Bear Radar

Style Underperformer:

• Large-Cap Growth +1.4%

Sector Underperformers:

• 1) Utilities -.2% 2) Papers +.6% 3) Agriculture +.8%

Stocks Falling on Unusual Volume:

• CM, SWNC, AVAV, SWN, ALV, DSLV, HNP, DBL, FLKS, ZBRA, DQ, ZBIO, PCRX, ALXN, LFUS, TBRA, RARE, CLX, NDRM and BMRN

Stocks With Unusual Put Option Activity:

• 1) TXN 2) SMH 3) IEF 4) FXE 5) EWG

Stocks With Most Negative News Mentions:

• 1) SCOR 2) ALV 3) CCCL 4) FSB 5) HYH

Charts:

• ETFs Falling on Unusual Volume
• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Small-Cap Value +1.8%

Sector Outperformers:

• 1) Gold & Silver +3.5% 2) Disk Drives +3.4% 3) Gaming +3.0%

Stocks Rising on Unusual Volume:

• TSRO, DRII, PVTB, CLVS, TDOC, USLV, SGY, CNK, SGRY, VOYA, HT, NTAP, VAC and WYN

Stocks With Unusual Call Option Activity:

• 1) DRII 2) GALE 3) ALLY 4) ERX 5)RRC

Stocks With Most Positive News Mentions:

• 1) BT 2) BP 3) CCL 4) ARMH 5) AZN

Charts:

• ETFs Rising on Unusual Volume
• Stocks Rising on Unusual Volume

Morning Market Internals

NYSE Composite Index:

• Volume Running +13.0% Above 100-Day Average
• 10 Sectors Rising, 0 Sectors Declining
• 85.5% of Issues Advancing, 12.2% Declining
• 215 New 52-Week Highs, 7 New Lows
• 46.5% of Issues Above 200-day Moving Average
• Average 14-Day RSI 37.4%
• Vix 17.0 -9.2%
• Total Put/Call 1.26 +11.5%
• TRIN/Arms .91 +62.2%

Wednesday Watch

Evening Headlines
Bloomberg:  

• Merkel Says No Way Back From Brexit as Cameron Regrets Defeat. (video) European Union leaders said there could be no turning back for the U.K. after Prime Minister David Cameron used his last EU summit to express disappointment at his failure to win the referendum he called on Britain’s membership. “As of this evening, I see no way back from the Brexit vote,” German Chancellor Angela Merkel told reporters after the meeting in Brussels on Tuesday. “This is no time for wishful thinking, but rather to grasp reality.” Fellow government chiefs lined up to warn Cameron that delaying the period before the U.K formally activates the EU’s exit mechanism will prevent the start of negotiations over any future relationship. The prime minister repeated the message he’d given back home: despite the uncertainty it’s causing, that will be the job for his successor.
• El-Erian: Anti-Establishment Movement to Get Louder. (video)
• Trouble in Renewable Energy Spotted in China’s Idled Wind Farms. Trouble may be brewing in China’s renewable energy industry if idled wind farms are anything to go by. The nation’s clean-energy investment binge has made it the world leader in wind, accounting for about one in every three turbines currently installed, according to the Global Wind Energy Council. In turn, Xinjiang Goldwind Science & Technology Co., which makes the machines, has pushed past its western rivals such as Vestas Wind Systems A/S and General Electric Co.
• Japan’s Retail Sales in May Unchanged, Showing Weak Recovery. Japan’s retail sales were unchanged in May, underscoring the challenge Prime Minister Shinzo Abe faces in boosting consumer spending and reviving the economy. Sales were flat in May from the previous month, when they dropped, the trade ministry reported Wednesday. The median forecast of economists surveyed by Bloomberg was for no gain. Favorable factors included sales of machinery and equipment, while sectors including food and beverages were negative. From a year earlier, sales fell 1.9 percent, compared with a forecast decline of 1.6 percent in the survey. The biggest contributor to the drop was fuels, reflecting declines in oil prices. Even as oil prices have risen recently the level is still lower compared with last year.
• Brexit Risks Pile Up for Hitachi Construction, CEO Says. The risks are piling up for Japan’s construction equipment makers in the aftermath of Brexit. Already contending with China’s slowdown and a rout in commodities prices, Hitachi Construction Machinery Co. now faces two new threats after the U.K.’s vote to quit the European Union: the yen’s rapid appreciation and fears that Brexit could hit demand in Europe, according to its chief executive officer. “The yen has been strengthening sharply and that’s the biggest impact on our business,” Yuichi Tsujimoto said in an interview Tuesday. “Immediate risks are the currency movement and the European economy.”
• Japan Executives Saw Yen Gaining Most in 2016 Even Before Brexit. Japanese executives were expecting the yen to outperform its peers this year even before the U.K.’s decision to quit the European Union set off global market turmoil that drove the currency to its highest since 2013. Some 57 percent of more than 100 traders, strategists and corporate treasurers polled at a Bloomberg seminar in Tokyo on June 14 expected the Japanese currency to stand out as the strongest performer against the greenback this year, with 15 percent choosing the Swiss franc and 12 percent picking the Australian dollar. While 76 percent of respondents expected further Bank of Japan easing in 2016, the potential for the U.S. to raise interest rates was cited as the biggest issue likely to affect the yen.
• Asian Stocks Advance Amid Global Rebound on Stimulus Speculation. Asian stocks rose, following a rally in global equities, amid optimism that policy makers will introduce measures to limit the economic fallout from U.K. leaving the European Union. The MSCI Asia Pacific Index advanced 1 percent to 126.64 as of 9:03 a.m. in Tokyo. A gauge of global equities climbed by most in a week as investors watched for signs that central banks and governments will help ease the post-Brexit market turmoil. Federal Reserve Governor Jerome Powell said global risks have shifted further to the downside after Britain’s vote to exit the EU, introducing new uncertainties that may merit reassessing monetary policy.
• Fed’s Powell Says Brexit Shifts Global Risks Further to Downside. Federal Reserve Governor Jerome Powell said global risks have shifted further to the downside after Britain’s vote to exit the European Union, introducing new uncertainties that may merit reassessing monetary policy. “The Brexit vote has the potential to create new headwinds for economies around the world, including our own,” Powell said Tuesday in remarks prepared for delivery to the Chicago Council on Global Affairs. “As the global outlook evolves, it will be important to assess the implications for the U.S. economy, and for the stance of policy appropriate to foster continued progress toward our objectives of maximum employment and price stability.”
• Oil Is Still Heading to $10 a Barrel.
• Hedge Funds Brace for Redemptions in Wake of Brexit. (video)

Wall Street Journal:

• Donald Trump Lays Out Protectionist Views in Trade Speech. Candidate rejects longstanding GOP orthodoxy by saying he would scrap NAFTA, U.S. involvement in TPP.

Fox News:

• At least 36 dead, 147 injured in suspected ISIS attack at Istanbul airport. (video) At least 36 people were killed and 147 more were injured when three suspected ISIS suicide bombers attacked Istanbul's main international airport Tuesday night, Turkish officials said. Prime Minister Binali Yildirim confirmed the death toll from the blasts at Istanbul Ataturk Airport. Earlier, Justice Minister Bekir Bozdag confirmed that 147 people had been wounded in the attacks. The Associated Press initially quoted a senior Turkish official as saying that close to 50 people had already died. However, the news agency later said that the official told them the figure was expected to rise to close to 50. A Turkish official told Reuters that the "vast majority" of victims were Turkish, but some foreigners were also affected.

CNBC:

• Investor group calls for Tesla(TSLA) board governance fixes in wake of SolarCity(SCTY) bid.

Zero Hedge:

• The Accusations Begin: David Cameron Blames Brexit On Merkel And EU "Immigration Failure".
• Nigel Farage Batters Obama: "He Came To Britain And Behaved Disgracefully".
• Nike(NKE) Tumbles To August 2015 Levels After Missing On Revenue, Future Orders, Margin Decline.
• Bernie Sanders: The World Is Rejecting Globalization.
• Chart Of The Day: When Central Planning Fails. (graph)
• CCTV Camera Captures Moment Of Istanbul Airport Explosion As Suicide Attacker Blows Himself Up. (video)
• Kuroda Is Trapped As The BOJ Can't Ease Any Further: Here's Why. (graph)
• Why All The Post-Brexit Hysteria?
• Brexit Hedge Unwind Sparks Volumeless Dead Cat Brounce. (graph)

Business Insider:

• Hong Kong's downturn will be a harbinger of things to come.
• America's shrinking middle class is killing the economy.
• People who witnessed the Istanbul suicide bombings share terrifying details from the attack.
• Photos show the aftermath of the Istanbul airport bombing.
• Any 'veneer of confidence' in the markets is gone.

Night Trading 

• Asian equity indices are +.5% to +1.0% on average.
• Asia Ex-Japan Investment Grade CDS Index 145.75 -4.5 basis points.
• Asia Pacific Sovereign CDS Index 53.50 -2.5 basis points.
• Bloomberg Emerging Markets Currency Index 71.77 +.02%. 
• S&P 500 futures +.10%. 
• NASDAQ 100 futures +.11%.

Morning Preview Links

Earnings of Note
Company/Estimate 

• (AYI)/2.03
• (GIS)/.60
• (MON)/2.40
• (WOR)/.62
• (APOL)/.27
• (MRVL)/.09
• (PIR)/-.05
• (PRGS)/.29

Economic Releases  
8:30 am EST

• Personal Income for May is estimated to rise +.3% versus a +.4% gain in April.
• Personal Spending for May is estimated to rise +.4% versus a +1.0% gain in April.
• The PCE Core MoM for May is estimated to rise +.2% versus a +.2% gain in April.   

10:00 am EST

• Pending Home Sales MoM for May are estimated to fall -1.1% versus a +5.1% gain in April.

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory decline of -2,344,440 barrels versus a -917,000 barrel decline the prior week. Gasoline supplies are estimated to fall by -444,440 barrels versus a +627,000 barrel gain the prior week. Distillate inventories are estimated to rise by +238,890 barrels versus a +151,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to rise by +.65% versus a +1.1% gain prior.
  

Upcoming Splits 

• None of note

Other Potential Market Movers

• The Fed Stress Test results, Japan Industrial Production report, weekly MBA Mortgae Applications report, (MCK) investor day, (NX) analyst day and the (SSP) investor day could also impact trading today.

BOTTOM LINE:  Asian indices are higher, boosted by commodity 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 Surging into Final Hour on Central Bank Hopes, Less European/Emerging Markets/US High-Yield Debt Angst, Short-Covering, Biotech/Financial Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Higher
  

• Sector Performance: Almost Every Sector Rising
  

• Volume: Above Average

• Market Leading Stocks: Outperforming
  

Equity Investor Angst:

• Volatility(VIX) 19.88 -16.69%

• Euro/Yen Carry Return Index 118.57 +.84%

• Emerging Markets Currency Volatility(VXY) 10.78 -6.1%

• S&P 500 Implied Correlation 60.12 -6.47%

• ISE Sentiment Index 82.0 +51.85%
  

• Total Put/Call 1.15 -10.85%

• NYSE Arms .77 -55.43% 

Credit Investor Angst:

• North American Investment Grade CDS Index 86.20 -5.55%
  

• America Energy Sector High-Yield CDS Index 842.0 +2.10%

• European Financial Sector CDS Index 129.40 -5.31%

• Western Europe Sovereign Debt CDS Index 35.93 -1.83%

• Asia Pacific Sovereign Debt CDS Index 53.99 -3.43%

• Emerging Market CDS Index 294.65 -3.84%
  

• iBoxx Offshore RMB China Corporate High Yield Index 130.04 +.07%

• 2-Year Swap Spread 11.5 -.25 basis point
  

• TED Spread 37.5 -1.0 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -38.25 +.75 basis point
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 71.74 +1.23%
• 3-Month T-Bill Yield .25% +1.0 basis point

• Yield Curve 85.0 -1.0 basis point
  

• China Import Iron Ore Spot $53.65/Metric Tonne -.39%

• Citi US Economic Surprise Index -20.5 +2.8 points

• Citi Eurozone Economic Surprise Index -.6 -3.6 points

• Citi Emerging Markets Economic Surprise Index -8.5 -1.3 points

• 10-Year TIPS Spread 1.40% +3.0 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 +272 open in Japan 
• China A50 Futures: Indicating +27 open in China

• DAX Futures: Indicating +40 open in Germany

Portfolio: 

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

• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges and some of my emerging markets shorts

• Market Exposure: Moved to 75% Net Long

Today's Headlines

Bloomberg:    

• Merkel Tells Cameron Before EU Summit: Don’t Delude Yourself. (video) German Chancellor Angela Merkel warned the U.K. to have no illusions about life outside the European Union, hardening her stance ahead of Prime Minister David Cameron’s first meeting with fellow EU leaders since triggering the political earthquake that’s shaken the bloc’s foundations. Merkel, in her toughest response yet to last week’s British vote to quit the 28-nation EU, said that the U.K. can’t expect favored treatment once it leaves and that there will be no informal talks on a new relationship before the government in London files its application for divorce. “There shouldn’t be the slightest misunderstanding about the conditions laid out in the European treaties for a case like this,” Merkel said in a speech to Germany’s parliament in Berlin on Tuesday. “My only advice to our British friends is: Don’t delude yourself about the necessary decisions that need to be taken.”
• Draghi Wishes for a New World Order Populists Will Love to Hate. Mario Draghi has just pushed the boundaries of central banking further into the realm of globalization, at a time when globalization is on the run. Following the work of Reserve Bank of India Raghuram Rajan and others, the European Central Bank president on Tuesday became the most senior global central banker so far to call for more explicit policy cooperation between jurisdictions. Draghi’s aim is to mitigate the damaging cross-border side-effects brought on by the combination of monetary activism and tighter global financial links. “We have to think not just about whether our domestic monetary policies are appropriate, but whether they are properly aligned across jurisdictions,” Draghi said at the ECB’s annual policy forum in Sintra, Portugal. “In a globalized world, the global policy mix matters.” He made no explicit reference in the speech to the U.K.’s June 23 decision to quit the European Union, a powerful rejection by voters of globalization.
• There’s Risk of a ‘Buyer’s Strike’ in Stocks, Barclays Says. The selloff following the U.K.’s secession vote, the deepest two-day rout since 2008, may herald an extended period of risk aversion in the global stock market, says Barclays Plc. Active managers increased their exposure to risk assets in the week ahead of the U.K. vote on European Union membership, according to Keith Parker, the firm’s U.S. head of asset allocation. The result was an increase in equity positioning, a drop in cash levels and a surge in buying of cyclical stocks -- all of which signals stock mutual funds may be unprepared for a period of outflows, he said.
• Europe Bank Profits May Drop $35 Billion on Brexit, Goldman Says. Brexit may shave 32 billion euros ($35 billion) off European bank earnings through 2018, a 11 percent decline from what profits would have been without the economic shock, according to Goldman Sachs Group Inc. U.K. banks will be hurt the most as Britain’s vote to leave the European Union erases 10 billion euros of potential net income, Goldman Sachs analysts said in a note to clients on Tuesday. Banks in the Benelux and Nordic countries will suffer the least, they said. “We forecast a weaker outlook owing to lower volumes, margins and fees,” as well as higher credit risks, the group of analysts, led by Jernej Omahen, said in the note. “We also expect lower activity levels for capital markets and wholesale businesses, as well as lower asset values and flows in the asset-gathering business.”
• Japan Yields All Drop Below 0.1% First Time in Global Bond Surge. Japan’s benchmark bonds are now all yielding less than 0.1 percent for the first time, leading a global surge in sovereign debt, as the U.K.’s decision to leave the European Union threatened to slow growth and keep the Federal Reserve from raising interest rates. The rally in Japan pushed yields on the nation’s longest debt, the 40-year bond, to 0.065 percent. Australia’s and South Korea’s 10-year yields dropped to unprecedented levels.  Treasury prices slipped after yields approached records last week.
• South Korea Plans Supplementary Budget, Cuts Growth Forecast. South Korea plans a fiscal stimulus package of more than 20 trillion won ($17 billion) to cushion risks from corporate restructuring as external uncertainties grow with the U.K. ’s vote to leave the European Union. The package will include an extra budget of about 10 trillion won that mainly would be used to create jobs and support regional economies that would be hurt by corporate restructuring, according to government statements on policy outlook for the second half. The growth outlook for 2016 was reduced to 2.8 percent from 3.1 percent, while the government’s inflation projection was cut to 1.1 percent from 1.5 percent. About 10 trillion won in extra budget will be financed by funds left over from 2015 -- about 1.2 trillion won -- and excess tax revenue expected for this year, according to Lee Ho Seung, a director general of economic policy at the finance ministry. No government debt will be issued, he said. The other spending of more than 10 trillion won in the stimulus package will come from public funds and investments from state-owned companies.
• European Stocks Rebound as Investors Speculate on Policy Help. (video) European stocks advanced, snapping their worst two-day losing streak since 2008, as investors speculated that policy makers may take action to shore up markets after the post-Brexit rout. The Stoxx Europe 600 Index rose 2.6 percent to 316.7 at the close of trading. European stocks extended their two-day loss to 11 percent yesterday amid growing uncertainty surrounding the fallout from Britain’s shock vote to leave the European Union. The FTSE 100, which lost 5.6 percent over the same period, also recovered 2.6 percent today. The volume of European shares changing hands was 60 percent greater than the 30-day average, while for British equities, it was 74 percent higher.
• Gold Veteran Says Brexit May Be Start of ‘Major Bull Market’. Gold may stand at the start of a major bull market should the U.K.’s Brexit vote prove to be a forerunner of greater political and financial instability around the world, according to Evolution Mining Ltd.’s Jake Klein, a veteran of more than 20 years in the industry.
• Brexit Steamrolls Fed Model for Stock Bulls as Bond Yields Drop. The dangers of relying on valuation as a tool for market timing are on display right now in U.S. equities. At issue is something known as the Fed Model, a comparison of stock and bond yields that has been pointing bulls to equities for three months. As bond yields fell from their March highs, an investor guided by the theory would have bought shares, betting they’d rally as money flowed into them from fixed-income. As the last two days have shown, signals like this don’t always work. Stocks have plunged following the U.K. vote to secede, while bonds rallied and yields reached an almost four-year low. Stocks that were cheap in comparison to Treasuries have gotten significantly cheaper, a lesson that cost U.S. investors billions of dollars in lost market value.

Wall Street Journal:

• Stores Accepting Food Stamps Face Stricter Rules. Proposal sets up fight between corner stores and big chains like Wal-Mart, Kroger over $74 billion program.
• Teachers Union and Hedge Funds War Over Pension Billions. Labor leader aims to pull money from managers who promote retirement cutbacks; a billboard over Times Square.
• The Backlash That Became Brexit. Tired of being ignored in favor of liberal grievances, the middle clings to the one thing that keeps them relevant: their vote.

MarketWatch.com: 

• There have been only two times when profits have fallen this steeply without a recession. (graph)

Fox News: 

• House Benghazi report slams administration response to attacks. (video) A damning report authored by the Republican-led House committee probing the Benghazi terror attacks faulted the Obama administration for a range of missteps before, during and after the fatal 2012 attacks – saying top administration officials huddled to craft their public response while military assets waited hours to deploy to Libya. The report released Tuesday pointedly blamed a “rusty bureaucratic process” for the slow-moving response the night of the attack. The report said despite orders from President Obama and then-Defense Secretary Leon Panetta to deploy, the first military force did not do so until more than 13 hours after the attack started. The report said one anti-terrorism security team known as the FAST unit sat waiting for three hours in Rota, Spain, as Marines changed “in and out of their uniforms four times,” and even debated whether they should carry personal weapons, according to one witness. All together, the report said, “it would take nearly 18 hours” for that team to move.

CNBC:

• Don't get too happy about this stock rally.
• The Brexit and Article 50: CNBC Explains.
• Don't worry about iPhone 7 sales, 'a powder keg is forming'. (video) In a late Monday note, Cowen analysts said, "while iPhone 7 still looks about flat [with] iPhone 6S and macro risk is clear, our new installed base analysis suggests a 'powder keg' is forming." The note recommended that investors buy the stock.

Zero Hedge:

• Farage Slams The EU Parliament: "You're Not Laughing Now Are You?". (video)
• Bank of America(BAC): "If You Are Going To Panic, Panic Early".
• Draghi Warns Brexit Will Lead To "Competitive Devaluations", Years Of Low Growth.
• Juncker Refuses To Speak English In Address To EU Parliament.
• European Dead-Cat-Bounce Dies - Big Banks End Lower. (graph)
• Why Barclays Thinks The V-Shaped Recovery Is Dead: "Massive Redemptions Are Coming".
• UK Labour Party Leader Corbyn Loses Vote Of No Confidence.
• "People Need To Know The Real Hillary Clinton And How Dangerous She Is". (video)
• When It Comes To The US Economy, The Age Divide Has Never Been Wider. (graph)
• Richmond Fed Dead-Cat-Bounce Crashes To 3-Year Lows. (graph)
• What Is The Source Of Today's Buying Panic: RBC Explains.
• Bonds Ain't Buying It. (graph)
• Obamacare Accounted For 58% Of US "Growth" In The First Quarter.
• Case-Shiller Home Prices Rise At Slowest Pace In 8 Months As San Francisco Sales Slump. (graph)
• Final Q1 GDP Rises 1.1% Despite Worst Personal Consumption In Two Years. (graph)

The Irish News:

• Fine Gael MEP Brian Hayes warns of ‘Irexit' if EU clamps down on the Republic's corporation tax regime. AN influential Fine Gael figure has warned that EU efforts to dilute the Republic's generous corporation tax regime could see the south following the UK out of the EU. In an intervention that is unlikely not to have been sanctioned by the Dublin government, MEP Brian Hayes described EU demands for tax harmonisation as an "absolute red line issue". The Republic's business tax breaks have come in for scrutiny since it emerged that Apple, which has a large plant in Cork, enjoyed favourable rates.