Stocks Rising into Final Hour on Diminished Russia/Ukraine Tensions, Buyout Speculation, Technical Buying, Biotech/Tech Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Higher
  

• Sector Performance: Most Sectors Rising
  

• Volume: Light

• Market Leading Stocks: Outperforming

Equity Investor Angst:

• Volatility(VIX) 12.46 +.16%

• Euro/Yen Carry Return Index 145.03 +.02%

• Emerging Markets Currency Volatility(VXY) 7.13 -.97%

• S&P 500 Implied Correlation 56.47 +1.63%

• ISE Sentiment Index 112.0 +14.29%

• Total Put/Call .78 -15.22%

• NYSE Arms 1.10 -9.69% 

Credit Investor Angst:

• North American Investment Grade CDS Index 65.16 +.64%

• European Financial Sector CDS Index 79.34 +1.68%

• Western Europe Sovereign Debt CDS Index 37.24 +4.49%

• Asia Pacific Sovereign Debt CDS Index 86.26 +1.91%

• Emerging Market CDS Index 263.76 -2.07%

• China Blended Corporate Spread Index 358.99 -.20%

• 2-Year Swap Spread 15.5 +.75 basis point

• TED Spread 20.75 -.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -6.25 +.5 basis point

Economic Gauges:

• 3-Month T-Bill Yield .02% unch.

• Yield Curve 219.0 +3.0 basis points

• China Import Iron Ore Spot $98.50/Metric Tonne -2.18%

• Citi US Economic Surprise Index 3.0 +5.3 points

• Citi Emerging Markets Economic Surprise Index -24.60 +.6 point

• 10-Year TIPS Spread 2.16 -2.0 basis points

Overseas Futures:

• Nikkei Futures: Indicating +100 open in Japan

• DAX Futures: Indicating +11 open in Germany

Portfolio: 

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

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

• Market Exposure: Moved to 75% Net Long

Today's Headlines

Bloomberg:

• Russia Says It Has Ordered Troops Near Ukraine Back to Base. President Vladimir Putin ordered Russian troops near the Ukrainian border back to base, the Kremlin said, signaling a possible easing of tensions six days before Ukraine’s presidential election. Putin toldforces in the Rostov, Belgorod and Bryansk regions to return to their bases after completing exercises, according to the presidential press service. The comments came as Ukrainian forces continued skirmishes with pro-Russian insurgents after separatists in the Donetsk and Luhansk regions said they planned their own elections later this year. Putin, whom the Ukrainian government accuses of fomenting unrest in the east and who annexed Crimea in March, promised a withdrawal of Russian forces from the border two weeks ago. NATO Secretary General Anders Fogh Rasmussen said today he’s yet to see any sign troops have been pulled back. 
• China Stocks Fall to Three-Week Low as Home-Price Growth Slows. China’s stocks fell, sending the benchmark index to the lowest level in three weeks, amid concern weakness in the property market and curbs on interbank borrowing will worsen the economic slowdown. Poly Real Estate Group Co. led Shanghai-based developers to the biggest loss among industry groups after new-home prices climbed in the fewest cities since October 2012. China Minsheng Banking Corp. slid to a two-month low as UBS AG said it was cautious on the lender’s shares after the government ordered interbank lending restrictions. Wuliangye Yibin Co. fell 2.5 percent after the China Securities Journal said the company had cut the price of some liquor products by more than 30 percent. The Shanghai Composite Index (SHCOMP) dropped 1.1 percent to 2,005.18 at the close, the lowest since April 28, after briefly dropping below the 2,000 level.
• Iron Ore Declines Below $100 for First Time Since 2012 on China. Iron ore slipped below $100 a ton for the first time in almost two years on speculation a home-price growth slowdown in China, the biggest user, will dampen demand and worsen the global seaborne glut. Ore with 62 percent content delivered to the Chinese port of Tianjin fell 2.2 percent to $98.50 a dry ton today, the lowest since Sept. 13, 2012, according to data from The Steel Index Ltd. The commodity dropped 27 percent this year, after falling 7.4 percent last year. Iron ore entered a bear market in March as the world’s biggest miners including BHP Billiton Ltd. and Rio Tinto Group boosted output as economic expansion in China is forecast by analyst to slow to the weakest since 1990. The commodity used to make steel was expected to be below $100 going into 2015 as the surplus builds, Goldman Sachs Group Inc. said this month. 
• Finra Trading-Surveillance System Will Be Curbed, Ketchum Says. The Financial Industry Regulatory Authority, Wall Street’s self-regulator, is moving to curb a trading-surveillance system that has generated opposition from brokers, Chief Executive Officer Rick Ketchum said today.
• Mom and Pop Bet Against Hedge Funds on Junk-Rated Loans. Mom-and-Pop investors have had it with junk-rated loans. Professional money managers, meanwhile, are still piling in and using borrowed money to buy them up. History will decide who’s the smart money here.

CNBC:

• U.S. Charges China With Cyber-Spying on American Firms. The Justice Department filed criminal charges against five hackers in the Chinese military Monday, accusing them of stealing American trade secrets through cyber-espionage. The efforts were directed at six American victim companies: Westinghouse Electric, U.S. subsidiaries of SolarWorld AG, U.S. Steel, Allegheny Technologies and Alcoa. The United Steel Workers union was also targeted. Each of the alleged hackers was hit with 31 criminal counts for a conspiracy that stretched back eight years, officials said. 
• Roommates are a financial lifeline for some seniors. Living with roommates when you're 25 is one thing. When you're 65, it's another story—but it's a reality for a growing number of older Americans.

ZeroHedge: 

• More Brilliance From San Fran Fed: Existing Home Sales Tumble Blamed On "Rising" Rates.
• Fed's Williams Admits "Soft Landings Never Happen... Be Wary Of Excessive Risk".
• Chart Of The Day: Whose Housing Bubble Is Bigger? (graph)
• China Responds To "Ridiculous" Hacking Charges, Warns "Will Harm Relations With US", Demands US "Rectify Mistake".
• “Conflict Between China And Vietnam Is Imminent" - China Piles Troops, Tanks, Artillery And APCs Near Vietnam Border.

Business Insider:

• The Most Important Voters In The Election Are Giving Democrats A Dangerous Warning.
• Student Debt Is Worst At Public Universities With Highly Paid Presidents.
• We're Witnessing A Risky Build Up Of Investor Complacency In The Stock Market. (graph)
• Google(GOOG) Is Reportedly Paying $1 Billion For A Company That Live-Streams Other People Playing Video Games — Here's Why.

Wall Street All-Stars:

• Indicator Update: What does the bond rally mean for stocks?

Reuters:

• Focus on Russia-China gas deal as Putin visits Shanghai. Russian President Vladimir Putin hopes to sign a multi-billion dollar gas agreement with China during a two-day visit that kicks off on Tuesday, ending more than a decade of false starts and wrangling over a deal seen as vital to both sides. 
• EMERGING MARKETS-Bovespa hit by China data, ore prices; America Movil sinks IPC.
• TABLE-Brazil analysts raise 2014 inflation view, cut GDP forecast.

Financial Times:

• Hedge funds haunted by deflation spectre.

Bear Radar

Style Underperformer:

• Large-Cap Value +.24%

Sector Underperformers:

• 1) Utilities -1.31% 2) Steel 1.03% 3) Homebuilders -.75%

Stocks Falling on Unusual Volume:

• AZN, LOCK, CPB, DB, RDY, JWN, T, DOOR, AMX, POST, QUNR, HTHT, INFY, DISH, ETE, FONR and CHA

Stocks With Unusual Put Option Activity:

• 1) URBN 2) HFC 3) XCO 4) DXJ 5) SPLS
  

Stocks With Most Negative News Mentions:

• 1) TGT 2) URBN 3) AMZN 4) GNW 5) KMB
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Small-Cap Growth +1.30%

Sector Outperformers:

• 1) Networking +2.15% 2) Airlines +1.61% 3) Alt Energy +1.42%
  

Stocks Rising on Unusual Volume:

• ITMN, SSLT, DWRE, ICLR, TUES, GOGO, IDTI, KEYW, INSY, SWC, Z, FEYE, ACET, EMES, SMCI, TRLA, JOE, JCI, TPLM, LGCY and MATX

Stocks With Unusual Call Option Activity:

• 1) TWX 2) ITMN 3) DTV 4) SPLK 5) TIF

Stocks With Most Positive News Mentions:

• 1) UAL 2) GD 3) ITMN 4) AAPL 5) LNKD
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Monday Watch

Weekend Headlines 
Bloomberg: 

• Ukraine Forces Fight Rebels as Separatists Prepare Vote. Ukrainian forces fought insurgents in the country’s east, killing one rebel and losing a police station, as separatists prepared for a fall election after declaring independence and saying they want to join Russia. Masked men set fire to a candidate’s regional campaign office before a May 25 presidential ballot as government troops and insurgents skirmished in Ukraine’s Donbass regions of Donetsk and Luhansk. The separatists, who hold buildings and radio and television towers in about 15 cities, said they’d hold a vote, possibly around Sept. 14, to elect new officials for their self-proclaimed “Donetsk People’s Republic.” 
• Carney Says Rising House Prices Are Biggest Risk to U.K. Economy. Bank of England Governor Mark Carney identified surging housing prices as the biggest risk to the U.K. economy in his strongest warning about the property market. In a sign policy makers soon may respond to the price gain, Carney said housing in the U.K. has “deep, deep structural problems,” according to excerpts of an interview that will be televised tomorrow on Sky News’s “Murnaghan” show. Home prices jumped almost 11 percent in April, the biggest annual gain since 2007, according to Nationwide Building Society. While Carney has downplayed raising interest rates to cool off the housing market, he highlighted its economic threat. “The biggest risk to financial stability, and therefore to the durability of the expansion, those risks center in the housing market and that’s why we are focused on that,” he said.
• Nigeria Attack Kills 29 People as Boko Haram Plan Agreed. Suspected Boko Haram militants attacked a market in northeastern Nigeria, killing 29 people, as African nations and France agreed on a joint plan to fight the Islamist group. The deaths occurred in northeast Ngurosoye village in the Bama region this morning, said Senator Ahmed Zanna, who represents the area. Boko Haram, which means “western education is a sin” in the Hausa language, has conducted a violent campaign since 2009 to impose Islamic law in Africa’s top oil producer. 
• Toasts Turn to Water Cannons as China, Vietnam Spar on High Seas. The crews from the Vietnamese and Chinese coast guards shook hands and took photos as they met last month, sharing platters of fruit and raising their glasses for a toast. Now, they are in a tense standoff in the South China Sea.
• Asian Stocks Drop as Ringgit, Nickel Climb; Wheat Slides. Asian stocks fell, with the regional index slipping a second trading day, while Malaysia’s ringgit strengthened after the economy grew faster than economists estimated. Nickel extended its advance amid a reinvigoration of concerns over supply, as wheat led grain futures lower. The MSCI Asia Pacific Index lost 0.2 percent by 9:58 am. in Tokyo, with the S&P/ASX 200 Index in Sydney and Seoul’s Kospi gauge down at least 0.3 percent.
• Euro Drops for Second Week as Growth Concern Sparks Bond Selloff. The euro had the biggest two-week decline against the dollar since November as increased concern that the area’s economy is struggling to accelerate sparked selloffs in bonds issued by Greece and Portugal. The yen rallied the most versus the dollar among the 16 major currencies as Japan’s economy grew at the faster pace since 2011, while the Swiss franc lost the most on speculation the central bank may raise its adjust its currency cap in response to any unconventional easing from the European Central Bank. India’s rupee topped gains in emerging-market currencies as Sonia Gandhi conceded an election to Narendra Modi’s opposition bloc before final results next week. 
• Clinton Bears Responsibility Over Benghazi, Cheney Says. Former Secretary of State Hillary Clinton bears responsibility for the attacks on a U.S. compound in Benghazi, Libya, and will be held accountable should she run for president in 2016, former Vice President Dick Cheney said. “It’s a major issue,” Cheney, who served under President George W. Bush, said in an interview on the “Fox News Sunday” TV program. “I don’t think we’ve heard the last of it yet.”

Wall Street Journal: 

• China's Debt Risks Come to Fore in Housing Project. Build-Transfer Deal in Northern City Left Residents With Leaky Pipes, Broken Lights.
• Pfizer(PFE) Sweetens Bid for AstraZeneca. Final Offer Is Valued at $120 Billion, With 45% of It in Cash.
• Corporate Earnings Leave U.S. Stocks Wobbly. Behind the stock market’s anxious ups and downs of late lies the fear that a weakening U.S. and global economy could dash hopes for an uptick in corporate earnings.
• Fed's Rate-Change System Up for Revamp. First Major Job for Central Bank's New Chief, Janet Yellen.
• Bill, Hillary and the Haiti Debacle. Haitians are upset by the reconstruction effort managed by the Clintons. 

Barron's:

• Our Top 100 Hedge Funds. Equity funds came roaring back into style in 2013, particularly those with a tight focus on a short list of stocks. But what are the fund plays for 2014?

MarketWatch.com: 

• Blackstone(BX) to sell Boston towers for $2.1 billion. Blackstone Group LP has agreed to sell five Boston-area high-rise office towers to a venture led by Canadian real estate investor Oxford Properties Group for about $2.1 billion, according to multiple people familiar with the deal.

Zero Hedge:

• Where the World's Unsold Cars Go To Die. 
• The Real Reason Draghi Will Do "Whatever It Takes" To Crush The Euro.
• Starting Monday, Billions In ETNs Are No Longer Marginable Collateral.
• 5 Things To Ponder: Demographics.
• Narendra Modi: The Good, The Bad, & The Ugly.
• Bernanke Shocker: "No Rate Normalization During My Lifetime".
• GM(GM) Set To Surpass Total Recall Record In One Year.
• What The Fed Won't Tell You About Student Debt.
• The FCC Issues its Proposal On Net Neutrality; Protesters Are Tossed from Hearing.
• Citi On Bubbles, Broken Feedback Loops, & Bricks-On-Elastic.
• The Meat Crisis Is Here: Price Of Shrimp Up 61% – 7 Million Pigs Dead – Beef At All-Time High.
• Over 3000 Chinese Evacuated (By Boat & Plane) As Vietnam's Anti-China Riots Escalate; Taiwan Also On "High Alert".
• Vast Majority Of Swiss Reject $25 Minimum Wage In National Referendum.
• Deutsche Bank(DB) Scrambles To Raise Capital: Will Sell €8 Billion In Stock At Up To 30% Discount.
• Fukushima Seawater Radiation Rises To New All Time High.
• Cisco(CSCO) CEO Warns Obama To Rein In NSA Or Face Collapse Of Trust In US Technology (And Cisco Sales).
• Russia's "Holy Grail" Gas Deal With China Now "Only One Digit Away".

Business Insider:

• Apple(AAPL) And Google(GOOG) Agree To Drop All Lawsuits Against Each Other.
• 34 Million American Gamers Play A Whopping 22 Hours A Week.
• The Automotive Industry Is In A Major Crisis And It's Only Getting Worse.
• Pro-Russian Forces Recapture Separatist Leader On The Eve Of Peace Talks In Ukraine.
• Thailand Is A Powder Keg Of Instability.
• Brazil Is Panicking About Trying To Pull Off The World Cup During Huge Protests.
• Goldman(GS) Just Hacked Its Forecasts For US Housing And GDP Growth.
• Ukraine Is A Game Changer For NATO.
• 'Project Ukraine': How Kiev's Troubles Play Right Into Russia's Hands.
• New Europe Is As Divided About Russia As Old Europe — And That's Bad For Everyone.
• You Might Want To Start Paying Attention To Greece Again...
• Here Comes Congress' Next Big Economic Crisis, And It Could Be Even Worse Than The Fiscal Cliff.

Reuters:

• Hedge fund manager Chanos wary of Japan PM's plans to rearm. Prominent hedge fund manager Jim Chanos on Friday called Japan's Prime Minister Shinzo Abe the most dangerous figure in Asia, citing his plans to rearm his country. Abe could destabilize the region more than what any Chinese leaders are doing, said Chanos, who heads Kynikos Associates, at the SkyBridge Alternatives Conference here. He was responding when asked to name the most dangerous person in Asia.
• AT&T(T) to buy DirecTV for $48.5 billion as cellular growth eases. AT&T plans to pay $48.5 billion to buy DirecTV, the top U.S. satellite TV operator, in a bid for growth beyond an increasingly competitive cellular market.

Financial Times:

• Bundled debt demand reaching levels of height of crisis. Sales of bundled US corporate debt known as collateralised loan obligations are on course to surpass levels reached at the height of the credit bubble, as the relentless search for yield leads investors to abandon caution. The sales illustrate the rise in risk-taking by investors recently burnt in the financial crisis. In addition to renewed appetite for CLOs, private equity firms are buying out companies at record highs and investors are snapping up repackaged subprime UK mortgages that lenders are eager to get off their books.

Telegraph:

• Ken Rogoff warns China is next bubble to burst. The expert who predicted the US housing crisis fears slump of rival superpower. The odds of a dramatic slowdown or “hard landing” are high and rising, and probably rank as “the number one risk to the global economy today”, Rogoff says. 
• China steps up speed of oil stockpiling as tensions mount in Asia. Beijing has ordered an "unprecedented" build up of oil reserves as West prepares for possible oil sanctions against Russia. 

Yomiuri:

• Japan May Send Defense Force Units to Southwest Islands. Japan considers deployed troops in southwestern islands Amami Oshima, Miyako and Ishigaki to step up defense in the regions. Japan may send 350 self-defense force personnel to each of the three islands.

China Securities Journal:

• China Researcher Sees 2Q Export Growth at About 5%. China's export and import growth will maintain a low to medium speed in 2Q, State Information Center writes. 2Q import growth expected at around 4.5%. Chinese economy faces downward pressure.

Weekend Recommendations

Barron's:

• Bullish commentary on (WAG), (OIS), (TGI), (AMTD), (AVP), (PBI) and (EQIX).

• Bearish commentary on (WWE).

Night Trading

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

• Asia Ex-Japan Investment Grade CDS Index 119.0 +1.75 basis points.

• Asia Pacific Sovereign CDS Index 84.50 unch.

• FTSE-100 futures +.04%.

• S&P 500 futures +.03%.

• NASDAQ 100 futures +.06%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (CPB)/.59
• (VAL)/1.04
• (URBN)/.27
• (HTZ)/.09

Economic Releases 

• None of note

Upcoming Splits

• (BHB) 3-for-2

Other Potential Market Movers

• The Fed's Fisher speaking, Eurzone construction data, RBA minutes, UBS Oil/Gas Conference, JPMorgan Tech/Media/Telecom Conference, UBS Healthcare Conference and the (SGY) investor day could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by real estate and commodity shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the week.

Weekly Outlook

U.S. Week Ahead by MarketWatch (audio). 
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 mixed as Russia/Ukraine tensions, global growth fears and rising emerging markets/European debt angst offset technical buying, central bank hopes and short-covering. My intermediate-term trading indicators are giving neutral signals and the Portfolio is 50% net long heading into the week.