Stocks Falling Substantially into Afternoon on China Trade War Fears, European/Emerging Markets/US High-Yield Debt Angst, Technical Selling, Tech/Retail Sector Weakness

 Broad Equity Market Tone:

• Advance/Decline Line: Substantially Lower
  

• Sector Performance: Almost Every Sector Declinging
  

• Volume: Above Average

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• Volatility(VIX) 20.9 +25.3%

• Euro/Yen Carry Return Index 121.86 -.50%

• Emerging Markets Currency Volatility(VXY) 8.73 -.46%

• S&P 500 Implied Correlation 48.11 +11.5%

• ISE Sentiment Index 56.0 -34.9%
  

• Total Put/Call 1.16 +26.1%

• NYSE Arms 1.43 +50.5%

Credit Investor Angst:

• North American Investment Grade CDS Index 57.76 +5.8%
  

• America Energy Sector High-Yield CDS Index 410.0 +.61%

• European Financial Sector CDS Index 64.37 +2.93%

• Italian/German 10Y Yld Spread 199.25 +4.0 basis points
  

• Asia Ex-Japan Investment Grade CDS Index 65.02 +.16%
  

• Emerging Market CDS Index 213.32 +3.65%
  

• iBoxx Offshore RMB China Corporate High Yield Index 164.87 +.02%

• 2-Year Swap Spread -.75 +.25 basis point

• TED Spread 14.75 -2.5 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -12.5 +1.5 basis points

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 65.31 -.18%
• 3-Month T-Bill Yield 1.96% -2.0 basis points

• Yield Curve 0.0 unch.

• China Iron Ore Spot 86.61 USD/Metric Tonne -.68%

• Citi US Economic Surprise Index -16.6 -2.4 points

• Citi Eurozone Economic Surprise Index -41.50 +.2 point

• Citi Emerging Markets Economic Surprise Index -23.8 +1.3 points

• 10-Year TIPS Spread 1.54 -1.0 basis point
• 100.0% chance of Fed rate cut at Oct. 30th meeting, 100.0% chance of cut at Dec. 11th meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -502 open in Japan 
• China A50 Futures: Indicating -272 open in China

• DAX Futures: Indicating -31 open in Germany

Portfolio:

• Lower: On losses in my retail/tech/industrial/medical/biotech sector longs

• Disclosed Trades: Added to my (IWM)/(QQQ) hedges and to my emerging market shorts

• Market Exposure: Moved to 25% Net Long

Bear Radar

Style Underperformer:

• Small-Cap Value -2.1%

Sector Underperformers:

• 1) Education -4.6% 2) Oil Service -4.0% 3) Semis -3.5%

Stocks Falling on Unusual Volume: 

• USMV, BREW, FL, VMW, ATGE, NOBL, KBWB, FLWS, DSLV, EWZS, IGV, IYT, INMD, GPS, BKE, HPQ, KEYS, FDT, DGLD, ALXN, GTS, PRNB, PKX, JBSS, JWN, DKS, TGI, LFT, BKE, GSX, HAS, LB and KMPR

Stocks With Unusual Put Option Activity:

• 1) WETF 2) XBI 3) HOG 4) UPS 5) XLP

Stocks With Most Negative News Mentions:

• 1) LB 2) HPQ 3) GE 4) OSTK 5) M

Charts:

• ETFs Falling on Unusual Volume
• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Mid-Cap Value -1.6%

Sector Outperformers:

• 1) Gold & Silver +3.1% 2) Utilities -.5% 3) REITs -.6%

Stocks Rising on Unusual Volume:

• PVTL, CBLK, FSLY, CRM and INTU

Stocks With Unusual Call Option Activity:

• 1) CBLK 2) INTU 3) PVTL 4) ROST 5) CRM

Stocks With Most Positive News Mentions:

• 1) INTU 2) FRO 3) RRGB 4) LZB 5) CRM

Charts:

• ETFs Rising on Unusual Volume
• Stocks Rising on Unusual Volume

Morning Market Internals

NYSE Composite Index:

• Volume Running +14.0% Above 100-Day Average
• 0 Sectors Rising, 11 Sectors Declining
• 22.5% of Issues Advancing, 74.1% Declining
• 141 New 52-Week Highs, 105 New Lows
• 49.7% of Issues Above 200-day Moving Average
• Average 14-Day RSI 44.5%
• Vix 18.8 +12.4%
• Total Put/Call .96 +4.4%
• TRIN/Arms 1.49 +56.9%

Friday Watch

Evening Headlines

Bloomberg:   

• Turmoil in Hong Kong’s Streets and Markets Keeps Investors Worried.   

• Japan Lines Up to Join Germany in All-Negative Yield Curve Club.   

• Japan Inflation Hovers at Two-Year Low as BOJ Easing Talk Grows. 

• Who Will Lead Italy Out of Its Crisis? Here Are the Key Players.

• Stocks Open Mixed as Powell Awaits in Jackson Hole. Stocks in Asia opened mixed Friday after a lackluster U.S. session that saw traders adopt a cautious stance before Federal Reserve Chair Jerome Powell’s address at the Jackson Hole summit. Treasuries steadied. Shares in Japan and Australia were flat, while equities in South Korea dipped. The S&P 500 Index closed flat amid weak volumes. Three Federal Reserve policy makers voiced their resistance to the notion that the U.S. economy needs lower interest rates, and a fourth saying he wanted to avoid taking further action “unless we have to.” The dollar was steady, while crude oil edged up. The kiwi rose after New Zealand’s central bank governor said he could afford to wait before deciding whether to add more support for the economy. Futures on the S&P 500 were flat as of 9:06 a.m. in Tokyo. The underlying gauge was little changed on Thursday. Japan’s Topix index added 0.1%. South Korea’s Kospi fell 0.3%. Australia’s S&P/ASX 200 Index rose 0.1%.  

• Five Things You Need to Know to Start Your Day.

• YouTube Closes 210 Accounts Tied to Hong Kong Influence Campaign.

• Trump's Ties to Carmakers Get Testy Again, This Time on Mileage.

• Bond World on High Alert Over ‘Frickin’ Expensive’ Treasuries.  

• Apple(AAPL) Readies Camera-Focused Pro iPhones, New iPads, Larger MacBook Pro.

Wall Street Journal:

• Customers Handed Over Their DNA. The Company Let the FBI Take a Look.

• Health Insurers Set to Expand Offerings Under the ACA.

• HP CEO Dion Weisler Stepping Down.

• Large Telecoms, State Enforcers Make Pact to Combat Robocalls.

• Youth Sports Have Gotten Too Crazy. They Can Be Fixed.

• South Korea Ends Pact to Share Military Information With Japan.

• Expat Chinese Embrace Freedom—Marching Against Hong Kong Protests.

• News Corp Readies News App to Address Publishers’ Concerns About Google and Facebook.

• Vaping Is Suspected in Severe Lung Illnesses.

Fox News:

• Federal court undercuts efforts to nullify Electoral College, rules electors can vote freely.

MarketWatch.com:

• 25 dividend stocks selected for value by an outperforming money manager.

• 4 reasons why investors might snap up negative-yielding bonds.

• Why one big stock-market bear says it’s ‘dangerous to be short’ right now.

• Opinion: Remember last week’s panic selling in U.S. stocks? It triggered a ‘buy’ signal.

CNBC:

• Larry Kudlow says there could be a tax cut before Election Day

• VMware(VMW) buys Carbon Black and Pivotal, valued together at $4.8 billion.

• Salesforce(CRM) shares rise on revenue beat and increased forecast.

• Tim Cook has found the ‘recipe’ for a positive relationship with Trump, says Yale’s Jeff Sonnenfeld.

• Stocks making the biggest moves after hours: Gap, Salesforce, Intuit(INTU).

• Hasbro(HAS) to buy Peppa Pig owner in $4 billion all-cash deal.

Zero Hedge:    

• As Italy's Political Crisis Worsens, Five Star Eyes Alliance With Democrats.

• Comey FBI Willfully Ignored "Highly Classified" Hillary Clinton Emails; Barr Radio Silent.

• Koch And Soros Unite To Censor The Internet.

• Curve Inverts As Traders Brace For J-Hole Surprise; Boeing Propels Dow Higher.

Night Trading 

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

• Asia Ex-Japan Investment Grade CDS Index 64.25 -1.5 basis points.

• China Sovereign CDS 46.25 -.5 basis point.

• Bloomberg Emerging Markets Currency Index  65.42 -.01%.

• FTSE 100 futures +.44%.

• S&P 500 futures +.24%.

• NASDAQ 100 futures +.35%.

Morning Preview Links 

Earnings of Note 
Company/Estimate

Before the Open:

• (BKE)/.30

• (FL)/.67

• (HIBB)/-.16

• (RRGB)/.31

After the Close:

• None of note

Economic Releases
10:00 am EST

• New Home Sales for July is estimated at 649K versus 646K in June.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Powell speaking at Jackson Hole and the UK CBI sales report could also impact trading today.

BOTTOM LINE: Asian indices are slightly lower, weighed down by commodity and consumer shares in the region. I expect US stocks to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 75% net long heading into the day.