TIPS Spread 2.21 -1.0 basis point

Overseas Futures:

• Nikkei Futures: Indicating +43 open in Japan

• DAX Futures: Indicating +3 open in Germany

Portfolio: 

• Higher: On gains in my biotech/medical/tech sector longs and emerging markets shorts

• Disclosed Trades: None

• Market Exposure: 75% Net Long

Today's Headlines

Bloomberg: 

• Ukrainian Forces Inflict Rebel Losses After Poroshenko Win. Ukraine’s government said it inflicted “significant” losses on pro-Russian rebels in the east and retook Donetsk airport a day after President-elect Petro Poroshenko vowed to wipe out the separatists. Troops killed “dozens” of rebels without suffering any losses, Interior Minister Arsen Avakov said, while the mayor’s office in Donetsk said 40 people died and 31 were wounded. Gunmen also broke through the border from Russia after a firefight with government forces overnight, and the self-proclaimed Donetsk People’s Republic asked Russian President Vladimir Putin for humanitarian and military help, according to separatist leader Denis Pushilin. “The anti-terrorist operation is in an active phase now,” First Deputy Prime Minister Vitaliy Yarema told reporters in Kiev today. “We’ll continue this operation until there are no terrorists on Ukraine’s territory.”

• Micex Drops With Ruble as Ukraine Intensifies Fight With Rebels. Russian stocks and the ruble fell after Ukraine’s President-elect Petro Poroshenko vowed to step up military action against separatists in the east of the country, where 40 people died in clashes. The Micex Index (INDEXCF) fell 2.2 percent to 1,417.32 by the close in Moscow today, the steepest decline since April 24. The ruble slid 0.5 percent to 39.9831 against the central bank’s target basket of dollars and euros by 6 p.m. and the yield on 10-year government ruble bonds jumped 18 basis points to 8.80 percent.

• China Said to Study IBM Servers for Bank Security Risks. The Chinese government is reviewing whether domestic banks’ reliance on high-end servers from International Business Machines Corp. (IBM) compromises the nation’s financial security, people familiar with the matter said, in an escalation of the dispute with the U.S. over spying claims.

• China Sinking Fishing Vessel Raises Tensions With Vietnam. Vietnam and China traded barbs over the sinking of a Vietnamese fishing boat, their most serious bilateral standoff since 2007 as China asserts its claims in the disputed South China Sea. “It was rammed by a Chinese boat,” Vietnamese Foreign Ministry spokesman Le Hai Binh said by phone of the Vietnamese vessel, with the crew of 10 rescued after the scrap. The incident occurred after some 40 Chinese fishing vessels encircled a group of Vietnamese boats in Vietnam’s exclusive economic zone, the government in Hanoi said in a statement on its website.

• Leverage Addicts Get Junk-Loan Fix With Derivatives ETF. Forget complicated total-return swaps and collateralized loan obligations. A proposed exchange-traded fund will make it much easier for anyone to use borrowed money to double down on junk-rated loans. The AdvisorShares Pacific Asset Enhanced Floating Rate ETF will use derivatives to boost gains on high-yield loans, allowing retirees and pensioners to magnify bets on debt that promises higher yields when interest rates rise, according to a U.S. regulatory filing. The fund, which would be actively managed, is currently pending approval from the U.S. Securities and Exchange Commission. Why use leverage now? Because for buyers who have faith the riskiest companies will pay back their obligations, the loans just aren’t quite yielding enough. With a little more risk, the thinking goes, the return will be sweeter. Of course, any losses will also be more painful. The problem is, if fans of junk loans are wrong, their juiced investments won’t just increase the threat to profits, they’ll also have a magnified effect on the $1.1 trillion market that is one of the most difficult to trade in. Buying and selling takes place in telephone conversations and over e-mails, with sellers routinely waiting three weeks to settle a transaction, as opposed to just days for high-yield bonds.

• Alarm Raised by Plan to Ease Credit Norms on U.S. Parent Loans. Parents whose financial standing disqualify them from most loans may have an easier time borrowing to pay their children’s college costs under a U.S. government proposal to ease credit standards. The plan doesn’t sit well with consumer advocates and economists, who are sounding an alarm. The Education Department wants to look at “adverse credit” over two years instead of five and consider approving loans even if parents have delinquent credit balances, according to an agency document released this month.

Wall Street Journal:

• Crisis in Ukraine: Streaming Coverage.

CNBC:

• Citigroup's(C) 2Q trading revenue down at least 20% so far.

ZeroHedge:

• Here Is The Mystery, And Completely Indiscriminate, Buyer Of Stocks In The First Quarter. (graph)

• Bond Bears Are Scratching Their Heads While Looking At These Charts. (graph)

• The Housing "Recovery" In Four Charts.

• The New Normal In One Sentence: "In The US Equity Market, The Worse A Company’s Finances, The Better It’s Doing". (graph)

• Consumer Confidence Falls Short Of Weather-Peak; Plans To Buy A Home Drop. (graph)

• US Service PMI Surges Near Record High As Margin Pressures Appear. (graph)

Business Insider:

• Beijing Has Started New 'Anti-Terror' Checks On The Subway, And The Lines Are Like Nothing You've Ever Seen.

• Amazon(AMZN) Will Have 10,000 Robots Filling Customer Orders By The End Of The Year.

Orlando Business Journal:

• Small business owners see increase in ugly subprime lending tactics. Small business owners are seeing more online lenders and loan brokers offering costly financing targeting troubled borrowers. Small business is the new target for subprime lending after Congress stepped in with the creation of the Consumer Financial Protection Bureau and new laws to protect individual borrowers. It won't be surprising to see some of those protections eventually expanded to include small business owners.

Real Clear Politics: 

• The Left's Health Care Paradise. For the left, the Department of Veterans Affairs is how health care is ideally supposed to work. No insurance companies, no private doctors, no competition — just the government and the patient.

Financial Times:

• Economic slowdown weighs on China retailers. China’s slowing economy, a crackdown on corruption, and the rise of online shopping are increasingly eating into earnings for some of the country’s traditional retailers – hitting sales at bricks and mortar stores such as shoe shops and supermarkets. Footwear chain Belle International and supermarket operator China Resources Enterprise both blamed a drop-off in economic growth as they reported sluggish earnings this week.

ShanghaiDaily.com:

• Chinese authorities advocate frugality. A nationwide campaign will be launched to encourage frugality among the public, Chinese authorities said on Tuesday. Thrift is a traditional Chinese virtue as well as a core socialist value, according to a statement issued by the Publicity Department of the Communist Party of China Central Committee and the National Development and Reform Commission. Promoting frugality is vital to improving society and the environment, and will prompt a healthy lifestyle among the public, said the statement. More efforts are needed to educate young people about frugality, it added.

Bear Radar

Style Underperformer:

• Large-Cap Value +.32%

Sector Underperformers:

• 1) Gold & Silver -3.55% 2) Hospitals -.82% 3) Oil Tankers -.55%

Stocks Falling on Unusual Volume:

• PF, AWF, DRTX, UGLD, ALOG, INDY, HQH, CATM, JKS, USLV, GLOG, HIBB, CLVS, NTLS, IFN, NMBL, VRX, HPQ, RNET, YY, BPT and THRM

Stocks With Unusual Put Option Activity:

• 1) FXY 2) HSH 3) SLM 4) KRE 5) WDAY
  

Stocks With Most Negative News Mentions:

• 1) PF 2) HPQ 3) FCX 4) ABX 5) BTU
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Small-Cap Growth +1.71%

Sector Outperformers:

• 1) Alt Energy +2.07% 2) Biotech +1.75% 3) I-Banks +1.69%
  

Stocks Rising on Unusual Volume:

• HSH, ENOC, MONT, MOVE, PPC, TIBX, CXDC, SALE, FE, ISIS, EXC, BKS, OLED, SPLK, ICPT, OPHT, DWRE, DATA, RXN, CTRL and CNC

Stocks With Unusual Call Option Activity:

• 1) TIBX 2) HSH 3) S 4) GDP 5) FE

Stocks With Most Positive News Mentions:

• 1) AAPL 2) BAC 3) GOOG 4) TWTR 5) CPHD
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume