Bull Radar

Style Outperformer:

• Large-Cap Growth -.55%

Sector Outperformers:

• 1) Tobcco +.57% 2) Drugs +.21% 3) Airlines +.07%
  

Stocks Rising on Unusual Volume:

• MDCO, CELG, PERI and SIG

Stocks With Unusual Call Option Activity:

• 1) STSI 2) HAS 3) GGC 4) CELG 5) PPHM
  

Stocks With Most Positive News Mentions:

• 1) NSR 2) LUV 3) JEC 4) MDCO 5) LLY

Charts:

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

Tuesday Watch

Evening Headlines 
Bloomberg: 

• Rajoy Stealth Order Adds to Off-Balance Sheet Debt: Euro Credit. Spanish Prime Minister Mariano Rajoy added more than 3 billion euros to his debt load in the closing hours of 2012 with a New Year's Eve order removing a cap on utilities' government-guaranteed losses. The decision, announced in the official gazette, added to the snowballing power-tariff debt, which isn't included in the public accounts. The shortfall exceeded 20 billion euros at year end, according to government filings.   
• More Gloom for Britain’s Shrinking High Streets. Britain’s shrinking shopping streets are poised to become smaller still, thinning out what have long been Europe’s densest retail districts. With U.K. consumers spending more online and making fewer trips to the high street, the number of store closings is set to double this year, according to real estate researcher Local Data Company. The country’s 500 busiest retail locations will lose a net 4,000 outlets this year, versus about 2,000 in 2012, Local Data predicts. “We clearly have tens of thousands too many retail stores out there,” said Bryan Roberts, director at market research firm Kantar Retail in London.
• Asian Stocks Drop for Second Day as Japan Exporters Fall. Asian stocks fell, with the regional benchmark index heading for its second day of decline, as Japanese exporters dropped after the yen’s advance dimmed the outlook for overseas earnings. Mazda Motor Corp. (7261), which gets about 72 percent of its sales outside of Japan, sank 3.9 percent. Aozora Bank Ltd. (8304) declined 2.4 percent, extending losses for a second day, after the Japanese lender confirmed Cerberus Capital Management LP will sell most of its holdings. HTC Corp. slipped 3.8 percent in Taipei after Asia’s second-largest smartphone maker posted fourth-quarter operating income that missed analystestimates. 
• Emerging Market Puts Drop to Cheapest Ever on Economy: Options. Options dealers are charging the lowest prices ever to protect against declines in emerging market equities. Implied volatility for three-month options closest to the iShares MSCI Emerging Markets Index has fallen 41% in the past year and reached a record of 18.18 on Jan. 4. The key gauge of options prices reached its lowest level ever relative to the SPDR S&P 500  ETF Trust on Dec. 27, according to data complied by Bloomberg.
• China Should Boost Local Brands to Be Auto Superpower, CAAM Says. China should strive to become an “automotive superpower” to maintain economic growth, by increasing investment in research and encouraging official use of local brands, the head of the nation’s carmakers group said. 
• China Paper Anti-Censorship Push Backed by Celebrities, Protests. Some of China’s most famous celebrities and executives declared their support for a group of Chinese newspaper journalists protesting what they called the unprecedented censorship of a New Year editorial. More than a hundred people lingered late into the night yesterday outside of the Southern Weekly offices in the southern city of Guangzhou. Some laid flowers at the building’s entrance while others pushed their children in baby carriages amid a police presence, according to television footage and an employee who requested anonymity.
• Sears(SHLD) Names Edward Lampert CEO as D’Ambrosio Steps Down. Sears Holding Corp. (SHLD) said Edward Lampert, the hedge-fund manager who controls the retailer, will become chief executive officer, replacing Louis D’Ambrosio. D’Ambrosio will step down for family health matters at the end of the company’s fiscal year on Feb. 2, 2013, the Hoffman Estates, Illinois-based company said today in a statement. 
• Paulson Said to Pare Advantage Plus 2012 Loss Last Month. John Paulson, the hedge-fund manager overseeing $19 billion, pared losses in his Advantage Plus fund after gaining 4.5 percent last month, according to a person with knowledge of the returns. The performance left the fund down 19 percent in 2012, said the person, who asked not to be identified because the information is private.
• Merck(MRK) CEO Says ‘Worth Thinking About’ Bausch & Lomb Deal. Merck & Co. Chief Executive Officer Kenneth Frazier said the drugmaker may be interested in buying Bausch & Lomb, the eye-care company for sale by Warburg Pincus LLC for at least $10 billion.

Wall Street Journal: 

• Obama Security Picks Court Controversy. Hagel for Defense, Brennan for CIA Expected to Face Grilling. President Barack Obama, accepting the certainty of at least one bitter confirmation battle with Senate Republicans, rounded out his national security team Monday by picking nominees who likely see eye-to-eye with him on ending the Afghan war and using drones and special-operations forces to fight terrorism.
• Fiscal Cliff: Live Stream.
• Another Fire Hits a Boeing(BA) Dreamliner. U.S. aviation safety officials are probing an electrical fire that hit a three-week-old Boeing Co. BA -2.01% 787 Dreamliner on Monday just after passengers and crew had left a Japan Airlines Co. 9201.TO +1.07% flight at Boston's Logan International Airport.
• Could Verizon(VZ), AT&T(T) Follow T-Mobile in Ending Subsidies? The biggest U.S. wireless carriers are watching T-Mobile USA’s experiment with ending smartphone subsidies, but they aren’t sure if subscribers are ready to make the change.
• TD Ameritrade to Launch Behavior-Based Index to Track Investor Sentiment. In a bid to shine a light on the trading habits of retail investors and attract new clients along the way, TD Ameritrade Holding Corp. on Tuesday will roll out a behavior-based index that reveals investors’ moods by tracking buying and selling by TD Ameritrade’s customers.
• Japan Executives Warn Yen May Get Too Weak. Some Japanese executives, after months of demanding the government take action to weaken the yen, are now warning that such weakness could go too far if the currency loses value too fast and for the wrong reasons, or if it leaves the country exposed to soaring fuel costs that would undermine the economy.
  The executives, who gathered at an annual New Year's reception held by Japan's three biggest corporate lobbies, praised Prime Minister Shinzo Abe's new government for its proposals to boost the economy and tame the strong yen, which erodes exporters' profits and makes it harder to sell Japan-made goods overseas. But they also cautioned that if the economy stays weak, or if the government doesn't take steps to get its bloated finances under control, investors could lose confidence in Japan and flee, sending the yen into free fall.

Fox News:

• Graham seeks delay to confirmation of Brennan until Benghazi questions answered.  A top Republican senator called Monday for a delay in the confirmation of President Obama's pick for CIA director until more questions are answered on the deadly attack last year on a U.S. consulate in Libya. Sen. Lindsey Graham of South Carolina didn't single out Obama's nominee, John Brennan, for criticism, but he accused the administration of ignoring requests for more information about the Sept. 11 attack, which also targeted a CIA annex in Benghazi. "I have not forgotten about the Benghazi debacle and still have many questions about what transpired before, during and after the attack on our consulate," Graham said.

CNBC: 

• Oops! This Earnings Season Comes With Plenty of Excuses. Fourth quarter earnings growth was tepid at best, as Sandy and the "fiscal cliff" gave companies plenty of excuses for sluggish revenue growth and weak profits. The S&P 500 companies are expected to post earnings growth of 2.8 percent for the fourth quarter, up from the barely positive 0.1 percent growth in the third quarter, according to Thomson Reuters. Some analysts say that after the market's big run, earnings could provide an excuse for profit taking, as investors assess the forward comments of companies that have so far been fairly quiet about the outlook for 2013.

Zero Hedge: 

• The Three Key Charts Before The Launch Of Earnings Season.
• Greek Banks To Merkel: "Please Ma'am, Can We Have Some Moar", Or Here Comes Bailout #4.
• Meet Jack Lew: Tim Geithner's Replacement.
• Japan May Or May Not Mint Quadrillion Yen Coins, But It Will Monetize European Debt.

Business Insider: 

• Gérard Depardieu May Have Just Devoured Francois Hollande's Presidency. French newspaper says tax protests resulting in "disaster" for Hollande.
• The 10 Biggest Risks The World Faces In 2013.
• All The Money We're Pouring Into Emerging Markets Has Created A Massive Bubble.

NY Times:

• Chemical Weapons Showdown With Syria Led to Rare Accord. In the last days of November, Israel’s top military commanders called the Pentagon to discuss troubling intelligence that was showing up on satellite imagery: Syrian troops appeared to be mixing chemicals at two storage sites, probably the deadly nerve gas sarin, and filling dozens of 500-pounds bombs that could be loaded on airplanes.

Reuters:

• Verizon(VZ) CEO says 'planning on 2013 being relatively flat'. Verizon Communications Inc Chief Executive Lowell McAdam said, 'We are planning on 2013 being relatively flat.' He also said, "I don't think many people in the business community are enthusiastic about what's going on in Washington now."
• Fitch: won't change Japan's rating based on campaign promises. Fitch Ratings will not change its sovereign rating on Japan based on promises made by the ruling Liberal Democratic Party ahead of its election victory last month, a Fitch official said on Tuesday. Andrew Colquhoun, head of Asia-Pacific sovereign rating at Fitch, told reporters on a conference call that the ratings agency would evaluate the actions the new government takes from now.
• Yum Brands(YUM) warns China sales fell more than expected. KFC parent Yum Brands Inc warned on Monday that sales in its top market of China shrank more than expected in the fourth quarter, citing bad publicity from a government review of its chicken supply. China sales fell 6 percent in the quarter, worse than its earlier forecast of a 4 percent decline, Yum said in a regulatory filing. The media coverage associated with the government's review had a "significant impact" on KFC sales in China in the last two weeks of December, it said. Yum, which also owns the Taco Bell and Pizza Hut fast-food chains, repeated a full-year earnings forecast that was below Wall Street's expectations and its shares fell more than 5 percent in after-hours trading. 
• Plan to curb volatility in US stock markets likely to be delayed. A pilot program to limit volatility in the U.S. stock markets scheduled to be implemented next month is not likely to be rolled out until April as exchanges and financial industry groups take more time to prepare. 
• Deloitte opposes SEC move to re-start action seeking China audit papers. Accounting giant Deloitte has asked a federal judge to reject a request from the U.S. securities regulator to resume a court case in which it is trying to force the auditor to hand over work papers from its audit of an allegedly fraudulent Chinese IT company.

forexlive:

• Fitch: China & HK comments. Anecdotal evidence that China has a debt problem that is building. China needs to rebalance towards consumption-led growth. HK rating likely to be unchanged over 1-2 years.

Telegraph:

• Sterling crisis looms as UK current account deficit balloons. Is the UK heading for a currency crisis?

Evening Recommendations 

• None of note

Night Trading

• Asian equity indices are -1.0% to -.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 101.5 +1.0 basis point.

• Asia Pacific Sovereign CDS Index 78.25 -1.0 basis point.

• FTSE-100 futures -.02%.

• S&P 500 futures -.08%.

• NASDAQ 100 futures -.13%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (IHS)/1.10
• (AYI)/.83
• (RPM)/.42
• (LNN)/.75
• (SCHN)/.06
• (MON)/.36
• (WDFC)/.55
• (AA)/.06
• (GPN)/.87
• (APOL)/.90 

Economic Releases
7:30 am EST  

• The NFIB Small Business Optimism Index for December is estimated to fall to 87.2 versus 87.5 in November. 

 3:00 pm EST

• Consumer Credit for November is estimated to fall to $12.75B versus $14.16B in October.

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Lacker speaking, Eurozone retail sales/unemployment rate/confidence data, Germany trade data, 3Y T-Note auction, Goldman Sachs Energy Conference, IBD/TIPP Economic Optimism Index for January and the weekly reatail sales reports could also impact trading today.

BOTTOM LINE: Asian indices are lower, weighed down by financial and technology shares in the region. I expect US stocks to open mixed 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 Fiscal Cliff Worries, More Shorting, Profit-Taking, Commodity/Road & Rail Sector Weakness

Today's Market Take:

Broad Market Tone:

• Advance/Decline Line: Lower
  

• Sector Performance: Mixed
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• VIX 13.99 +1.16%

• ISE Sentiment Index 124.0 +10.7%

• Total Put/Call .88 +4.76%

• NYSE Arms 1.25 +51.94%

Credit Investor Angst:

• North American Investment Grade CDS Index 85.06 -.58%

• European Financial Sector CDS Index 122.61 -2.46%

• Western Europe Sovereign Debt CDS Index 99.97 -1.52%

• Emerging Market CDS Index 195.97 +1.16%

• 2-Year Swap Spread 13.0 -.5 bp

• TED Spread 25.0 +1 bp

• 3-Month EUR/USD Cross-Currency Basis Swap -19.75 -.75 bp

Economic Gauges:

• 3-Month T-Bill Yield .06% -1 bp

• Yield Curve 163.0 -1 bp

• China Import Iron Ore Spot $153.90/Metric Tonne +.39%

• Citi US Economic Surprise Index 31.90 -2.2 points

• 10-Year TIPS Spread 2.52 +4 bps

Overseas Futures:

• Nikkei Futures: Indicating +46 open in Japan

• DAX Futures: Indicating +3 open in Germany

Portfolio:

• Slightly Higher: On gains in my medical/biotech sector longs and index hedges

• Disclosed Trades: Added to my (IWM)/(QQQ) hedges

• Market Exposure: Moved to 50% Net Long

Today's Headlines

Bloomberg: 

• U.S. Debt May Rise as D.C. Dysfunction Draws Downgrade, UBS Says. Treasury yields, now at almost eight- month highs, are set to reverse course as political wrangling in Washington and a “likely” U.S. credit downgrade drive investors to the safety of government debt, according to UBS AG. “Treasuries are likely to rally over the next month or two,” Mike Schumacher, head of global-rates strategy at UBS, said in a Bloomberg Television interview on “Market Makers” with Erik Schatzker and Stephanie Ruhle. “The market doesn’t know how the political risk plays out.”
• Draghi Seeks Extended Calm in 2013 on Fading Euro Economy. European Central Bank President Mario Draghi will turn his attention to nursing the euro region back to economic health this week as the urgency to deploy emergency crisis measures recedes after three years.
• European Stocks Decline on Valuation.
• Copper Falls as Report May Show Weaker German Factory Orders. Copper fell for a third session in London before a report that may show German factory orders slid for a third month in four, fanning concern about the euro-zone crisis debt threatening to choke demand. The Economy Ministry in Berlin may say tomorrow orders dropped 1.4 percent in November, according to economists surveyed by Bloomberg.
• Gold Drops for Third Straight Session on Fed’s Stimulus Signals. Gold futures declined for the third straight session on signs that Federal Reserve policy makers may end monthly purchases of U.S. debt this year. The drop today followed the longest run of weekly declines since May 2004.

Wall Street Journal: 

• Obama Nominates Brennan for CIA, Hagel for Pentagon. President Barack Obama nominated longtime counterterrorism chief John Brennan to serve as director of the Central Intelligence Agency, placing a trusted aide at the helm of the spy organization. The announcement Monday afternoon came in conjunction with Mr. Obama's pick for defense secretary, former Republican Sen. Chuck Hagel. In choosing Mr. Brennan to succeed David Petraeus, who resigned last year after admitting to an affair, Mr. Obama is returning to a model of having a CIA director with close White House ties. Mr. Petraeus, a decorated four-star general, wasn't considered part of Mr. Obama's inner circle. 
• China Censorship Protests Widen. Protests by journalists over alleged heavy-handed censorship at one of China's most daring newspapers have garnered high-profile support in the media and blogosphere, with prominent academics, bloggers and even movie stars joining in.

Fox News:

• Obama Antagonizes with Hagel Pick. It’s an antagonistic selection, to be sure. Hagel is disliked by Republicans for his foreign policy attacks on the party during the Bush years and strongly opposed by pro-Israel groups for his seemingly neutral stance on the Arab-Israeli conflict. Hagel’s swaggering talk in a post-Senate interview about the “Jewish lobby” and its undue influence on American foreign policy is a huge red flag for Jewish Americans who work very hard to make the U.S. alliance with Israel something beyond the reach of culture and religion.

CNBC: 

• The New Way to Tax: Pay Per Mile Driven. Have you ever heard of the vehicle miles traveled tax? No? Well get ready to hear more about it, because the vehicle miles traveled tax, or VMT, is the latest way states are looking to make up for falling gas tax revenues.
• At CES 2013, the Connected Home of the Future.

Zero Hedge:

• Speculators Rush Into Risk By Most Since 2007. (graph)
• Fannie Says Household Financial Situtation Outlook Slumps To Worst Since August 2011.
• More Central Bank Gimmicks Exposed As European Collateral Shortage Deteriorates. 
• In Case There Was Any Confusion Just Who The Fed Works For...

Business Insider:

• Congressman To Introduce Law To Ban The Trillion Dollar Platinum Coin. 
• These 16 Companies Are Leading A Retail Revolution.
• John Boehner Says Obama Made A 'Miscalculation' That Could Haunt Him In The Next Big Fight.
• CREDIT SUISSE: 8 Key Indicators Suggest A Stock Market Selloff Is Near.
• These Poll Questions Show Why The GOP Thinks It Has A Huge Edge On The Debt Ceiling Debate. 
• EURASIA GROUP: Here Are The 10 Biggest Risks The World Faces In 2013. 
• CHART OF THE DAY: The Elements Of Social Unrest Loom Large Across Europe.

Reuters:

• Analysis: Doom scenario far-fetched but euro gloom to deepen. It would be fair to say that U.S. hedge-fund manager Kyle Bass does not expect the explosion in global debt in recent years to turn out well. "This ends through war," Bass, the founder of Hayman Capital Management in Dallas, said. "I don't know who's going to fight who, but I'm fairly certain that in the next few years you will see wars erupt, and not just small ones," he told a recent conference.
• AT&T(T) to launch home monitoring service in March.

Bear Radar

Style Underperformer:

• Small-Cap Value -.83%

Sector Underperformers:

• 1) Education -3.70% 2) Alt Energy -2.30% 3) Disk Drives -1.63%
  

Stocks Falling on Unusual Volume:

• QEP, WNR, ELP, AES, NIHD, DIS, MAKO, DNDN, MNST, RJET, ARAY, UAL, ESI, ILMN, NGVC, ANIK, NOW, HMC, SYNT, HLF, HAIN, DSW, CAJ, KSU, TLLP, SODA, POL, FIO, MCY, EHTH, FII, WTW, PPO and KKD

Stocks With Unusual Put Option Activity:

• 1) BKS 2) P 3) DTV 4) BX 5) XHB
  

Stocks With Most Negative News Mentions:

• 1) CREE 2) KSU 3) VLO 4) AMAT 5) WMT
  

Charts:

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

Bull Radar

Style Outperformer:

• Small-Cap Growth -.10%

Sector Outperformers:

• 1) Homebuilders +1.03% 2) HMOs +.66% 3) Networking +.40%
  

Stocks Rising on Unusual Volume:

• AMZN, IRE, WIN, EPOC, UNXL, NSM, VVUS, WAC, IMAX, ALKS, MPEL, DDD, GGC, MCP, TWI, HAR, VHC, SCTY, WLT, SLCA, VPHM and RNF

Stocks With Unusual Call Option Activity:

• 1) ACAS 2) P 3) NSM 4) SWKS 5) LVS
  

Stocks With Most Positive News Mentions:

• 1) NSR 2) BABY 3) MGP 4) BA 5) XOM

Charts:

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