Morning Market Internals

NYSE Composite Index:

• Volume Running 34.1% Above 100-day average
• 3 Sectors Rising, 7 Sectors Declining
• 46.2% of Issues Advancing, 49.8% Declining
• 63 New 52-Week Highs, 34 New Lows
• 52.1% of Issues Above 200-day Moving Average
• Average 14-Day RSI 45.1
• Vix 13.2
• Total Put/Call .98
• TRIN/Arms 1.36

Friday Watch

Evening Headlines 

Bloomberg: 

• EU Calls Emergency Summit as Greece Runs Out of Time. Greece lurched closer to an exit from the euro as a meeting of finance officials to reach a deal over aid dissolved in acrimony, forcing leaders to call for an emergency summit for Monday. As the European Central Bank prepared for its own emergency session on Friday to discuss Greece’s liquidity, thousands of Greeks piled outside parliament in Athens asking for the nation to be saved from default as Prime Minister Alexis Tsipras’s government blamed a conspiracy to blackmail Greece for the rancorous breakdown in talks.

• Greece Aid by June 30 Is Unthinkable, Dijsselbloem Says. (video) 

• Grexit Would Test Global System in Unknown Ways. NZ’s English. A Greek default and exit from the euro probably would test the global financial system in ways different to the Lehman Brothers crisis of 2008, according to New Zealand’s finance minister. Liquidity backstops such as international swap lines have strengthened since the 2008 cataclysm, and banks have scaled back their balance sheets, making them more resilient, Bill English said in an interview in his office in Wellington Thursday. New Zealand could become ground zero for the first market response to a Greek crisis should it come over a weekend, as it hosts the start of the global trading day.

• China Bears Rush to Short U.S. ETF at Record Pace as Rally Fades. U.S. investors have never been so convinced that the rally in China’s mainland stocks is ending. Short interest in the largest exchange-traded fund tracking yuan-denominated equities rose to a record 16 percent of shares outstanding Wednesday as bets on a price drop almost doubled from a month ago, according to data compiled by Markit and Bloomberg. Traders pulled $258 million from the Deutsche X-trackers Harvest CSI 300 China A-Shares ETF last week, the most since the fund was created in 2013.

• Asia’s Hedge Funds Assets Surge to Record on China Stock Rally. Assets managed by Asia’s hedge funds reached a record $177 billion in May, bolstered by returns from funds trading China stocks, according to data provider Eurekahedge Pte. Investments by funds with an Asia mandate exceeded the $176 billion in December 2007, before the global financial crisis, Alexander Mearns, chief executive officer of Singapore-based Eurekahedge, said in an interview on June 17.

• Chinese Stocks Drop 10% From Peak. China’s stocks were poised to enter a correction as initial public offerings drained cash from the market and investors speculated recent gains have gone too far. The Shanghai Composite Index dropped as much as 3.4 percent, extending its loss from its June 12 peak to more than 10 percent. If the gauge closes in a correction, it would be the first 10 percent drop since January 2014. “I would not be too surprised if the correction goes deeper than anticipated,” said Hao Hong, head of China research at Bocom International Holdings Co. in Hong Kong.

• China’s Stocks Head for Worst Week Since 2008 Financial Crisis. China’s stocks fell, sending the benchmark index toward its steepest weekly loss since 2008, amid concern the government will clamp down on margin trading and valuations are excessive after a world-beating rally over the past year. The Shanghai Composite Index dropped 1.5 percent to 4,712.15 at 9:33 a.m., extending this week’s slump to 8.7 percent. Losses were led by technology companies and power producers. Leshi Internet Information & Technology (Beijing) Co. and Wangsu Science & Technology Co. decreased more than 5 percent. SDIC Power Holdings Co. declined 4 percent. The Shanghai gauge dropped as analysts warned the stock market is in a bubble that will burst after it reached its highest levels in seven years and the 21st Century Business Herald reported the securities regulator is working on margin-trading risk management rules for securities firms. Equities have also been weighed down by new share offerings that have lured an estimated $1.1 trillion in bids.

• Asian Stocks Advance as Investors Await Bank of Japan Decision. Asian stocks rose for a second day, following gains in U.S. shares, as investors awaited a Bank of Japan policy decision. Energy shares led the advance. The MSCI Asia Pacific Index climbed 0.3 percent to 146.91 as of 9:01 a.m. in Tokyo, paring this week’s slide to 0.8 percent.

• Hollywood Producers Host Obama to Collect Money for Democrats. While some Republican presidential candidates canceled political events on Thursday after a mass shooting in Charleston, South Carolina, President Barack Obama carried on with fundraisers at the homes of two of Hollywood’s most famous producers. Tyler Perry, creator of the “Madea” series of movies, and Chuck Lorre, known for his CBS comedies “Two and a Half Men” and “The Big Bang Theory,” will each help Obama raise money for the Democratic National Committee. About 250 supporters are set to attend a dinner event at Perry’s Beverly Hills home, and Lorre will host about 30 people at his Pacific Palisades home. Donors contribute as much as $33,400 to attend the events.

Wall Street Journal:

• IPO Market Heats Up After Slow Start to 2015. Strong debuts have begun to ease fears about declining investor appetite for new issues.

• Martha Stewart Nears Deal to Sell Fading Empire. Licensing firm Sequential Brands wants to add name to its stable.

• Pope Blames Markets for Environment’s Ills. Pontiff condemns global warming as outgrowth of global consumerism.

• The Pope’s Green Theology. The good news: His encyclical invites honest discussion. Let’s have it.

Fox News:

•  'I'm lost': Church massacre victims leave deep void in Charleston community. The other victims of the church massacre in Charleston were not as well-known as their leader, Clementa Pinckney, a preaching prodigy and charismatic state lawmaker who had earned respect throughout the state for his hard work on behalf of his flock and constituents alike, but they were the backbone of one of the South's most venerable African-American churches.

MarketWatch.com:

• Report risks intensifying worries over Greek banks. Concerns about Greece’s banking system intensified Thursday, after a news report said a European Central Bank official warned eurozone finance ministers that the country’s banks might not be able to open come next week.

• Fogo De Chao sets IPO pricing above expected range.

Zero Hedge:

• The Mysterious "Massive" Seller Who Flash Crashed Gold In 2014 Has Finally Been Revealed.

• The Corporate Earnings Cycle Has Just Turned Negative In The US. (graph)

• ECB Admits Emergency Call On Greece ELA Planned For Friday.

• ECB "Blesses" Greek Bank Runs, Says Unsure If Banks Will Reopen Monday.

• 3 Things: Retail Sales, Fed Misses Again, Profits. (graph)

• Total Greek Deal Failure Sparks Biggest Buying Spree Since 2011, Stocks Set New Records. (graph)

• Pope Francis Calls For A New Global Political Authority To Save Humanity. They will always say that it is about “saving humanity” or “saving the planet”, but ultimately everything that they are trying to accomplish would mean more power in their hands. 

• China Is Turmoiling. (graph)

• Sweden's Largest Fund Manager Is Quietly Dumping Stocks Before The "Herd" Is Caught In A Selling Vortex.

Business Insider:

• The US defense industry is reeling after the latest massive cyber attack.

• Hong Kong lawmakers just rejected China's 'sham' democracy plan.

• Obama will announce new standards for big trucks to cut carbon emissions.

• Deadly respiratory virus MERS just spread to Thailand.

Reuters:

• BOJ keeps upbeat view of economy, maintains asset purchases.

• Lipper fund flows IG US$161.2m outflow; HY US$2.889bn outflow.

Financial Times: 

• Greece’s defiant youth opt for ‘chaos’ over more of the same. Greece’s central bank delivered an alarming warning on Wednesday that the country faced an “uncontrollable crisis” that might force it out of the EU if the government was unable to reach a new bailout deal with creditors soon. But the throng of young supporters gathered outside the Greek parliament had a different message for their defiant prime minister: hold firm, whatever the cost.

China Business News:

• Chinese Banks in Shenzhen Raise Mortgage Rates. More than 10 banks in southern Chinese city of Shenzhen have raised borrowing rates for first-tome purchases, citing banks. Higher mortgage rates aim to control rising risks following a recent property price surge, citing an employee at a bank.

Evening Recommendations 

• None of note

Night Trading

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

• Asia Ex-Japan Investment Grade CDS Index 111.0 -1.0 basis point.

• Asia Pacific Sovereign CDS Index 61.25 -1.0 basis point.

• S&P 500 futures -.10%.

• NASDAQ 100 futures -.05%.

Morning Preview Links

Earnings of Note

Company/Estimate

• (KMX)/.86

• (KBH)/.08

Economic Releases

• None of note

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Williams speaking, Fed's Mester speaking, BoJ decision, Eurozone Current Account Balance report, Eurogroup meeting on Greece, Russell updates rebalance list and the (ODP) general meeting could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by commodity and industrial shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the day.

Stocks Surging into Final Hour on Central Bank Hopes, Greece Debt Deal Optimism, Less Emerging Markets/US High-Yield Debt Angst, Biotech/Gaming 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) 13.15 -9.31%

• Euro/Yen Carry Return Index 146.12 -.04%

• Emerging Markets Currency Volatility(VXY) 8.95 -2.08%

• S&P 500 Implied Correlation 62.10 -.94%

• ISE Sentiment Index 81.0 -22.86%

• Total Put/Call .91 +7.06%

• NYSE Arms .82 +14.16% 

Credit Investor Angst:

• North American Investment Grade CDS Index 67.51 -3.59%

• America Energy Sector High-Yield CDS Index 1,557.0 -1.38%

• European Financial Sector CDS Index 91.15 +1.36%

• Western Europe Sovereign Debt CDS Index 28.86 +3.81%

• Asia Pacific Sovereign Debt CDS Index 61.82 -.81%

• Emerging Market CDS Index 306.70 -2.48%
  

• iBoxx Offshore RMB China Corporates High Yield Index 120.47 +.03%

• 2-Year Swap Spread 25.75 -.25 basis point

• TED Spread 28.5 +.75 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -19.75 -.75 basis point

Economic Gauges:

• 3-Month T-Bill Yield .00% unch.

• Yield Curve 170.0 +5.0 basis points

• China Import Iron Ore Spot $61.77/Metric Tonne +.42%

• Citi US Economic Surprise Index -35.80 -2.9 points

• Citi Eurozone Economic Surprise Index -1.90 -.7 point

• Citi Emerging Markets Economic Surprise Index -16.50 +2.0 points

• 10-Year TIPS Spread 1.91 -1.0 basis point

Overseas Futures:

• Nikkei 225 Futures: Indicating +179 open in Japan 
• China A50 Futures: Indicating -130 open in China

• DAX Futures: Indicating +63 open in Germany

Portfolio: 

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

• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges, then added them back

• Market Exposure: 50% Net Long

Today's Headlines

Bloomberg:       

• Merkel Says Greece Accord Possible Only If Tsipras Moves. (video) Chancellor Angela Merkel said a deal with Greece is still possible provided the Greek government follows through on the economic-reform pledges made to creditors. Merkel, while shying away from the posturing and rhetoric of others that has characterized the standoff over the past week, offered no concessions in her speech to lower-house lawmakers in Berlin on Thursday. Instead, she contrasted the experience in Greece with fellow euro-area bailout countries that “took their chance” to overhaul their economies. Reading from the agreement signed by Prime Minister Alexis Tsipras’s government and euro-area creditors on Feb. 20, she said that Greece had committed to “comprehensive structural reform,” much of which remained to be carried out.
• IMF Warns No Leeway on Payment. International Monetary Fund chief Christine Lagarde said Greece won’t be given a grace period if it fails to make a payment at the end of the month as Chancellor Angela Merkel said there’s still time to reach a deal on aid. Lagarde, whose policies were labeled “criminal” last week by Prime Minister Alexis Tsipras, said that Greece will immediately be considered in default unless it pays about 1.5 billion euros ($1.7 billion) due to the fund on June 30.
• Greek Deal Won't Save the Country's Banks. (video) Greek banks, which received two capital infusions in the past two years, may need a third one as a recession drives up losses from bad loans. The four biggest lenders, accounting for 91 percent of the country’s banking assets, could see their 12 billion euros ($14 billion) of tangible core capital wiped out by mounting provisions as overdue and restructured loans default. Even if Greece reaches an agreement with European creditors to free up additional money, its next bailout will need to include a new round of funding for the ailing banks. 
• LNG Capital Shorts Junk Bonds as Selloff Spreads to Europe Haven. LNG Capital, a London-based hedge fund that focuses on credit markets in western Europe, is shorting some of the region’s safest junk bonds as the global selloff spreads. LNG last week sold holdings of top-rated junk bonds maturing in 2025, including those of German bearings maker Schaeffler AG, with the intention of buying them back at a lower price, according to Chief Investment Officer Louis Gargour. It also bought a derivatives index insuring against losses on high-yield bonds. Investors are starting to sell speculative-grade debt, which was seen as a haven during the rout led by government bonds, as concerns about Greece’s sovereign debt crisis and rising U.S. interest rates deepen. High-rated, long-dated, euro-denominated junk bonds are especially vulnerable, said Gargour, who oversees more than $200 million of assets.
• Why BofA’s Global Bond Guru Is Fixated on Chinese Equities. Forget U.S. Treasuries and the euro. If Bank of America Corp. is right, the new must-watch indicator for global bond and currency markets comes from somewhere few traders in New York and London would think to check: the Shanghai Composite Index of Chinese share prices. “Normally, when I come into the office, the first thing I look at is where 10-year Treasury yields are trading, where euro-dollar is trading,” David Woo, the head of global rates and currencies research at Bank of America, said in an interview on Bloomberg Radio in New York. “These days, the first thing I look at on the Bloomberg terminal is where the Shanghai Composite is trading.” Woo said China’s rally has become so big -- he called it the world’s largest bubble since dot-com boom of the late 1990s -- that the eventual collapse will have consequences for markets around the world. Chinese shares may drop as much as 30 percent when the mania ends, weighing on consumers who have been an important driver of growth in Asia’s largest economy, Woo said. He expects the selloff will be bullish for the dollar and U.S. Treasuries. It will have a “knock on effect on the whole world economy,” Woo said. “The only thing that’s holding up the Chinese economy are the Chinese consumers right now. The Chinese consumers are all involved in the Chinese stock market.” 
• Europe Stocks Little Changed Amid Fed Optimism, Greek Debt Talks. European stocks were little changed amid optimism the Federal Reserve will raise rates gradually, while investors weighed Greek debt talks. The Stoxx Europe 600 Index added 0.1 percent to 384.22 at the close of trading. The benchmark gauge trimmed a decline of as much as 1.5 percent after U.S. jobless claims and leading economic indicators beat estimates, while consumer prices rose at a slower pace than forecast.
• China’s Churning Out Steel And the World Isn’t Happy. From Brazil to Canada and Mexico to Turkey, steelmakers are unhappy with China. The producer of half the world’s steel is destabilizing the market with “massive and increasing overcapacity in an era of slowing growth,” according to a joint statement by industry associations from around the world this week. All regions are suffering from a “dramatic increase in unfair imports,” it said. China exported more of the alloy in April than any other country produced, according to the World Steel Association.

Fox News: 

• Charleston church massacre suspect caught, but answers elude victims' loved ones. (video)

CNBC:

• US House backs 'fast-track' trade bill.

ZeroHedge:

• Eurogroup Meeting Ends Without A Deal, Greek Belligerence Grows.
• Moscow Furious After Both Belgium And France Freeze Russian State Assets.
• Fear Trumps Greed As Chinese Stock Bubble Canary In The Coalmine Croaks. (graph)
• Is Greece Hurting The Euro Or The Euro Hurting Greece? (graph)
• Biotech Stocks Up 75% Since Fed "Stretched Valuations" Warning. (graph)
• Nasdaq Takes Out Dot Com Bubble Record Highs. (graph)
• Philly Fed Bounces But Employment Plunges & Costs Soar By Most In 42 Years! (graph)
• Initial Jobless Claims Drop, Remains Near 42 Year Low. (graph)
• CPI Misses Despite Surge In Gasoline Prices, Core Inflation Rise Is Smallest In 2015. (graph)
• About Those Rising Wages: Real Hourly Earnings Drop To Lowest In 2015. (graph)

Business Insider:

• The Eurogroup just finished with no deal for Greece.
• Fitbit(FIT) opens up 52%.
• China's economy is hitting a wall — and it's going to affect everyone.

Bear Radar

Style Underperformer:

• Mid-Cap Value +.62%

Sector Underperformers:

• 1) Coal -2.51% 2) Oil Service -1.27% 3) I-Banks -.23%

Stocks Falling on Unusual Volume:

• REI, SPCB, WLDN, RATE, ORCL, CPLA, CMT, JBL, ISLE, AAVL, DANG, SQM, GRUB, BIS, NHTC, CMP, BWC, MITT, CBPO, SAGE, OIS, BRS, ADPT, BHI and LBIO

Stocks With Unusual Put Option Activity:

• 1) MCP 2) ORCL 3) EFA 4) KRE 5) WMT
  

Stocks With Most Negative News Mentions:

• 1) NMBL 2) LUV 3) RATE 4) CRI 5) SAVE
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Small-Cap Growth +1.43%

Sector Outperformers:

• 1) Biotech +2.73% 2) Road & Rail +1.53% 3) Airlines +1.48%
  

Stocks Rising on Unusual Volume:

• LMNS, RDUS, NVRO, NYRT, TI, BMRN, TGTX, TSU, SUPN, MDXG, HOG, BCRX, PBF, TRUE, POZN, MNTA and FGEN

Stocks With Unusual Call Option Activity:

• 1) TYC 2) HTZ 3) PGR 4) RAD 5) RDN
  

Stocks With Most Positive News Mentions:

• 1) BMRN 2) RDUS 3) HOG 4) SWKS 5) ALK
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume