Bear Radar

Style Underperformer:

• Large-Cap Growth +1.67%

Sector Underperformers:

• 1) Disk Drives +.25% 2) REITs +.75% 3) HMOs +.83%

Stocks Falling on Unusual Volume:

• PAY, INWK, NCMI, TNGO, AVAV, TEO, CCOI, BBEP, EEP, NTE, LAYN, VCLT, WCRX, WWW, MKTX, AVAV, HITK, ABM, EEQ, GWRE, KFY, WAG, YELP, BPT, STX, DG, TFM and CEB
  

Stocks With Unusual Put Option Activity:

• 1) DHI 2) URI 3) NAV 4) LULU 5) RAX
  

Stocks With Most Negative News Mentions:

• 1) MKTX 2) STX 3) WWW 4) JPM 5) SCCO
  

Charts:

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

Bull Radar

Style Outperformer:

• Mid-Cap Value +1.97%

Sector Outperformers:

• 1) Semis +2.91% 2) Networking +2.71% 3) Papers +2.32%

Stocks Rising on Unusual Volume:

• DB, BCS, SYMC, E, MW, NAV, SNDK, SHLD, OI, MTW, SHLD, FSLR, STI, VMED and CTXS
  

Stocks With Unusual Call Option Activity:

• 1) SAN 2) SYMC 3) NWSA 4) EDU 5) NAV
  

Stocks With Most Positive News Mentions:

• 1) CCE 2) AIG 3) ADP 4) ALK 5) CSCO
  

Charts:

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

Thursday Watch

Evening Headlines
Bloomberg:

• Draghi Credibility at Stake as ECB Tries to Save The Euro. European Central Bank President Mario Draghi’s task today is straight-forward: produce a plan to save the euro. Draghi pledged more than a month ago to do what’s needed to preserve the single currency; now he’s under pressure to follow through with details of a bond-purchase plan to lower borrowing costs in Spain and Italy and prevent a breakup of Europe’s monetary union. Expectations have built to such an extent that Draghi risks losing credibility unless he delivers at a press conference after today’s Governing Council meeting in Frankfurt, economists and investors said. “Draghi has put his credibility squarely on the line,” said Julian Callow, chief European economist at Barclays Capital in London. “He has made it his business to save the euro, so he is going to be called on that.” Draghi told the European Parliament this week that the ECB needs to intervene in bond markets to wrest back control of interest rates in a fragmented euro-area economy and save the currency, according to a recording of a closed-door session obtained by Bloomberg News. His blueprint, sent to council members just two days ago and opposed by Germany’s Bundesbank, proposes unlimited buying of government debt with maturities of up to about three years, two central bank officials said yesterday on condition of anonymity. Rate Cut? Draghi will hold a press conference at 2:30 p.m., 45 minutes after the ECB announces its interest-rate decision. Economists are split over whether policy makers will lower the benchmark rate to a new record low, with 30 of 58 in a Bloomberg survey predicting a quarter-point cut to 0.5 percent and 28 forecasting no change.
• VeriFone(PAY) Falls as Quarterly Revenue Misses Estimates. VeriFone Systems Inc. (PAY) tumbled in late trading after the maker of credit-card terminals reported third-quarter sales that fell short of analysts’ estimates, citing unfavorable currency swings, competitive pressure in Europe and a fire in Brazil. The shares of San Jose, California-based VeriFone dropped as much as 17 percent to $29.50 after closing at $35.38 in New York. The stock had declined less than 1 percent this year.
• Iron Ore Will Drop to $50/ton Long Term, Andy Xie Says. Xie keeps forecast that ore will hit %50/t, probably before mid-2013, and stay down permanently, according the economist. Any rebound will be small, temporary because of high short-term steel inventory, lack of long-term growth prospects. Steel production is still rising, while demand declines as Chinese local govts resist production cuts, arrange financing to keep mills in their cities producing; "This story will come to a crashing end," he said. Steel, ore won't bottom until production stops, inventory is liquidated and "you see some bankruptcies in the steel industry." Steel demand unlikely to grow as construction of highways, railroads, properties has peaked; car market will probably see single-digit growth.
• Citigroup(C), Goldman(GS), UBS(UBS) Sued Over Mortgage-Backed Bonds. Citigroup Inc. (C), Goldman Sachs Group Inc. (GS) and UBS AG (UBSN) were sued separately in New York over losses on $368.7 million in mortgage-backed securities. The three banks made “material misrepresentations” about the loans backing the securities and about the transfer of the loans into trusts, according to filings today in New York State Supreme Court.
• Chinese Solar-Panel Exporters Face Threat of EU Tariffs. The European Union threatened to impose tariffs on solar panels from China in the wake of similar U.S. trade protection, saying EU producers may be victims of unfair price undercutting. The EU opened a probe into whether Chinese manufacturers of solar panels sell them in the 27-nation bloc below cost, a practice known as dumping. The inquiry covers crystalline silicon photovoltaic modules or panels and cells and wafers used in them. At stake is whether European competitors such as Solarworld AG, Germany’s largest maker of the renewable-energy technology, win levies to counter growing competition from China. The investigation will determine whether solar panels from China are “being dumped and whether the dumped imports have caused injury to the union industry,” the European Commission, the EU’s trade authority in Brussels, said today in the Official Journal.

Wall Street Journal:

• Europe Outlook Dims as Bank Meets. Downturn Deepened Over Summer, Complicating Choice for ECB Officials.
• U.S. Competitiveness Slips. Northern European countries topped the overall ranking of a global competitiveness report released Wednesday by the World Economic Forum, as the United States slipped for the fourth year in a row. "In addition to the burgeoning macroeconomic vulnerabilities, some aspects of the country's [United States] institutional environment continue to raise concern among business leaders, particularly the low public trust in politicians and a perceived lack of government efficiency," said the WEF, a think tank that also hosts the annual meeting of global business and political leaders in the Alpine town of Davos, Switzerland.
• Retiree Health Costs Rising. State and local governments in New York will have to come up with an additional quarter of a trillion dollars to pay the entire tab for retiree health care, according to a new report. The $250 billion bill for retiree health coverage is up from $210 billion two years ago, said the study issued by the Empire Center for New York State Policy on Wednesday. Referred to as "other post-employment benefits," or OPEB, the unfunded obligations represent a troubling strain on budgets.
• Desperately Seeking Middle-Class Taxes. What Obama's critique of Ryan tells us about Obama's budget plans. Democrats in Charlotte are pounding away at the savage budget cuts that Mitt Romney and Paul Ryan supposedly favor and their phantom plan for "raising taxes on the middle class," as President Obama puts it. The truth is the opposite, but table that for a moment. The President seems not to realize his critique is really a scorching if implicit indictment of his own time in office.

Business Insider:

• Subprime Auto Lending Is Bigger Today Than It Was At The Peak Of The Credit Bubble.
• Angry Democratic Delegates Booed As The Party Added 'God' And Support Of Jerusalem To The Platform. (video)
• Anderson Cooper Says Democratic Congresswoman In 'Alternate Universe' After She Explains Jerusalem Platform Fiasco. (video)
• 4 Things Everyone Gets Wrong About The Australian Commodity Bust.
• MORGAN STANLEY(MS): The Global Economy Continues To Sink Deeper Into The Twilight Zone.

Zero Hedge:

• Help Wanted Ads Plunge By Most Since Lehman Collapse. (graph)
• Citi's(C) 'Red Flag' Warning From The Credit Markets.
• Retirement Reality Full Frontal: Why Every 30 Year Old Must Risk It All To Be Able To Retire.

CNBC:

• US Will Go Over the 'Fiscal Cliff': Orszag. The U.S. will go over the fiscal cliff early next year before a deal gets cut in January to address the country’s fiscal problems, Peter Orszag, a former Obama administration official and current vice chairman at Citigroup, told CNBC’s "Closing Bell" on Wednesday. “I think what's going to happen is probably early next year, not late, next year, you will have a big fiscal deal that gets cut,” he said.
• World Bank Appoints Chief Economist From India.

NY Times:

• Greek Government and Public at Odds Over New Cuts.

ABC News:

• Secret Service Investigating Purported Ransom of Mitt Romney’s Tax Returns. Someone claims to have stolen years of Mitt Romney’s tax returns from a Tennessee office of the financial firm PricewaterhouseCoopers, and the Secret Service is investigating what appears to be a ransom scheme. The local Democratic and Republican parties in Williamson County, Tenn., where the PricewaterhouseCoopers office is located, both received packages, each containing a thumb drive and a letter outlining a competitive-bidding ransom scheme that appears designed to pit Republicans and Democrats against each other over the release of Romney’s taxes.

CNN:

• U.S. debt $417 billion below the debt ceiling. The debt ceiling is currently set at $16.394 trillion. At the end of August, the amount of debt subject to that limit -- which excludes certain types of debt -- was $15.977 trillion, roughly $417 billion below the cap. Since the government typically borrows between $100 billion and $125 billion a month, that means it's on track to hit the ceiling sometime in December. But the Treasury Department will likely be able to use "extraordinary measures" to keep the debt just below the legal limit for a couple of months. Bottom line: Congress will likely need to raise the ceiling in early 2013 or Treasury will risk defaulting on the country's legal obligations by failing to pay all of its bills in full and on time.

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Wednesday shows Mitt Romney attracting support from 48% of voters nationwide, while President Obama earns 45% of the vote. Two percent (2%) prefer some other candidate, and five percent (5%) are undecided.

Reuters:

• Romney raps Obama over growing debt, food stamp record. Republican presidential candidate Mitt Romney blasted U.S. President Barack Obama over the size of the national debt and the record number of Americans on food stamps, in a jab on the eve of a major speech by the Democrat. Romney said "two big numbers out this week" prove that Americans are not better off than when Obama took office in 2009. "We've gone from $10 trillion that the president inherited from all prior presidents to $16 trillion," Romney told reporters in the swing state of New Hampshire. The Treasury Department this week announced that the public debt had surpassed $16 trillion. "The other number's forty-seven. Forty-seven million now on food stamps. When he came to office there were 32 million. He's added 15 million people," Romney said. He was referring to an Agriculture Department report on Tuesday that showed the number of people on food stamps jumped to a record high of 46.7 million in June.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -.75% to +.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 149.0 -1.5 basis points.
• Asia Pacific Sovereign CDS Index 122.0 unch.
  
• FTSE-100 futures +.29%.
  
• S&P 500 futures +.22%.
  
• NASDAQ 100 futures +.20%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (COO)/1.29
• (ULTA)/.51
• (MFRM)/.28
• (NAV)/-1.41
• (HOV)/-.14

Economic Releases
8:15 am EST

• ADP Employment Change for August is estimated to fall to 140K versus 163K in July.

8:30 am EST

• Initial Jobless Claims are estimated to fall to 370K versus 374K the prior week.
• Continuing Claims are estimated to fall to 3315K versus 3316K prior.

10:00 am EST

• ISM Non-Manufacturing for August is estimated to fall to 52.5 versus 52.6 in July.
  

11:00 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory decline of -4,950,000 barrels versus a +3,778,000 barrel gain the prior week. Distillate supplies are estimated to fall by -1,550,000 barrels versus a +873,000 barrel gain the prior week. Gasoline inventories are estimated to fall by -3,000,000 barrels versus a -1,509,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to fall by -1.5% versus unch. the prior week.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The ECB rate decision, Spanish/French bond auctions, Eurozone GDP data, Challenger Job Cuts report for August, ICSC Chain Store Sales report for August, BoE rate decision, Australia trade data, OECD economic outlook, weekly Bloomberg Consumer Comfort Index, (SYK) analyst meeting and the (QLGC) analyst day could also impact trading today.
  

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

Stocks Slightly Lower into Final Hour on Rising Global Growth Fears, Transports Sector Weakness, US "Fiscal Cliff" Worries, High Food/Energy Prices

Broad Market Tone:

• Advance/Decline Line: Lower
  
• Sector Performance: Mixed
  
• Volume: Light
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 17.72 -1.45%
  
• ISE Sentiment Index 153.0 +50.0%
  
• Total Put/Call .90 +1.12%
  
• NYSE Arms .85 -37.72%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 100.35 bps -.68%
  
• European Financial Sector CDS Index 232.81 bps -2.47%
  
• Western Europe Sovereign Debt CDS Index 219.73 -1.85%
  
• Emerging Market CDS Index 235.74 -2.46%
  
• 2-Year Swap Spread 16.5 +.5 basis point
  
• TED Spread 30.75 -1.25 basis points
  
• 3-Month EUR/USD Cross-Currency Basis Swap -30.5 -3.25 basis points
  

Economic Gauges:

• 3-Month T-Bill Yield .10% +1 basis point
  
• Yield Curve 135.0 +1 basis point
  
• China Import Iron Ore Spot $86.70/Metric Tonne -.23%
  
• Citi US Economic Surprise Index -2.0 +.8 point
  
• 10-Year TIPS Spread 2.30 +3 basis points
  

Overseas Futures:

• Nikkei Futures: Indicating +7 open in Japan
• DAX Futures: Indicating -7 open in Germany
  

Portfolio:

• Slightly Higher: On gains in my Retail sector longs and Emerging Markets shorts
  
• Disclosed Trades: None
  
• Market Exposure: 50% Net Long

BOTTOM LINE: Today's overall market action is mildly bearish as the S&P 500 trades slightly lower on eurozone debt angst, high food/energy prices, US "fiscal cliff" worries and rising global growth fears. On the positive side, Steel, Coal, Education and Airline shares are especially strong, rising more than +.75%. Copper is gaining +1.5%, the UBS-Bloomberg Ag Spot Index is down -1.3% and Gold is falling -.2%. The 10Y Yld is rising +2 bps to 1.59%. The Germany sovereign cds is down -.8% to 58.85 bps, the France sovereign cds is down -1.3% to 131.25 bps, the Spain sovereign cds is down -4.2% to 451.50 bps and the Italy sovereign cds is down -6.0% to 395.51 bps. Moreover, the European Investment Grade CDS Index is down -2.1% to 140.14 bps, the Spain 10Y Yld is down -2.4% to 6.41% and the Italian/German 10Y Yld Spread is down -5.6% to 403.55 bps. On the negative side, Alt Energy, Oil Tanker, Energy, Semi, Disk Drive, Networking, Medical Equipment and Road & Rail shares are especially weak, falling more than -.75%. Transport shares have traded poorly throughout the day again. Major Asian indices fell overnight, led lower by a -1.74% decline in South Korea. The Nikkei fell another -1.1% and is down -4.3% in 5 days. The Shanghai Comp fell another -.3% to the lowest level since early March 2009. This index is now down -7.4% ytd and down -15.7% over the last 12 months. The UBS/Bloomberg Ag Spot Index is up +25.0% since 6/1. The benchmark China Iron/Ore Spot Index is down -52.1% since 9/7/11. The China Hot Rolled Steel Sheet Spot Index is also picking up downside steam. As well, despite their recent bounces off the lows, the euro, copper and lumber all continue to trade poorly given equity investor perceptions that the Eurozone has successfully kicked-the-can and global central bank stimuli will boost economic growth in the near future. US weekly retail sales have decelerated to a sluggish rate at +2.5%. US Trucking Traffic continues to soften. Moreover, the weekly MBA Home Purchase Applications Index has declined in 6 out of the last 7 weeks and has been around the same level since May 2010 despite investor perceptions of a big improvement in the nationwide housing market. The Baltic Dry Index has plunged around -65.0% from its Oct. 14th high and is now down around -60.0% ytd. Shanghai Copper Inventories have risen +119% ytd. Oil tanker rates have plunged, with the benchmark Middle East-to-US voyage down to 22.50 industry-standard worldscale points, which is the lowest since May, 2009. The 10Y T-Note continues to trade too well. There still appears to be a fairly high level of complacency among US investors regarding the deteriorating macro backdrop. It remains unclear to me whether or not Germany will destroy its own balance sheet or allow the ECB to monetize debt in a major way in an attempt to "save" the euro even as investors have been pricing this outcome into stocks. Massive tax hikes and spending cuts are still yet to hit in several key eurozone countries that are already in recession. A lack of economic competitiveness and growth incentives remain unaddressed problems. The European debt crisis is also really affecting emerging market economies now, which will further pressure exports from the region and further raise the odds of more sovereign/bank downgrades over the intermediate-term. I continue to believe that China's problems are much larger than commonly perceived and cannot be solved with another massive stimulus package given their real estate bubble, soaring food prices, massive overcapacity in certain key parts of the economy and growing bad loans problem. I continue to believe QE3 would be a major mistake given the recent surge in stock prices, rising inflation expectations, rising gas prices, worrisome food crisis headlines and less pessimistic US economic data. Little being discussed by global central bankers will actually boost global economic growth to an extent that overcomes the growing macro headwinds over the intermediate-term, in my opinion. Uncertainty surrounding the effects on business of Obamacare, the "US fiscal cliff" and the election outcome uncertainty will likely become more and more of a focus for US investors as the year progresses. The explosion higher in the Israel sovereign cds(+31 bps in about 3 weeks to 165.0 bps) is another big red flag. The Mid-east appears to be unraveling again at an alarming rate. The quality of the stock rally off the June lows remains poor as breadth, volume, leadership, lack of big volume/gainers and copper/lumber/transports relative weakness all continue to be concerns. Thus, recent market p/e multiple expansion on global central bank stimulus/action hopes, is creating an unstable situation for equities, which could become a big problem this fall unless a significant macro catalyst materializes soon. For this year's equity advance to regain traction, I would expect to see further European credit gauge improvement, a subsiding of hard-landing fears in key emerging markets, a rising 10-year yield, better volume, stable-to-lower food/energy prices, a US "fiscal cliff" solution, a calming in Mid-east tensions and higher-quality stock market leadership. I expect US stocks to trade modestly lower into the close from current levels on eurozone debt angst, profit-taking, more shorting, high food/energy prices, US "fiscal cliff" concerns, growing Mid-east unrest, technical selling and rising global growth fears.

Bear Radar

Style Underperformer:

• Mid-Cap Growth -.53%

Sector Underperformers:

• 1) Road & Rail -1.90% 2) Disk Drives -1.15% 3) Oil Tankers -1.08%

Stocks Falling on Unusual Volume:

• DK, BP, AXP, BBL, COP, DFS, OMG, SNTA, SSL, FE, NS, TGP, FRAN, HITK, CVGW, MHO, LUX, FDX, UPS, TAC, YZC, NATI, MATW, FGP, LANC, CEO, CAJ, LF, ELLI, NNI and FCFS
  

Stocks With Unusual Put Option Activity:

• 1) PHM 2) PAY 3) ECA 4) NUE 5) UPS
  

Stocks With Most Negative News Mentions:

• 1) AMD 2) FDX 3) BTU 4) AMR 5) GM
  

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Value +.24%

Sector Outperformers:

• 1) Steel +1.66% 2) Airlines +1.51% 3) Restaurants +.81%

Stocks Rising on Unusual Volume:

• QLIK, GWRE, GDOT, SRPT, GPOR, SWY, HIG, YELP and LNKD
  

Stocks With Unusual Call Option Activity:

• 1) GFI 2) AOL 3) MRX 4) JNK 5) MWW
  

Stocks With Most Positive News Mentions:

• 1) HON 2) AN 3) LCC 4) AMZN 5) ICE
  

Charts:

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