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Let me get the good news out of the way first... All the banks passed the stress tests.  The bad news is the stress tests are completely meaningless in the real world.  I was out last night with the best financials hedge fund trader on Wall Street.  We pondered over a few beers the problems happening around the world within the financial sector.  Every one of the 40 global SIFI's (Systemically Important Financial Institutions) are below their 12 month highs.  Deutsche Bank is down 44% and Bank of NY is down 1% but 16 are down more than 20% and 36% are down 10% or more.  The stress tests are meant to give investors confidence that the banks aren't going to blow up like what we saw in 2008.  It's true that banks are in a much healthier condition vs 2007/08 due to a lot less leverage and coverage ratios that have been raised considerably.  Banks did drop in April after reporting inline to better earnings.  Puzzling to the average investor however my financials trader friend just flat out said "They are not lending like they should and expenses are going way up."  This could be like 1937 and how banks were in a similar position where they hoarded cash as they were afraid of another crash.  The Fed was raising rates too after implementing a multi year QE program to get the economy out of the depression.   The equity market quickly dropped 50% and the economy went into recession.  

It's not just the Eurozone that has the weak banks,  they have eight that are down 20% or more as there are three Chinese, two Swiss, and one from Japan, Sweden, and the US that are down 20% or more.  People have ignored this risk as CDS have not responded as one would expect and risk is rationalized by being "isolated."  The rise of the USD raises the risk of a "dollar shortage" and could be a contributing factor with the bank weakness.  US corporate credit spreads have moved wider and many of the Euro and Asian banks could be wearing a lot of that beat up debt.  Going back to the Fed, they are in a rising rate cycle at a time when these SIFI's need accommodation.  The recent bond bounce could be another sign that larger players are starting to notice what is happening.  The stress tests come in two parts with the quantitative part out of the way and next week the tougher qualitative part might crimp some of the banks plans for capital returns and buybacks.  Perhaps when Goldman suspended its buyback in April, it knew it was running a little close to the minimum leverage ratio.  Below I have some custom indexes of the SIFI's.  Have a great weekend!  

Notable:

• US Markets - Sentiment continues to drift lower but no panic
  
• Hedge Fund Telemetry Trade Ideas - No changes today.
  
• SIFI Custom Indexes - The Good, Bad, and the Ugly
  
• Currencies - USD sentiment backing off from extreme
  
• Asian Indexes - Watch out below if China and Hong Kong can't hold here
  
• European Markets - DAX on support, relief bounce for UK
  
• LEI - Leading Economic Indicators quarterly chart
  
• Gold and Silver Update - Not yet a buyer but closer
  
• Crude Update - OPEC bounce
  
• Bond Update - Sentiment remains OK while everything seems stuck.  I like bonds long still
  
• DeMark Screens - Daily, Weekly, Monthly upside/downside exhaustion signals within the S&P 1500 and Euro Stoxx 600
  

Here's a link to the Hedge Fund Telemetry market sentiment page with 40 charts of sentiment including equities, bonds, currencies, and commodities updated each day.   

SPX bullish sentiment is at  57% and continues to drift lower

SPX Index now on day 6 of 9 with green Setup.  2750 is near term support

Nasdaq bullish sentiment is at 62% and down from recent high of 77%

NDX Index stalling although there remains a pending upside Countdown on day 6 of 13

Dow Jones still under the 50 day and down on the year.  It's on day 8 of 9 with a downside green Setup and if it closes under 24,700 Monday the 9 will stick and the pending upside red Countdown will be cancelled.  

Despite the relatively weak action in the first half of the year people are more invested

Trade Ideas - No changes today.  

Here's the entire 40 stocks that have the designation of SIFI.  On an equal weight custom index they are down 11.67%

SIFI weekly shows it holding the February lows.  Breaking down a little more could really cause some panic.  Similar upside exhaustion signals were seen in 2015 and bottoming signals in early 2016.  There is a lot of room for downside to the 2016 levels.  

The weekly of the BAD SIFI's (those down 20% from highs) has broken and has gapped lower a few times

GOOD SIFI's (those that are down 1% to down 18%) has held up better mostly due the US financial sector that hasn't gone down like European banks

GS Financial Conditions Index measures financial stress and it made a year high this week.  Worth noting this is an early warning indicator that tends to trend for quarters.  

US Dollar bullish sentiment is at 85% down from 90% the previous day.  A little back off with the USD rise is due with that sentiment

US Dollar Index backing off and it lost the upside green count as it is trading below 4 previous closes.  There still is an upside red Countdown on day 7 of 13.  

Euro bullish sentiment is at 22%

Euro spot is up today although it's in the middle of the today's range which isn't so convincing.  

British Pound up today and also below the midpoint of today's range

Nikkei bullish sentiment is at 63% and nearing recent support at 59%

Nikkei is stalling and has a mixed DeMark count.  Breaking below 22,171 would kick the leg out from this index.  

FXI Hong Kong China ETF speaking of kicking the leg out.  It must hold this level or else 5% at least lower

DAX reversed today's gains and is right at support (TDST) green dotted line.  Doesn't look good

UK FTSE 100 is having a good day today yet I am now convinced this is a low.

On a quarterly basis there tends to be some upside and downside DeMark indicators that trigger ahead of big tops or economic stress or relief.  This is a quarterly chart so keep in mind the signals can be a little early.  

Gold bullish sentiment is at 9% and that's very low

GLD is nearing a downside exhaustion signal.  Gold futures is a few days behind GLD

Silver bullish sentiment is at 13%

SLV is on day 10 of 13 with a downside Countdown.  

Crude bullish sentiment is at 46%

WTI Crude Futures bouncing on the OPEC news of increased production.  This was well telegraphed and the bounce touched the 50 day today.  A break below today's low would likely send this right back lower.

Bond bullish sentiment is at 63% and continues to be rather buoyant

TLT Bond ETF is stuck here and needs a move over 121.58 to get the mojo.  

US 10 year yield also stuck near 2.90%  and I expect lower yields ahead

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