Weekly Outlook

• Week Ahead by Bloomberg.
• Wall St. Week Ahead by Reuters.
• Weekly Economic Calendar by Briefing.com.

BOTTOM LINE: I expect US stocks to finish the week modestly lower on EU disintegration fears, rising European/Emerging Markets/US High-Yield debt angst, commodity weakness, yen strength, technical selling and global growth worries. My intermediate-term trading indicators are giving neutral signals and the Portfolio is 25% net long heading into the week.

Today's Headlines

Bloomberg:   

• Watershed Vote Ruins S&P 500 Week. After futures plunged more than 5 percent in the darkest hours of Brexit drama early Friday, the S&P 500 Index reverted, erasing nearly half of its losses by the time exchanges opened. Because it rallied 2 percent in the four days leading into the vote, the index finished the week down just 1.6 percent, compared with losses double those in other developed-world markets. The pound fell the most on record, Japanese stocks lost the most since 2011 and the Euro Stoxx 50 Index tumbled the most since at least 1987. In the U.S., Treasuries rallied, sending yields on the benchmark 10-year down the most in more than seven years. Still, even after a drop of 3.6 percent on Friday, the S&P 500 stayed near the roughly 80-point range between 2,040 and 2,120, in which it has been locked since late March. It closed Friday at 2,037.3. 
• Spanish Bonds Set for Volatility With Repeat Election Looming. Spanish government bonds may see more volatility next week after voters go to the polls Sunday to try to break a six-month political deadlock over who will govern the euro region’s fourth-largest economy. The nation’s securities plunged on Friday, with the 10-year yield jumping the most this year, after Britain voted to quit the European Union. Riskier assets suffered as the decision threw uncertainty onto the political future of Europe, bolstering speculation other nations will move to hold similar referendums. “Brexit basically exacerbates all political risk within Europe,” said Peter Chatwell, head of rates strategy at Mizuho International Plc in London. “The protest vote just got more momentum, and we think there will be more inclination to vote against the established parties in the near term. This should be a boon for Podemos, and we would approach the weekend with caution. ”Spain’s 10-year bond yield jumped 17 basis points, or 0.17 percentage point, to 1.63 percent as of the 5 p.m. London close.
• U.K. Must Leave EU as Soon as Possible, EU Foreign Ministers Say. The European Union’s founding members increased pressure on the U.K. to leave the bloc as soon as possible following this week’s stunning referendum as Scotland accelerated plans to take another run at independence. Six EU foreign ministers said in Berlin that the bloc needs to move on and avoid a political vacuum. While EU Commission President Jean-Claude Juncker said he doesn’t expect “an amicable divorce,” German Chancellor Angela Merkel repeated her desire today to avoid “ugly negotiations.”
• Scotland Starts Toward Independence Vote to Keep EU Ties. Scottish First Minister Nicola Sturgeon said her government started work on legislation for a new referendum on independence after the U.K. as a whole decided to quit the European Union while Scotland voted to remain. Speaking after an emergency meeting of her cabinet in Edinburgh on Saturday, Sturgeon said she will also be seeking talks with European leaders and the institutions of the EU about ways of continuing Scotland’s relationship with the bloc. The semi-autonomous government will appoint a panel of advisers in coming weeks and convene a meeting of consuls from EU member states. “A second independence referendum is clearly an option that requires to be on the table, and it is very much on the table; to ensure that option is a deliverable one in the required timetable, steps will be taken now to ensure the necessary legislation is in place,” Sturgeon said in a televised statement outside her official Bute House residence. “We are determined to act decisively, but in a way that builds unity across Scotland about the way forward.”
• Shock Waves Ripple Through Credit Markets After U.K. Brexit Vote. Shock waves reverberated through credit markets after the U.K. voted to quit the European Union. Measures of risk for corporate bonds and money markets surged. The Markit iTraxx Europe Index of credit-default swaps insuring investment-grade corporate bonds rose by the most since 2008, according to prices compiled by Bloomberg. A gauge of where bank borrowing costs will be in the months ahead, known as the FRA/OIS spread, hit the most extreme level since 2012 and a key rate of the cost for banks to convert euro cash flows into dollars increased. More than $19.7 billion of protection on the investment-grade benchmark changed hands on Friday, almost five times an average full day, Bloomberg data show. Traders have bought and sold $55 billion of swaps on the index so far this week. The investment-grade derivatives index jumped 18 basis points to 92 basis points as of 3 p.m. in London, according to data compiled by Bloomberg. The three-month FRA/OIS spread widened to as much as 0.34 percentage point, from 0.27 on Thursday. The measure indicates where traders expect the gap between the three-month dollar London interbank offered rate, or Libor, and the Fed Funds Effective Rate -- dubbed Libor/OIS -- will be in the future. The three-month euro-dollar cross-currency swap rate widened to 43 basis points below Euribor from a spread of minus 36 basis points on Thursday, the biggest increase since December 2015.
• U.K. Rating at Risk of Downgrade by Moody’s, S&P on Brexit. Moody’s Investors Service and S&P Global Ratings may lower the U.K.’s credit grade after the country voted to leave the European Union. S&P will give the country 24-hours notice, including one working day, to lower the rating “at least one notch” from AAA, Moritz Kraemer, S&P’s global sovereign chief ratings officer, said in an interview on Bloomberg Television on Friday. Moody’s in a report later Friday lowered its outlook on the country to negative from stable, a move toward a downgrade. It has the U.K. one step lower than S&P, at Aa1.
• Brexit Aftershocks Rattle Markets as Cameron Quits. (video) Britain’s stunning vote to leave the European Union spread turmoil across the world’s financial markets and dismay through Europe’s capitals, where EU leaders gave an early warning that the looming divorce talks may prove bitter. The pound plunged to the lowest since 1985, global stocks tumbled and bonds and gold rallied after U.K. voters backed Brexit by 52 percent to 48. Prime Minister David Cameron resigned after the defeat of his Remain campaign, saying he will serve a few more months before making way for a successor who’ll negotiate the details of departure. Boris Johnson, a leading Brexiter and the early favorite to replace Cameron, also said there’s no rush to get the official separation process under way. But EU leaders signaled they have a different timetable in mind. “The U.K. will no longer be part of the EU, and the procedures dealing with its departure will be enacted quickly,” French President Francois Hollande said. In Brussels, a trio of top officials said the U.K.’s government must “give effect to this decision of the British people as soon as possible, however painful that process may be.”
• Germany, France Struggle to Hold EU Center as Brexit Storm Blows. (video) Within hours of Britain’s vote to leave the European Union, nationalist parties across the bloc were clamoring for their own exit referendums, including in France, one half of the two-nation engine that has driven the EU project since its beginnings as a lowly coal and steel union in 1951. That laid bare the challenge facing German Chancellor Angela Merkel and French President Francois Hollande as they try to hold the rest of the 27 nations of the EU together, as for the first time a full member has decided it would be better off alone.
• Japan Considers Unilateral Yen Intervention Post Brexit: Nikkei. Japan’s government and central bank are considering measures, including unilateral intervention in the currency market, to counter any abrupt gains in the yen, the Nikkei newspaper reported. Intervention may take place if yen demand jumps abruptly following U.K.’s vote to leave the European Union, and there is enough pressure on the economy and inflation, the newspaper reported Saturday. It cited an unnamed Finance Ministry official as saying action is possible even without U.S. approval in a “fight’’ to protect ‘‘national interests.” Calls to the ministry and the Bank of Japan outside business hours weren’t answered.
• For U.S. Exporters Who Profited From One Europe, New Uncertainty. For U.S. exporters already dealing with multiple sets of regulations, duties and tariffs across the globe, the post-Brexit world is a mess that will take years to sort out. In the decades since the European Union was created, American exporters have, with some exceptions, been able to count on a uniform set of regulations and standards. That could end now as Britain will be freed from EU rules and could begin the years-long process of replacing them with its own, impacting companies ranging from behemoths such as Boeing Co. and Caterpillar Inc. -- as well as smaller ones fighting for a toehold in the vast market.
• They Got It Wrong: Swarms of Global Chatterers Misread Brexit. A global cohort said before Thursday’s Brexit vote that Britain was unlikely to pull out of the European Union, the post-World War II international project that brought an unprecedented era of prosperity and peace. Yet some were led astray by the belief that free trade’s money and material goods outweighed nationalism and the tug of nostalgia. Among those who were wrong about Brexit before the vote:
• World’s 400 Richest People Lose $127 Billion on Brexit: Chart.
• Brexit Winners Emerge in Hedge-Fund Community Amid Market Chaos. Hours after Britain’s decision to leave the European Union sparked mayhem across global financial markets, a handful of prescient investors began to emerge as big winners. Hedge fund manager Crispin Odey, an advocate of a British exit, gained more than 15 percent in his flagship fund on Friday, according to a person familiar with the situation. Several hedge funds that use computers to follow trends, including David Harding’s Winton Capital Management, also reported gains. Shares of a Canadian insurer that was betting on deflation rallied. They were among the few -- or, at least, the known few -- who profited as the pound plunged to the lowest since 1985, global stocks tumbled and bonds and gold rallied.  
• China Tightens Internet Rules for Baidu and Other Search Engines. Chinese authorities will require Baidu Inc. and other search engines to report banned content and verify advertisers’ qualifications in its latest attempt at Internet regulation. Under rules to take effect Aug. 1, search engines operating in the country will be prohibited from providing banned information in various formats including links, summaries, cached pages, associative words, related searches and relevant recommendations, the Cyberspace Administration of China said in a statement. They will also be required to report websites and applications that contain prohibited content when spotted, the regulator said.
• China Halts Taiwan Liaison Link on Lack of One-China Support. China has halted a communications channel with Taiwan because the island’s new government has failed to affirm the "one-China" principle. Taiwan’s president, sworn in on May 20, failed to declare support for the principle that Taiwan is part of China and as a result the mechanism for the two sides to liaise has been suspended, the official Xinhua News Agency reported, citing An Fengshan, a spokesman for China’s Taiwan Affairs Office.

Wall Street Journal:

• Town at the Heart of U.K. Euroskepticism Celebrates Brexit Result. Political disenfranchisement, concerns about immigration, decide vote in Clacton-on-Sea.
• Energy Transfer(ETE) Can Escape Williams Takeover, Judge Rules. Tax concerns to keep Energy Transfer from getting needed opinion by Tuesday deadline.
• Military Plans to Lift Ban on Transgender Service Members. Move expected as early as next week, Defense Department spokesperson says.
• Britain Declares Independence. The Tories should now strive to make the U.K. a pro-growth model.

Barron's:

• Had bullish commentary on (GS).

MarketWatch.com:

• TD Ameritrade, Fidelity brokerages suffered ‘Brexit’ slowdowns. Some self-directed investors found themselves shut out from their portfolios Friday morning as markets reeled from the U.K.’s vote to leave the European Union.

Fox News:

• Germany fears Brexit could trigger domino effect, leading other nations to exit EU. (video) As the European Union's founding nations rushed to an emergency meeting Saturday to consider their future, German Chancellor Angela Merkel's government reportedly fears the United Kingdom could be just the first of several nations to pull out of the alliance. A German government-run newspaper pleaded for the EU not to sever ties completely with Britain -- otherwise France, the Netherlands, Hungary, Austria and Finland could lose any incentive to stay. The paper, Die Welt, called for keeping the UK an "associated partner country."
• At least 14 reported dead after al-Shabab gunmen storm Somali hotel. (video)

CNBC:

• Here's how a Trump trade war would hit your state. (video)
• 'We're in a bear market in confidence,' Jeffrey Gundlach says. (video)
• Energy companies most exposed to Brexit: Brian Jacobsen. (video)

Zero Hedge:

• Germany Says "We Won't Let Anyone Take Europe From Us".
• "See EU Later" - On The Front Covers Of UK Newspapers Today.
• The Real Brexit "Catastrophe": World's 400 Richest People Lose $127 Billion.
• Hillary's Official Calendar Is "Missing" A Lot Of Entries.
• Greenspan: "This Is The Worst Period I Recall; There's Nothing Like It". (video)
• Was This The Deciding Factor For Brits To Vote "Leave"? (graph)
• Brexit: Individualism > Nationalism > Globalism.
• Derivative Strategist Warns Of $150 Billion In Quant Selling Over The Next Three Days.
• Fed Credibility Collapses - Rate-Cut Now More Likely For Next Year.
• Google(GOOG) Searches For "Buy Gold" Soar 500% After Brexit.
• Weekend Reading - Inconceivable.
• Brexistential Bloodbath - Dow Crashes 600 Points As Vol Explodes. (graph)

Business Insider:

• Trump's support plummets as Clinton regains a double-digit lead in a new poll.
• The Brexit crisis is a huge blow to Obama’s legacy.
• NOMURA: Brexit will cause widespread 'contagion' in Asia.
• The UK's most senior EU official just resigned.
• A select group of hedge funds made some serious money on Brexit.
• Democrats just approved a draft of their party platform, and Bernie Sanders' influence is clear.
• BREMMER: Brexit is the world's most significant political risk since the Cuban Missile Crisis.
• The UK may have just opened 'Pandora's box' in Europe.
• Xi Jinping and Vladimir Putin meet in Beijing, vow to deepen their 'strategic partnership'.
• Sergey Brin: Don't come to Silicon Valley to start a business.
• The anti-Trump conservatives are getting ready to take another shot at dethroning Trump.
• EL-ERIAN: 'There are more questions than answers as to what happens next'.
• President Obama hints at supporting unconditional free money because of a looming robot takeover.

@Convertbond:

• Spain: Credit Risk Contagion post Brexit, yields jump the most in a year, Election near. (graph)

Fiscal Times:

• Why 'Brexit' Is the Biggest Threat Yet to This Bull Market. If central bankers support markets here — keeping stocks in the low-volatility sideways crawl of the last three months, capping a three-year consolidation near Dow 18,000 — it will prove all the pre-Brexit fearmongering hollow and will encourage pro-independence votes in Italy and elsewhere. But if they let markets fall, volatility will beget volatility as one of the few bright spots in the global economy darkens. Years of central bank intervention and easy gains have encouraged risk-taking and leverage accumulation. The collapse could be swift and severe.

The Telegraph:

• There will be some short-term pain but Brexit will make us richer.

Express:

• END OF THE EU? Germany warns FIVE more countries could leave Europe after Brexit. France, the Netherlands, Austria, Finland and Hungary could leave.

Market Week in Review

• S&P 500 2,051.42 -.94%*

The Weekly Wrap by Briefing.com.

*5-Day Change

Weekly Scoreboard*

Indices

• S&P 500 2,051.42 -.94%

• DJIA 17,493.30 -1.02%

• NASDAQ 4,725.44 -1.53%

• Russell 2000 1,130.20 -1.25%

• S&P 500 High Beta 29.05 -1.92%

• Goldman 50 Most Shorted 99.98 -1.49% 

• Wilshire 5000 21,113.20 -1.10%

• Russell 1000 Growth 983.57 -1.13%

• Russell 1000 Value 988.27 -.8%

• S&P 500 Consumer Staples 547.94 +.09%

• Solactive US Cyclical 129.85 -2.18%

• Morgan Stanley Technology 1,047.28 -2.3%

• Transports 7,343.30 -2.97%

• Utilities 688.50 +.48%

• Bloomberg European Bank/Financial Services 69.82 -6.25%

• MSCI Emerging Markets 33.03 -.35%

• HFRX Equity Hedge 1,111.45 +.13%

• HFRX Equity Market Neutral 993.30 -.26%

Sentiment/Internals

• NYSE Cumulative A/D Line 256,750 +1.68%

• Bloomberg New Highs-Lows Index 184 +336

• Bloomberg Crude Oil % Bulls 46.0 +102.2%

• CFTC Oil Net Speculative Position 312,585 -3.87%

• CFTC Oil Total Open Interest 1,774,350 +1.49%

• Total Put/Call 1.21 +13.1%

• OEX Put/Call .70 -69.57%

• ISE Sentiment 44.0 -63.56%

• NYSE Arms 1.57 +76.28%

• Volatility(VIX) 23.29 +23.75%

• S&P 500 Implied Correlation 62.56 +10.28%

• G7 Currency Volatility (VXY) 12.61 +9.65%

• Emerging Markets Currency Volatility (EM-VXY) 11.21 +3.89%

• Smart Money Flow Index 19,259.38 -.66%

• ICI Money Mkt Mutual Fund Assets $2.703 Trillion -.13%

• ICI US Equity Weekly Net New Cash Flow -$4.284 Billion

• AAII % Bulls 22.0 -13.3%

• AAII % Bears 35.2 -6.1%

Futures Spot Prices

• CRB Index 188.96 -1.85%

• Crude Oil 47.93 -.87%

• Reformulated Gasoline 152.31 +.62%

• Natural Gas 2.67 +.75%

• Heating Oil 146.67 -1.53%

• Gold 1,322.20 +1.39%

• Bloomberg Base Metals Index 143.47 +1.15%

• Copper 211.50 +2.78%

• US No. 1 Heavy Melt Scrap Steel 218.0 USD/Ton -5.0%

• China Iron Ore Spot 50.61 USD/Ton -2.47%

• Lumber 295.40 -.77%

• UBS-Bloomberg Agriculture 1,187.34 -5.88%

Economy

• Atlanta Fed GDPNow Forecast +2.6% -20.0 basis points
• ECRI Weekly Leading Economic Index Growth Rate +7.1% unch.

• Philly Fed ADS Real-Time Business Conditions Index -.2767 +9.95%

• S&P 500 Blended Forward 12 Months Mean EPS Estimate 125.47 +.05%

• Citi US Economic Surprise Index -23.80 -3.9 points

• Citi Eurozone Economic Surprise Index 3.80 +9.6 points

• Citi Emerging Markets Economic Surprise Index -5.90 -3.1 points

• Fed Fund Futures imply 90.0% chance of no change, 0.0% chance of 25 basis point hike on 7/27

• US Dollar Index 95.17 +1.13%
• MSCI Emerging Markets Currency Index 1,519.19 +1.29%

• Euro/Yen Carry Return Index 119.31 -2.92%

• Yield Curve 94.0 +2.0 basis points

• 10-Year US Treasury Yield 1.57% -5.0 basis points

• Federal Reserve's Balance Sheet $4.442 Trillion +.21%

• U.S. Sovereign Debt Credit Default Swap 23.13 +9.72%

• Illinois Municipal Debt Credit Default Swap 348.0 -.07%

• Western Europe Sovereign Debt Credit Default Swap Index 36.69 +23.74%

• Asia Pacific Sovereign Debt Credit Default Swap Index 54.31 +1.08%
  

• Emerging Markets Sovereign Debt CDS Index 135.60 +1.04%
  

• Israel Sovereign Debt Credit Default Swap 75.50 -2.97%

• Iraq Sovereign Debt Credit Default Swap 909.50 -.02% 

• Russia Sovereign Debt Credit Default Swap 254.26 -3.6%

• iBoxx Offshore RMB China Corporate High Yield Index 129.91 +.30%

• 10-Year TIPS Spread 1.45% -1.0 basis point

• TED Spread 37.75 -2.5 basis points

• 2-Year Swap Spread 13.75 +.2.5 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -43.25 -6.5 basis points

• N. America Investment Grade Credit Default Swap Index 86.22 +4.5%

• America Energy Sector High-Yield Credit Default Swap Index 744.0 -8.14%

• European Financial Sector Credit Default Swap Index 125.70 +12.65%
  

• Emerging Markets Credit Default Swap Index 301.67 +.12%
  

• CMBS AAA Super Senior 10-Year Treasury Spread to Swaps 142.50 unch.
  

• M1 Money Supply $3.248 Trillion +1.43%

• Commercial Paper Outstanding 1,039.0 -.4%

• 4-Week Moving Average of Jobless Claims 267,000 -2,250

• Continuing Claims Unemployment Rate 1.6% unch.

• Average 30-Year Mortgage Rate 3.56% +2.0 basis points

• Weekly Mortgage Applications 522.20 +2.86%

• Bloomberg Consumer Comfort 44.2 +2.1 points

• Weekly Retail Sales +.7% +10.0 basis points

• Nationwide Gas $2.32/gallon -.03/gallon

• Baltic Dry Index 596.0 +1.53%

• China (Export) Containerized Freight Index 651.59 -1.07%

• Oil Tanker Rate(Arabian Gulf to U.S. Gulf Coast) 27.50 unch.

• Rail Freight Carloads 265,348 -.03%

Best Performing Style

• Mid-Cap Value -1.0%

Worst Performing Style

• Small-Cap Growth -1.5%

Leading Sectors

• Gold & Silver +4.0%

• Hospitals +1.7%

• Tobacco +1.2%

• Telecom +.6%

• Medical Equipment +.3%

Lagging Sectors

• Road & Rail -2.7% 

• Alt Energy -2.8%

• Banks -2.9%

• I-Banks -3.6%

• Gaming -6.8%

Weekly High-Volume Stock Gainers (19)

• RDEN, SITE, LL, ASEI, GIMO, MEI, ALRM, WGO, CSAL, TTS, PLOW, LZB, OSIS, OB, ATRA, CTT, CHDN, STRP and BXS

Weekly High-Volume Stock Losers (10)

• IPXL, SYNA, WERN, SCS, TSLA, GBT, CMTL, PRTK, CVTI and EBS

Weekly Charts

ETFs

• High-Volume Gainers

• High-Volume Losers

Stocks

• High-Volume Gainers

• High-Volume Losers

*5-Day Change

Stocks Plunging into Afternoon on EU Disintegration Fears, Soaring European/Emerging Markets/US High-Yield Debt Angst, Commodity Decline, Financial/Tech Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Lower
  

• Sector Performance: Almost Every Sector Declining
  

• Volume: Heavy

• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• Volatility(VIX) 23.12 +34.03%

• Euro/Yen Carry Return Index 119.18 -5.92%

• Emerging Markets Currency Volatility(VXY) 11.21 +13.46%

• S&P 500 Implied Correlation 62.09 +13.58%

• ISE Sentiment Index 44.0 -60.36%
  

• Total Put/Call 1.21 -2.42%

• NYSE Arms 1.62 +197.27% 

Credit Investor Angst:

• North American Investment Grade CDS Index 86.28 +12.88%
  

• America Energy Sector High-Yield CDS Index 745.0 +.71%

• European Financial Sector CDS Index 125.70 +32.47%

• Western Europe Sovereign Debt CDS Index 36.69 +31.64%

• Asia Pacific Sovereign Debt CDS Index 54.31 +7.34%

• Emerging Market CDS Index 300.78 +8.97%
  

• iBoxx Offshore RMB China Corporate High Yield Index 129.91 -.06%

• 2-Year Swap Spread 12.75 unch.
  

• TED Spread 37.75 unch.

• 3-Month EUR/USD Cross-Currency Basis Swap -43.50 -7.0 basis points
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 71.50 -2.28%
• 3-Month T-Bill Yield .25% -3.0 basis points

• Yield Curve 93.0 -2.0 basis points
  

• China Import Iron Ore Spot $50.61/Metric Tonne -2.47%

• Citi US Economic Surprise Index -23.8 -4.8 points

• Citi Eurozone Economic Surprise Index 3.8 +4.1 points

• Citi Emerging Markets Economic Surprise Index -5.9 -.1 point

• 10-Year TIPS Spread 1.45% -9.0 basis points
• 0.0% chance of Fed rate hike at Sept. 21 meeting, 0.0% chance at Nov. 2 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +413 open in Japan 
• China A50 Futures: Indicating +3 open in China

• DAX Futures: Indicating -61 open in Germany

Portfolio: 

• Slightly Lower: On losses in my biotech/medical/tech/retail sector longs 
  

• Disclosed Trades: Added to my (IWM)/(QQQ) hedges and to my emerging markets shorts

• Market Exposure: Moved to 25% Net Long