Stocks Rising into Final Hour on Less Eurozone Debt Angst, Short-Covering, Yen Weakness, Gaming/Healthcare Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Modestly Higher
  

• Sector Performance: Most Sectors Rising
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 17.20 -7.28%

• Euro/Yen Carry Return Index 141.17 +.63%

• Emerging Markets Currency Volatility(VXY) 11.04 +1.56%

• S&P 500 Implied Correlation 67.53 -1.70%

• ISE Sentiment Index 84.0 -11.58%

• Total Put/Call .96 -11.11%

• NYSE Arms .91 -6.04% 

Credit Investor Angst:

• North American Investment Grade CDS Index 66.34 -.48%
• America Energy Sector High-Yield CDS Index 713.0 +.4%

• European Financial Sector CDS Index 66.60 -1.84%

• Western Europe Sovereign Debt CDS Index 25.94 -2.02%
• Asia Pacific Sovereign Debt CDS Index 69.31 +.12%

• Emerging Market CDS Index 386.17 +1.64%

• iBoxx Offshore RMB China Corporates High Yield Index 113.42 -.01%
• 2-Year Swap Spread 26.25 unch.

• TED Spread 24.50 +.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -21.0 -.5 basis point

Economic Gauges:

• 3-Month T-Bill Yield .01% unch.

• Yield Curve 134.0 +3.0 basis points

• China Import Iron Ore Spot $62.38/Metric Tonne +1.93%

• Citi US Economic Surprise Index -28.80 -2.7 points
• Citi Eurozone Economic Surprise Index 31.20 +2.0 points

• Citi Emerging Markets Economic Surprise Index -10.80 +.8 point

• 10-Year TIPS Spread 1.70 -1.0 basis point

Overseas Futures:

• Nikkei Futures: Indicating +208 open in Japan

• DAX Futures: Indicating +39 open in Germany

Portfolio: 

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

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

• Market Exposure: Moved to 50% Net Long

Today's Headlines

Bloomberg:   

• Schaeuble Says ‘Over’ for Greece Unless Aid Program Accepted. German Finance Minister Wolfgang Schaeuble doused expectations of a positive outcome for Greece at an emergency meeting with its official creditors tomorrow, saying there are no plans to give the country more time. Speaking to reporters in Istanbul after a two-day meeting of finance chiefs from the Group of 20, Schaeuble said “it’s over” if Greece doesn’t want the final tranche of the current aid program. Greece’s creditors also “can’t negotiate about something new,” Schaeuble said. Greek government bonds had risen today for the first time in five days on optimism there might be room to move toward an agreement that will help ensure the nation isn’t left short of funds. That had come after Greece had offered compromises in a bid to push for a bridge plan to stave off a funding crunch and to buy time for negotiations to ease austerity demands.
• Bond Vigilantes Gone AWOL Boost Greek Risk of Expulsion. The threat Greece poses to Europe may be gaining force through investor complacency. Money managers are accepting rates on Italian and Spanish government bonds at close to record lows. They’re rejecting the notion that the euro area’s higher-yielding issuers -- the so-called peripherals -- can be infected by Greece’s negotiations for a new deal on its more than 300 billion euros ($340 billion) in debt. The cues investors are giving to European policy makers may end up backfiring. “Someone says something that sounds cheerful, and the market assumes that the situation is therefore moving toward resolution,” Stephen Lewis, chief economist in London at ADM Investor Services International Ltd., said in a Feb. 6 telephone interview. “That may not be the case at all. Abandoning austerity in the case of Greece would be abandoning austerity for the euro zone as a whole.”
• Osborne Sees Rising Danger of Bad Outcome in Greek Crisis. (video) International finance ministers urged Greece and its creditors to resolve their fight over austerity and aid, warning against an impasse that might splinter the euro region. As a meeting of economic policy makers from the Group of 20 concluded in Istanbul, U.S. Treasury Secretary Jacob J. Lew cautioned against “casual talk” that Greece could leave the euro and recommended “a pragmatic approach in which the parties can agree on terms that are mutually agreeable.” “Here at the G-20, we are urging all parties to this dispute to find some common solutions,” U.K. Chancellor of the Exchequer George Osborne said in a Bloomberg Television interview. “A Greek exit from the euro would be very difficult for the world economy and potentially very damaging for the European economy.”  
• Ukraine Begins Offensive Against Rebels While U.S. Weighs Arms Aid. Ukrainian troops began a new offensive and their main eastern headquarters suffered a rocket attack before European diplomats gathered in Belarus for a peace summit in a bid to stem 10 months of bloodshed. Government forces broke through rebel positions near the eastern port city of Mariupol, with Ukraine blaming the pro-Russia militants for shelling its command post. The new fighting erupted after President Barack Obama and German Chancellor Angela Merkel said Russian aggression is boosting the resolve of the U.S. and the European Union to make President Vladimir Putin pay for violating Ukraine’s sovereignty.
• Sleep-at-Night Bank-Debt Buyers Seen Cool on TLAC Bonds. Douglas Flint, chairman of HSBC Holdings Plc, wants to know who’s going to buy the trillions of dollars of loss-absorbing securities that regulators plan to force the biggest global banks to have on their books. The interest at this stage from traditional consumers of bank paper, such as pension funds and insurers, is lukewarm at best. While the securities, designed to be written down in a crisis, would offer higher yields than senior debt, the risk of bail-in may be more than some buyers can tolerate. That could leave the banks struggling to meet regulatory requirements. 
• European Shares Advance Amid Optimism of Greek Bailout Agreement. European stocks advanced amid investor optimism that Greece can reach an agreement on bailout terms with its euro-area creditors. The Stoxx Europe 600 Index added 0.6 percent to 372.94 at the close of trading, after earlier rising as much as 0.9 percent. Greek Finance Minister Yanis Varoufakis faces his euro-zone counterparts on Feb. 11 at an emergency meeting in Brussels. He said his government will neither tear up the existing bailout deal, nor allow the budget to be derailed, while Greece will implement about 70 percent of reforms included in the accord.
• Fewer Small Businesses in U.S. Plan to Raise Worker Compensation. Fewer U.S. small companies plan to raise wages in coming months after a net 25 percent said they recently boosted compensation for their workers. A net 12 percent of managers said in January that they will be increasing pay, according to the seasonally adjusted results of 1,663 responses in a survey by the National Federation of Independent Business. That’s down 5 points from December, when 17 percent said they planned higher salaries and 25 percent said they had recently increased compensation. The group’s index of small-business optimism declined to 97.9 in January from 100.4 a month earlier.

ZeroHedge:

• The REAL Greek Negotiations: Situation Is “Berserk", "There Is No Plan", "Greeks Digging Own Graves".
• Europe's Greek Showdown: The Sum Of All Statist Errors. (graph)
• Halliburton To Cut Up To 6,500 Jobs As Crude Carnages To Crucial $50 Level.
• What Do Stocks Know? (graph)
• The Reason Why Trading Currencies Is Now The Most Difficult Since Lehman.
• Why Bank Of America(BAC) Is Stumped: Despite "Lower Gas Prices" US Consumer Spending Has Plunged.
• As Seen On The Ground In Eastern Ukraine. (pics)
• The Coup Is Complete: US Embassy In Yemen Shutting Down, Ambassador To Leave By Wednesday.
• How Dan Loeb Thinks The Greek Crisis Plays Out.
• Wholesale Inventory Growth Slowest Since May 2013, Sales Tumble - Worst Ratio Since Lehman. (graph)
• Small Business Optimism Tumbles, Misses By Most In Over 2 Years. (graph)
• Invasion Imminent: Jordan Stations "Thousands" Of Troops On Iraq Border.

Fiscal Times:

• Fed's Williams Says Rate Hike Getting 'Closer and Closer'. Economic conditions are "getting closer and closer to those where it makes sense to really start thinking seriously about starting this process of normalization," Williams told the FT in an interview. In the interview, Williams made clear he felt the inflation-dampening impact of falling oil prices and a strong dollar would fade over time. "Those influences will wane and this basic fore of a strong labor market, strong economy, will ... become the dominant theme, and to my mind push wages up to 3-3.5% and push inflation back to 2%," he said.
  
  conomic conditions are “getting closer and closer to those where it makes sense to really start thinking seriously about starting this process of normalization,” Williams told the FT in an interview.
  The newspaper said Williams said the Fed might have to hike borrowing costs "much more dramatically" than otherwise if it waited too long, saying it was better to move sooner and raise rates "gradually, thoughtfully." - See more at: http://www.thefiscaltimes.com/latestnews/2015/02/10/Feds-Williams-says-rate-hike-getting-closer-and-closer-FT#sthash.8HLK2bPs.dpuf
  Economic conditions are “getting closer and closer to those where it makes sense to really start thinking seriously about starting this process of normalization,” Williams told the FT in an interview.
  The newspaper said Williams said the Fed might have to hike borrowing costs "much more dramatically" than otherwise if it waited too long, saying it was better to move sooner and raise rates "gradually, thoughtfully." - See more at: http://www.thefiscaltimes.com/latestnews/2015/02/10/Feds-Williams-says-rate-hike-getting-closer-and-closer-FT#sthash.8HLK2bPs.dpuf

Telegraph:

• Greece's last minute offer to Brussels changes absolutely nothing. Greece has escalated its demands while seeming to offer concessions, but at least it is smiling again. 
• Greek finance minister: be prepared for a clash. Yanis Varoufakis says policymakers should prepare to "contemplate breakdown" of the eurozone if better deal for Greece can't be reached, as German finance minister says "it's over" unless country backs down.

Focus:

• Every Second German Wants Greece to Leave Euro-Area. 48% of Germans want Greece to leave euro, citing INSA poll. 29% want Greece to stay in euro-area. 23% have not decided. 

Bear Radar

Style Underperformer:

• Mid-Cap Growth -.53%

Sector Underperformers:

• 1) Steel -3.83% 2) Oil Service -2.89% 3) Coal -1.94%

Stocks Falling on Unusual Volume:

• RRMS, COUP, SALE, NILE, DF, TAP, CSC, ALSN, RENT, GRUB, HCP, CFX, OMC, SSL, MCY, OAS, KKR, BAP, CSTE, MPAA, OHI, KYE, CHRS, AMAG, WBMD, ALSN and ACOR

Stocks With Unusual Put Option Activity:

• 1) A 2) OIL 3) LL 4) FITB 5) XOP

Stocks With Most Negative News Mentions:

• 1) RIG 2) ODP 3) CAT 4) MOV 5) FIVE
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Large-Cap Growth +.56%

Sector Outperformers:

• 1) Gaming +1.66% 2) Semis +1.65% 3) HMOs +1.52%
  

Stocks Rising on Unusual Volume:

• QLYS, RLD, MLM, YELP, WYN, XON, HOT, CCK, SEE, CYBR, MOH, QCOM, ANET, ALR and TPX

Stocks With Unusual Call Option Activity:

• 1) HOT 2) AKAM 3) LNCO 4) XLU 5) PEIX
  

Stocks With Most Positive News Mentions:

• 1) CCE 2) QCOM 3) PFE 4) CVS 5) ANET
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Tuesday Watch

Evening Headlines 
Bloomberg: 

• Greece Seeks Bridge Funding But Merkel's Cool to Bailout Compromise. German Chancellor Angela Merkel signaled little willingness to compromise with Greece over the conditions attached to its bailout as the country tries to drum up support for a bridge funding plan before a euro-area finance ministers’ meeting on Wednesday. Greece will seek about 10 billion euros ($11.3 billion) in short-term financing as it tries to stave off a funding crunch while buying time to push its creditors to ease austerity demands, said a government official who asked not to be named because the negotiations are confidential. While French Finance Minister Michel Sapin said Monday that “we need to put together” a plan for bridge funding, any such accord would require Germany to soften its stance in the standoff between Greece and its creditors over the conditions attached to its 240 billion-euro lifeline. The impasse risks leaving Europe’s most-indebted state without any funding as of the end of this month, when its current bailout expires, putting Greece’s euro membership in danger.

• Russia Facing Recession on Sanctions, Lipsky Says. (video)

• Asian Stocks Drop Fourth Day as Greece Concern Drags U.S. Lower. Asian stocks fell for a fourth day, tracking declines in U.S. markets, as Greece’s rejection of the country’s bailout program spurred concern about euro-area stability. The MSCI Asia Pacific Index slipped 0.2 percent to 141 as of 9:03 a.m. in Tokyo, before markets opened in China and Hong Kong.

• Gold Holds Gain as Greek Standoff With Creditors Boosts Demand. Gold held an advance amid concern that a standoff between the new Greek government and its creditors may worsen, with German Chancellor Angela Merkel signaling little willingness to compromise over bailout conditions. Bullion for immediate delivery traded at $1,239.65 an ounce at 8:30 a.m. in Singapore from $1,239.03 on Monday, when prices rose 0.4 percent, according to Bloomberg generic pricing.

• Loeb’s Third Point Cuts Risk as Market Volatility Jumps. Third Point, the hedge-fund firm run by Dan Loeb, said it has reduced risk because of wider swings in the markets. Out of 25 trading days this year, 22 have had intraday moves in the market of more than 1 percent, New York-based Third Point said on Monday in a letter. “Already, 2015 has been marked by increased volatility,” the New York-based hedge fund said in a letter today.

Wall Street Journal: 

• Qualcomm(QCOM) to Pay $975 Million Antitrust Fine to China. Deal Ends Country’s Investigation Into Chip Maker’s Licensing Practices. Qualcomm Inc. became one of the world’s biggest chip makers because of its power over patents. Regulators in China chose to exact a penalty for how it wielded that power, but left the company’s basic business model intact. 

• The Feel-Good Folly of Fossil-Fuel Divestment. The only ones to suffer will be colleges that earn less money for research, services and student scholarships. 

Fox News: 

• Republicans claim payout from big-bank settlements being steered toward 'special interests'. House Republicans are accusing the Obama administration of letting millions of dollars from recent mortgage-lending settlements go toward politically favored advocacy groups, in turn "shortchanging" the people originally harmed by the financial crisis. The separate deals were reached with the Justice Department in summer 2014, with Citigroup agreeing to pay $7 billion for misleading investors over mortgage-backed securities and Bank of America paying $16.65 billion for similar actions. But of the $24 billion, roughly $150 million is tabbed for financial-counseling agencies -- a category that includes liberal-leaning groups such as the National Council of La Raza. 

CNBC: 

• $386M allegedly missing, as investors fear bitcoin Ponzi.

Zero Hedge:

• Should I Trust The Government? (graph)

• How Wall Street, In Broad Daylight, Took Over The US Government. (graph)

• "Controlling Today's Perception Of Tomorrow's Economic Strength" Is THE Fed Mandate.

• Behind The Global Game Of Thrones.

• Yellen, We Have A Problem. (graph)

• Stocks Stumble As Greek Fears Trump Goldilocks Cheers. (graph)

• A Very Slippery Slope: Yes, Your Samsung Smart TV Can Listen To Your Private Conversations.

• Jim Grant: The Greek Monetary Back-Story. (graph)

• A Bull In A China Shop.

• Chinese Producer Prices Tumble For 34th Month In A Row, Worst 'Deflation' Since Oct 2009. (graph)

Business Insider:

• Oil company SandRidge is going to shut 75% of its rigs. US oil and gas producer SandRidge Energy plans to slash its rig count in Oklahoma and Kansas by nearly 75 percent, according to a document obtained by Reuters.

• Radicalism in Egypt may become the main risk to the US's interests in the Middle East.

• IEA: The US oil production party is far from over.

Reuters:

• Fed's George says early rate hikes can foster financial stability. Central banks should not shy away from raising interest rates to head off asset bubbles, a top U.S. Federal Reserve official said on Monday, and should do so earlier rather than later in an economic recovery. "Modestly tighter policy earlier in the business cycle expansion could moderate risk-taking and the potential for destabilizing financial imbalances to build," Kansas City Fed President Esther George said in remarks prepared for delivery at an event hosted by the Bank for International Settlements in Manila, Philippines. "Monetary policy runs the risk of remaining overly accommodative following a downturn, and lead to future instability."

• Urban Outfitters(URBN), Aeropostale(ARO) beat forecasts on strong U.S. holiday sales. U.S. apparel retailers Urban Outfitters Inc and Aeropostale Inc reported better-than-expected quarterly sales after holiday sales in the United States rose the most since 2011. Urban Outfitters shares rose 7.5 percent in extended trading, while Aeropostale's stock jumped 21.2 percent.

Telegraph:

• US defends unruly Greece as Europe steps up 'Grexit' threats. Germany’s vice-chancellor said "zero chances" that his country will respond to Greek demand for Nazi war reparations. 

• The global financial system stands on the brink of second credit crisis. The world financial system stands on the brink of a second credit crisis as interbank lending shows increasing risk. 

Evening Recommendations 

• None of note

Night Trading

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

• Asia Ex-Japan Investment Grade CDS Index 109.0 unch.

• Asia Pacific Sovereign CDS Index 69.25 +1.5 basis point.

• S&P 500 futures +.10%.

• NASDAQ 100 futures +.12%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (NILE)/.45

• (KO)/.42

• (CVS)/1.20

• (DF)/.10

• (HCP)/.77

• (MLM)/.86

• (TAP)/.69

• (MWW)/.06

• (OMC)/1.26

• (REGN)/2.83

• (HOT)/.76

• (UBS)/.26

• (WYN)/.84

• (AKAM)/.63

• (CERN)/.47

• (FWRD)/.56

• (NCR)/.78 

Economic Releases
9:00 am EST

• The NFIB Small Business Optimism Index for January is estimated to rise to 101.0 versus 100.4 in December.

10:00 am EST

• Wholesale Inventories for December are estimated to rise +.2%  versus a +.8% gain in November. 

• Wholesale Sales for December are estimated to fall -.3% versus a -.3% decline in November.

• The IBD/TIPP Economic Optimism Index for February is estimated to rise to 51.9 versus 51.5 in November.

• JOLTS Job Openings for December are estimated to rise to 4990 versus 4972 in November.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Lacker speaking, UK Manufacturing PMI, USDA's WASDE report, $24B 3Y T-Note auction, weekly US retail sales reports, Stifel Transport/Logistics Conference, BofA Merrill Insurance Conference and the Goldman Tech/Internet Conference could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by technology and industrial shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 25% net long heading into the day.

Stocks Falling into Final Hour on Surging Eurozone Debt Angst, Escalating Russia-Ukraine Tensions, Global Growth Fears, Transport/Healthcare Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Lower
  

• Sector Performance: Most Sectors Declining
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 18.74 +8.39%

• Euro/Yen Carry Return Index 140.15 -.37%

• Emerging Markets Currency Volatility(VXY) 10.90 +.09%

• S&P 500 Implied Correlation 65.54 -1.01%

• ISE Sentiment Index 87.0 +38.10%

• Total Put/Call 1.05 +1.94%

• NYSE Arms .87 +18.89% 

Credit Investor Angst:

• North American Investment Grade CDS Index 66.60 +.22%
• America Energy Sector High-Yield CDS Index 710.0 -3.0%

• European Financial Sector CDS Index 67.85 +7.85%

• Western Europe Sovereign Debt CDS Index 26.38 +3.53%
• Asia Pacific Sovereign Debt CDS Index 69.03 +2.58%

• Emerging Market CDS Index 379.55 +.52%

• iBoxx Offshore RMB China Corporates High Yield Index 113.43 -.18%
• 2-Year Swap Spread 26.25 -.5 basis point

• TED Spread 24.0 -.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -20.55 -1.5 basis points

Economic Gauges:

• 3-Month T-Bill Yield .01% -1.0 basis point

• Yield Curve 131.0 +1.0 basis point

• China Import Iron Ore Spot $61.20/Metric Tonne -2.06%

• Citi US Economic Surprise Index -26.10 -.8 point
• Citi Eurozone Economic Surprise Index 29.20 +4.4 points

• Citi Emerging Markets Economic Surprise Index -11.60 -6.3 points

• 10-Year TIPS Spread 1.71 -1.0 basis point

Overseas Futures:

• Nikkei Futures: Indicating -162 open in Japan

• DAX Futures: Indicating -35 open in Germany

Portfolio: 

• Slightly Higher: On gains in my index hedges and emerging markets shorts

• Disclosed Trades: None

• Market Exposure: 25% Net Long