"You have to really stretch your imagination to infer what the intrinsic value of Bitcoin is. I haven't been able to do it. Maybe somebody else can."
--Alan Greenspan
Far East Uncertainty
Yes, "earnings season" has kicked off. The season really gets into the next gear this week, as many high-profile corporations (including 26 S&P 500 names) go to the tape with their quarterly numbers. True, we'll hear on monetary policy this week from the European Central Bank and the Bank of Japan. This all matters, as do Treasury yields, currencies and commodity valuations. There is more under the surface.
Today's story begins in China. The land with the dynamic past, as well as the uncertain future.
China's National Bureau of Statistics released a series of headline-level macroeconomic data while you were watching "Game of Thrones" last night. Most importantly, China scored (at least they say they did) annualized growth of 6.9% for the second quarter, which beat expectations and matched first quarter performance. Is that all? Not even close. June Industrial Production printed at 7.6% growth year over year. Huge. This equaled China's strongest month in those terms since December of 2014. Retail Sales? Strongest since December 2015. Fixed Asset Investment for the moth of June beat expectations, as well. Wow. China seems squared away. All good, right?
Well, not so much for Chinese equity markets. Weakness in Asian markets overnight was really confined to Chinese markets, with the Shanghai Composite rallying hard to finish 1.4% lower. High-level meetings ended on Saturday in Beijing that put together a cabinet-level type of committee that will be known as the State Council Financial Stability and Development Committee. The purpose of this group will basically be the coordination of information among regulators, possibly with the People's Bank of China (China's central bank) at the top of this new food chain.
Basically, you have the expectation that greater regulation -- or at least a better-informed ability to tighten financial control from the top -- could be just around the corner. There were also a spate of small-to-mid-cap Chinese corporations that warned on guidance on Monday morning. In review, you have corporate warnings, and you have fears of a financial crackdown -- despite the PBOC's liquidity injection of 140 billion yuan into the interbank market on Monday, which did alleviate the selloff. You did have very strong export data for June, but also looming tension over trade with the United States. Obviously the steel trade may be part of that, and oh, by the way... talks between the U.S. and China commence this Wednesday. Hmmm.
Portfolio Cocktail
Anyone else love watching the relationship between Treasury yields and the tech sector? Maybe you could say the inverse relationship between consumer-level inflation and the tech sector. Giddy up. The Technology sector SPDR ETF ( XLK) roared last week to a 3.4% gain, easily making the sector the week's hottest. The correlation between yields and financial sector performance has always been front and center, but so has this force that continues to give growth stocks a nod.
Unfortunately, it looks to me like we will have to expose ourselves to both worlds, as there is no obvious path forward. Financials had found support in recent weeks due to rising yields and a successful round of the Fed's stress tests -- which allowed dividends and corporate repurchases to muscle up across the group. That trend in yields reversed somewhat after Janet Yellen's dovish testimony last week, followed by Friday's macro massacre.
Data released by EPFR Global showed that investors pulled $730 million from broad U.S. equity market funds in the week ended last Wednesday. Pay attention here. That composite withdrawal disguised inflows of $513 million into funds that focus on the financial sector, as well as $335 million that flowed into funds focusing on the tech sector. How interesting is that?
The FOMC's intent is as clear as a bell. That said, so is reality. The Fed has tightened into weakness. Either that, or they have caused the weakness. Six one way, half a dozen the other. It does no good to throw blame around. We still have to find a way to end the day/week/month with a few more bucks than we started with. The folks under your roof are counting on you.
The Fed's intended trajectory on policy cannot be discounted just because it is not supported by the data. If they're scared, they'll act. You will need broad exposure. You will have to do enough homework to pick quality (quality bounces), or to at least understand what speculation is when you do go there. Do not be afraid. This can be both fun, and intellectually challenging. In all honesty, is that not why we bring it every morning? Two fists, gang. Be alive.

Digital Currencies Gone Wild
The volatile market for Bitcoin continued to gyrate over the weekend as the value of the digital currency dropped below $1,850 yesterday. You may recall that a little over a month ago, Bitcoin traded above $3,000. Bitcoin's digital competitor, Ethereum also hit lows yesterday after also setting records in June. Specific reasons for the sudden rout? Huh? Don't have any.
Oh, there are rumors to be sure. Splits going forward? Massive profit taking? There are two things to focus on.
One. Digital currencies are not going away. This is part of life now.
Two. These markets are under-regulated and illiquid. Therefore, this is possibly the highest form of speculation in the broader financial marketplace today.
These products are too wild for me. I have to make sure certain people have things like food and shoes when they need them. I do want some exposure. This way, I at least experience some of the benefit when digital currencies do run wild. Simply put, this is one of the reasons I am long NVIDIA ( NVDA) . Digital currencies need to be mined. These guys appear to me to be in every relevant, rising business line. That includes the mining of blockchain -- but not all of their eggs are in one basket. Just some food for thought. Advanced Micro Devices ( AMD) is another play in the space. I have no position in that one.
08:30 - Empire State Manufacturing Index (July): Expecting 15.1, June 19.8. This is one item that surprised to the upside in a fairly big way last time out. For June, coming off of a May that saw headline level contraction for the region, the rebound was led by the components that need to be out in front.. New Orders, and Shipments. This will be our first look at the manufacturing sector for July.
Sarge's Trading Levels
These are my levels to watch today for where I think that the S&P 500, and the Russell 2000 might either pause or turn.
SPX: 2482, 2470, 2463, 2457, 2449, 2442
RUT: 1448, 1441, 1431, 1423, 1417, 1406
What's Hot on TheStreet

Amazon wants to upend every business, or so it seems: New day, a new business Amazon (AMZN) wants to dip its toes in. The latest looks to be the meal kit space, TheStreet reports.

In a July 6 trademark application, Amazon subsidiary Amazon Technologies Inc. revealed it's planning "prepared food kits composed of meat, poultry, fish, seafood, fruit and/or and [sic] vegetables...ready for cooking and assembly as a meal," as well as primarily grain-based offerings.

The product's tagline: "We do the prep. You be the chef." Amazon already sells other companies' meal kits, including Tyson Foods Inc.'s (TSN) Tyson Tastemakers. Martha Stewart is even offering meal kits on Amazon Fresh, the company's grocery delivery service. But, this may be the first hint of something bigger for Amazon, which would put it in direct competition with newly minted IPO Blue Apron (APRN) .

Elon Musk keeping it real for a change: Tesla's (TSLA) Elon Musk just gave the obsessed bulls on his company's future something to strongly consider, TheStreet reports.

Speaking at the National Governors Association Summer Meeting in Rhode Island on Saturday, Musk reiterated that shares of Tesla are trading at a level "higher than we have any right to deserve" based on optimism about the company's future.

"Those expectations sometimes get out of control," Musk added. Meanwhile, TheStreet reports Tesla could be at risk of a nasty surprise soon: the end of tax credits for electric cars in the U.S.

Procter & Gamble under siege: Peltz's Trian Fund Management plans to launch a fight for a board seat at Procter & Gamble PG, making it the largest company to face a proxy battle, The Wall Street Journal reported Monday.

Trian, which owns about $3.3 billion of P&G stock, is said to be seeking a single board seat for Peltz at the company's annual meeting that could take place in October. P&G have reportedly been in talks for five months, but the company is said to have rejected to name Peltz as a director last week.

Sales at P&G -- and its stock price -- have stalled due to pricing pressure and competition.

As TheStreet's Ron Orol reported in June, look for the consumer packaged goods company to announce plans for spin-offs, sales or even a swap out of business units. If major M&A doesn't come soon, a Trian director-battle or white paper chock full of activist demands could be next.

And Trian likely will demand significant M&A activity. Spinoffs and other major deals often follow when the activist investor acquires a large stake. Trian and other activist fund managers often push to have large companies break themselves up with the goal of extracting value by focusing the market on various parts of a business that might be hiding inside confusing conglomerate structures.

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At the time of publication, Guilfoyle was long NVDA, although positions may change at any time.

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