Regular readers of my diary know I sometimes post things that replicate the theme of the "Tell Me Something I Don't Know" segment on MSNBC's "Hardball With Chris Matthews."

So... "Tell me something I don't know, Dougie."

OK, here goes:

For the third day in a row the DJIA has closed below its 200 day moving average - this hasn't happened since March 2016.

Source: Zero Hedge

"My guess is that we face a number of short term tests of S&P 500 2,675-2,710, which should ultimately be breached in the second half of this year."

-- Doug's Daily Diary, I Have Moved Back to Net Short(June 27, 2018 at 11:48 a.m. ET)

My forecast from Wednesday morning came true sooner than I anticipated, but fortunately, I'm at a medium-sized net-short position. That means I prospered from Wednesday's sharp reversal of about 40 S&P 500 handles from the session's earlier highs.

It's now clear that the market's complexion has changed. With a new regime of volatility and a host of uncertainties, this is a good time to re-evaluate your risk profile and appetite. We're clearly facing a more-treacherous market terrain.

I moved back to medium sized net short.

I'm not liking the action.

I am trying to be more reactionary than anticipatory (h/t Rev Shark)

I was interviewed on the banking stocks with Reuters just now.

I am gathering more signs that the supply of marijuana is beginning to materially eclipse potential demand. (MJ) , the largest pot ETF, is trading at about $29 and appears to be breaking down technically.
Here is what I wrote when I exited MJ about six weeks ago:Legal-marijuana play ETFMG Alternative Harvest ETF (MJ) is rallying some 1.6% Monday afternoon on word that Canadian medical-marijuana firm Aurora Cannabis has agreed to buy rival MedReleaf for $2.5 billion. I'm using the strength to exit my MJ position at a small profit.

MedReleaf is MJ's second-largest holding, with a 6.5% weighting. That's helping to push the ETF up to about $30.50 a share as I write this, although MJ has been range bound between $28-$32 share for some time.

I've spent quite a lot of time since late last year researching the legal-marijuana industry. While I continue to believe that legal cannabis-related products will proliferate over the next decade, I've unfortunately come to the conclusion that there will be far less profitability for the industry than I initially thought.

That's because ease of entry into the marijuana business will likely materially reduce and commoditize pot prices. In essence, the risk of profitless prosperity is growing as legal-marijuana supply meets and eventually exceeds demand.

That might be great news for Cheech and Chong, but given cannabis stocks' current sky-high valuations, I expect today's bullish profitability forecasts to disappoint investors in the years ahead. I also think that pot-companies' stock prices will falter from their currently elevated valuations

In addition to Aurora's stock-swap deal for MedReleaf, we also got word Monday that Canopy Growth -- MJ's fifth-largest holding -- has acquired the 33% of the BC Tweed Joint Venture that it doesn't own.

I'm using the ETF's strength on these developments to sell my MJ position, which I'd been buying on weakness. I'm also taking the stock off of my "Best Long Ideas" list, which I added it to in February at about $31 a share.

From Sir Arthur:

Quick review. Futures had looked lower, then Mnuchin announced they might use CFIUS (Committee on Foreign Investment in the U.S.) as a process to resolve some trade disputes.

Markets seized on the fact that the first word was "Committee" so gun wouldn't be in one hand.

That suggested calmer, more collegial negotiations.

Markets shot into plus territory with Dow hitting circa +250.

Then two things happened. Europe started to close, losing some possible buyers.

U.S. indices hit the air pocket that came on Monday's gap down opening. That brought rebalance selling in Monday's victims (FANGs, etc.). Russell and Nasdaq went negative. Trying to stabilize circa +140 in Dow.

My meeting has been cancelled to 2 pm so I will be around for a while longer!

Besides buying (SPY) puts I am adding to my (CMCSA) long at $32.68, and shorting some individual stock names - in order to bolster my net short exposure.

I am long SPY July Monthly $268 puts at about $1.70.

*#MUVGA

I decided to buy some defined risk (SPY) puts (on the climb higher this morning to nearly 40 handles above the premarket trading lows) and I have moved back to small net short in exposure.

Donald J. Trump

@realDonaldTrump

Harley-Davidson should stay 100% in America, with the people that got you your success. I've done so much for you, and then this. Other companies are coming back where they belong! We won't forget, and neither will your customers or your now very HAPPY competitors!

Regardless of one's political views, I and others (on both sides of the pew) now believe that the President is moving further off the rails these days (see above tweet just now) in policy, and unfortunately in conduct and in delivery. As an example, the selection of winners and losers is a slippery slope for the Administration to adopt.
At the very least he is Making Economic Uncertainty and Market Volatility Great Again.
I just cannnot be net short based on my growing political and economic concerns.
And I cannot maintain an increasingly large gold short given the other risks.
My guess is that we face a number of short term tests of S&P 2675-2710 which should ultimately be breached in the second half of this year.
I am off to a company management meeting.

* #MUVGA!

S&P futures just sold off by nearly ten handles.

The reason? Sir Larry Kudlow comes out and says the President is not backing down against China.

And again, welcome to the new regime of volatility.

President Trump is Making Economic Uncertainty and Market Volatility Great Again.

This is the spot where I normally would begin shorting the Indices - and returning to a net short exposure.
But I will give the market (and the machines and algos) a bit wider berth.
And I don't want to ruin the holiday weekend coming up!
That said, when I do move back to net short I will use defined risk (SPY) puts, again.
In terms of group action, I will hold to my view that financials made a panicky low on Monday afternoon.

Speaking/writing out loud and given the share price declines in the defense space - where else can we find growth like this that is funded by our government, with the risk being that the world is not as dangerous a place as I think?

I believe the realization has gone full tilt that China is a major problem going forward as far as one can see, and as erratic as our policy seems to be, it will only help a company like Northrop (NOC) which seems the best pick in the industry.

The company must feel good about its chances going forward as it raised its dividend in the first quarter and again in the second quarter.

This is a long term thesis but this market is full of short term thinking.

For some time I have been negatively disposed towards the defense business.

It has been the correct strategy as many defense contractors have fallen in price.

That sector price fall has, in certain cases, discounted many of my concerns.

Specifically, Northrop's (NOC) share price has declined from about $360 in late April to less than $310 yesterday.

This morning Credit Suisse raised its price target from $326 to $341 citing the following:

* The Orbital ATK acquisition has been completed. The transaction will be +3%, +13% and +15% accretive to 2018-2020 estimates.
* 2018-2020 estimates raised to $16.46, $19.15 and $20.96, respectively.
* Nuclear Triad offers support of a more lengthy up cycle.
* Defense share price valuations have fallen back to earth.
* Using a 6.5% weighted cost of capital and 12x terminal EBITDA exit multiple, Credit Suisse raises its price target by +$15 to $341

I am in general agreement with Credit Suisse and I have initiated a small purchase in NOC - my favorite defense contractor based on risk v reward.

My 12 month price objective is $350.

NOC is also my "Trade of the Week" based on the share price (improved reward v risk) and the brokerage firm's recommendation as catalysts. 

I will have a more lengthy analysis of NOC next week.

Here's Peter Boockvar take:

Core capital spending (non defense capital goods ex aircraft) fell .3% m/o/m vs the estimate of up .5% BUT it followed a big upward revision to April of up 2.3% from the last revision of up 1%. So combined, it was a beat vs expectations.

Orders for autos/parts fell a sharp 4.2% m/o/m and are basically flat now y/o/y, up just .7%. Higher commodity prices helped the metals components with both up double digits y/o/y. Machinery orders grew by 3.5% y/o/y, electrical equipment by 6.2% and computers/electronics by 10.4%. I'm using y/o/y numbers here because most fell m/o/m in May but because April was revised up.

Looking at the absolute level of core capital spending still has it below the peak in this cycle seen in 2013 and below where it was in 2000. I do want to emphasize though that this data set doesn't include spending on software which of course has been a big area of cap ex. Elsewhere, companies have been given a big tax incentive to ramp up capital spending at the same time we have the cloud of trade tax uncertainty. One will to some extent offset the other. Shipments of core goods unexpectedly fell and why GDP Q2 forecasts might get trimmed off this. On the other hand, a lower goods trade balance reported separately and a higher than expected increase in wholesale inventories will offset that.

CORE CAPITAL GOODS SPENDING

The volatile and "newsy" price action this morning underscores why I am skewed towards a more opportunistic trading approach to the markets than in an investing mode.
I am approaching the market by trading sardines and not by eating sardines.
There is simply too many uncertainties - policy and others.
This also helps to explain my light net and gross exposure.
I don't feel, after the market's drop over the last 10 days (I was short and covered into it on Monday), that I have an "edge" right now.
That said, this new regime of volatility is another endorsement of "pajama trading."

Peter Boockvar writes:"Where it goes nobody knows":The unintended consequences from the trade taxes continues. In order to protect themselves from Chinese steel dumping in Canada with the US tariffs in place, Canada is now looking to put on steel quotas and tariffs on China. China of course will try to avoid US tariffs by shipping its steel first to someplace else. The EU is considering something similar.

With the tariff induced stock market pullback, Investors Intelligence said Bulls fell to 47.6 from 52 last week and that is a 6 week low while bears rose to a 4 week high at 18.4 from 17.6 last week. The Correction side rose to 34 from 30.4. There is still a wide spread between bulls and bears of 29.2 but is at a 6 week high. The spread got stretched again two weeks ago and that coincided with the end of the market bounce. Bottom line, sentiment is just chasing price. 

Asian markets were red across the board as we wonder each day where all this trade stuff is leading us to. The Shanghai comp fell another 1.1%, the H share index was down by 2.2% while the Kospi was weaker by .4%. There is a shrinking number of global stock markets that are still green on the year. The MSCI global stock market EX US closed yesterday at the weakest level since August 2017. Also of note, the yuan continues to weaken, lower for the 8th day in the past 9. 

MSCI global stock market index EX US

What's most noteworthy in Europe today is the continued poor performance in European bank stocks. The Euro STOXX bank index is down almost 1% to the lowest level since December 2016. The last thing European bank stock investors wanted to hear from the ECB was that NIRP (started in June 2014) was going to stay with us for a long time. We know the XLF in the US closed down for the 12th straight day yesterday.

Euro STOXX bank index

With mortgage rates holding near 7 yr highs, mortgage applications fell on the week. Applications to buy a home fell 5.9% w/o/w and are basically flat y/o/y, up 1.2%. This component is now at a 4 week low. Refi applications were down by 3.5% w/o/w and lower by 27% y/o/y. This data comes before pending home sales today at 10am whose index topped out this cycle in April 2016. 

With a new Italian government in place, regardless for now what might be implemented, helped to lift economic sentiment in June. The ISTAT index rose .8 pts to 105.4 after falling for 4 of the last 5 months. But the internals were very mixed. Weakness in manufacturing which fell to the lowest level since February 2017 (tariff worries?) was offset by gains in services and confidence for retailers (tax cuts?). Construction confidence was down. Italian bond yields are down today but only after a sharp rise in the past few days where the spread to German bunds blew out again.

As we get closer to another cut in ECB QE and banks start paying back outstanding LTRO loans, money supply growth in May improved to 4% y/o/y from 3.8% in April but this is a reduced pace from the 4.9% average in 2017. 

There was a nice boost in UK retail sales in June. The CBI retail sales index jumped to 32 from 11 and that was well above the forecast of 10. CBI said "Higher than average temperatures seem to have had a positive impact on shoppers, with retailers benefiting from above average seasonal sales and improved order volumes growth. While today's findings will bring some summer cheer to retailers, underlying conditions for the sector remain challenging - household spending remains under pressure from the slow recovery in real wage growth and the sector is still grappling with key structural changes like digital transformation." The news did nothing for the pound which continues to trade poorly on Brexit worries. 

Deutsche Bank (DB) has made another new low overnight.
As I have written DB is the next Black Swan. 
But its problems will enure to the benefit of large US money center banks as I wrote in early June:

Deutsche Bank's Problems Will Benefit Large US Money Center Banks

Jun 5, 2018 ' 11:04 AM EDT 

* DB woes are actually a positive for US money center banks that are rapidly gaining share in fixed income trading and retail and corporate lending
* I am adding to my already large bank exposure now

Why are the bank stocks so weak?

My guess is the continuing carnage and uncertainties associated with Deutsche Bank continue to weigh on the money center banks' shares (which have recently lagged).

I have written quite alot about DB over the last year (its shares are -40% year to date) - calling it the next Black Swan for the EU economy .

Deutsche Bank is the Sears Holdings of the global bank industry.

Why do I write this?

Like Sears (SHLD) , Deutsche Bank has no current profits, is in a state or operating flux, is being forced to sell assets, has an extremely low equity capitalization and a large and leveraged balance sheet.

Consider that DB's equity cap is only about $23 billion, compared to $170 billion for Citigroup - even though both have a comparable amount of assets on their balance sheet ($1.75 trillion).

Deutsche Bank generates less than $50 billion in revenues (which is moving lower as it jettisons losing or capital intensive operating assets) compared to $65 billion for C.

By contrast, JP Morgan has $2.5 trillion in assets, $200 billion of equity and generates almost $100 billion of revenues.

Reflecting operating losses and a toxic asset book (of European loans and sovereign debt), DB trades at only one third of (overstated) shareholders equity compared to Citigroup at 90% of shareholders equity and JP Morgan at 1.8x capital.

If all this wasn't enough, Deutsche Bank has an opaque derivatives book - probably at about $40 trillion with an estimated net exposure of approximately $100 billion.

Based on discussions I have had with bank managements I don't believe (BAC) , (C) , (JPM) or (WFC) have much counter party exposure to Deutsche Bank.

Perhaps most important is that Deutsche Bank's financial and operating woes (as well as those of other equally challenged EU banks) and concentration on cost savings instead of business building have and will continue to inure to the benefit of the large US money center banks who stampede towards gains in corporate and retail market share as well as taking share in global fixed income trading. (Those multi function market share gains remind me of the enormous deposit base increases achieved 8-9 years ago via acquisitions of weak banking sisters that positioned the large industry players well today).

I view the current underperformance in banks stocks as an important intermediate-term opportunity to acquire valuable long term investments in the financial space.

Trump backs away from harsh trade measures against China and futures turn back green.
Again, in this new regime of volatility -- stocks are trading sardines and not eating sardines.
Trade unemotionally, aggressively and opportunistically.

Emerging market stocks are now down 17.5% from their high in early January pic.twitter.com/h0qh321PJS

— Joe Weisenthal (@TheStalwart) June 27, 2018

Long distance runner, what you standin' there for?
Get up, get out, get out of the door
Your playin' cold music on the barroom floor
Drowned in your laughter and dead to the core.

There's a dragon with matches that's loose on the town
Takes a whole pail of water just to cool him down.

Fire! fire on the mountain!

- The Grateful Dead, Fire on the Mountain 

This morning, futures are trading much lower on continued trade and economic fears.

Over the last few days, I have delivered the drumbeats of market skepticism:

--Brokedown Palace: The market is broken in price and structure.--The Beer Bet--Policy With No Sense of History--The New Regime of Volatility is in Place: Downside risk overwhelms upside reward.--Just Another Manic Monday as the Titanic is About To Hit the Ice--Worshiping At the Altar of Security Analysis and Margin of Safety--Still Unimpressed--More Signposts of 1999--The Markets: The complexion is changing - for the worse. --T.A.T.B.A. -- The New Acronym: Treasuries are the best alternative.--Why The Bullish Cabal Should Be Worried
Adjusted for the early morning futures dive, the S&P Index will likely retest Monday's intraday lows.
I remain at a market neutral exposure -- I am at my lowest net and gross exposure in quite a while, reflecting the above market concerns and uncertainties.
And my plan is to continue to trade unemotionally and aggressively.
Fire, fire on the mountain!