Stocks Higher into Final Hour on Central Bank Hopes, Short-Covering, Investor Performance Angst, Homebuilding/Metals & Mining Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Modestly Higher
  

• Sector Performance: Most Sectors Rising
  

• Volume: Below Average

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• Volatility(VIX) 13.13 -.23%

• Euro/Yen Carry Return Index 141.05 +.68%

• Emerging Markets Currency Volatility(VXY) 8.27 -2.59%

• S&P 500 Implied Correlation 37.40 +2.89%

• ISE Sentiment Index 115.0 -7.3%

• Total Put/Call .83 +2.47%

• NYSE Arms 1.11 -15.28% 

Credit Investor Angst:

• North American Investment Grade CDS Index 70.06 -3.31%

• European Financial Sector CDS Index 119.20 -2.35%

• Western Europe Sovereign Debt CDS Index 73.0 +2.83%

• Emerging Market CDS Index 259.08 -1.23%

• 2-Year Swap Spread 13.25 unch.

• TED Spread 21.25 unch.

• 3-Month EUR/USD Cross-Currency Basis Swap -4.75 +1.75 basis points

Economic Gauges:

• 3-Month T-Bill Yield .03% unch.

• Yield Curve 222.0 -7 basis points

• China Import Iron Ore Spot $133.30/Metric Tonne -.82%

• Citi US Economic Surprise Index 19.40 -.2 point

• Citi Emerging Markets Economic Surprise Index -10.20 +.1 point

• 10-Year TIPS Spread 2.18 -1 basis point

Overseas Futures:

• Nikkei Futures: Indicating +138 open in Japan

• DAX Futures: Indicating +5 open in Germany

Portfolio: 

• Higher: On gains in my medical/biotech/retail sector longs

• Disclosed Trades: Added to my (IWM), (QQQ) hedges and added to my (EEM) short

• Market Exposure: Moved to 50% Net Long

Today's Headlines

Bloomberg: 

• Foreigners Sold U.S. Assets as China Reduces Treasuries. Foreign investors were net sellers of U.S. long-term portfolio assets in August as China reduced its holdings of Treasuries to a six-month low. The net long-term portfolio investment outflow was $8.9 billion after a revised $31 billion inflow in July, the Treasury Department said in a statement today in Washington. Net sales of U.S. equities by official holders abroad were a record $3.1 billion, and China lowered its holdings of U.S. government debt for the second time in three months, the department said.

• European Stocks Climb for Ninth Day on Earnings Optimism. European stocks rallied for a ninth day, their longest winning streak since June 2010, as companies from Novartis AG to Reckitt Benckiser (RB/) Group Plc raised forecasts and the U.S. unemployment rate fell to an almost five-year low. Novartis rose 2 percent, making the biggest contribution to the Stoxx Europe 600 Index’s gains. Reckitt Benckiser jumped the most since February 2009. Tele2 AB tumbled to a four-year low after Sweden’s second-largest phone company posted an unexpected loss and lowered its 2015 forecast for sales and profit. Telekom Austria AG slid 5.7 percent after buying frequency blocks at a spectrum auction. The Stoxx 600 advanced 0.5 percent to 320.97, extending a five-year high.  

• Treasury Yields Fall to 3-Month Lows After U.S. Adds Fewer Jobs. Treasury 10-year note yields fell to a three-month low after a report showed payrolls climbed less than projected in September, indicating the U.S. economy had little momentum leading up to the federal government shutdown. European, Canadian and emerging-markets debt also rallied as the payrolls report added to speculation that the Federal Reserve will maintains its U.S. bond-buying program into next year, which has helped to keep borrowing costs low worldwide. The Treasury’s auction of $35 billion of one-month bills attracted demand at close to the pre-government shutdown average seen for the securities this year as investor concern that the U.S. may default ebbed.

• WTI Crude Falls Below $98 for First Time Since July. “The fundamentals of the market aren’t that supportive,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. “We’re looking for another sizable build in tomorrow’s report, adding to what are already ample supplies. We should see the builds continue for the next several weeks.” WTI crude for November delivery, which expires today, decreased $1.67, or 1.7 percent, to $97.55 a barrel at 1:52 p.m. on the New York Mercantile Exchange. Prices touched $97.50, the lowest level since July 1. The more-active December contract slid $1.34, or 1.3 percent, to $98.34. The volume of all futures traded was 32 percent higher than the 100-day average. 

• Gold Futures Climb to Highest in Three Weeks on U.S. Jobs Data. “The payrolls data is pushing gold higher as investors think the economy needs more support to gain momentum,” Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago, said in a telephone interview. Gold futures for December delivery climbed 0.9 percent to $1,327.70 an ounce at 9 a.m. on the Comex in New York, after reaching $1,337.90, the highest for a most-active contract since Sept. 30. The price fell as much as 0.5 percent before the jobs data was released. 

• Soybeans, Corn Fall as Dry Weather to Speed Up U.S. Harvesting. Soybean futures for delivery in January slid 0.2 percent to $12.975 a bushel at 10:40 a.m. on the Chicago Board of Trade. Prices reached $13.0125 yesterday, the highest since Oct. 8. U.S. soybean production may rise 4.4 percent to the highest in three years, the USDA said Sept. 12. Corn futures for delivery in December slumped 1.1 percent to $4.3925 a bushel in Chicago, heading for the biggest drop since Oct. 11.

• JPMorgan Guilty Plea Sought by Holder Shows Harder Stance. JPMorgan Chase & Co. (JPM) Chief Executive Officer Jamie Dimon went to Washington almost a month ago to see if U.S. Attorney General Eric Holder would settle a criminal probe of mortgage fraud at the bank if it paid more money to resolve related civil investigations. 

• EBay(EBAY) Probed by Regulator Over Loans Pioneered by Payday Lenders. EBay Inc. (EBAY) is facing a probe by the Consumer Financial Protection Bureau over a loan program that mimics a structure used by high-interest lenders to evade state rules before the practice was stamped out by regulators. 

Wall Street Journal: 

• Wall Street Profits May Halve in Second Half. Washington Wrangling Takes Toll, Comptroller Says.

Fox News:

• US rift with allies grows as Saudi Arabia, France voice concerns. While the White House battles Congress over everything from the budget to ObamaCare, a potentially seismic shake-up is happening in America's relationship with some of its most-longstanding allies.

MarketWatch:

• Coach’s(COH) shares drop; weak sales fuel concern.

CNBC:

• Watch Art Cashin: Why high-momentum stocks got hit. (video)

• CEO pay skyrockets on soaring stock market. CEOs' wallets are turning into one of the biggest winners from the rising stock market, with the top 10 payouts hitting a record $4.7 billion, and they're likely to get even fatter next year.

Zero Hedge: 

• September Nonfarm Payrolls Miss 148K vs Exp. 180K; Unemployment Rate Drops to 7.2%. (graph)

• If You Believe In The Recovery, Do Not Look At This Chart. (graph)

• Dan Loeb's Third Point Returns 10% Of Capital Amid "Concerns About The Global Economy". (graph) 

• Some Thoughts On Debts, Deficits & Economic Growth. (graph)

Business Insider: 

• LIVE: Apple(AAPL) Reveals New iPads.

• Almost No Risk Is Priced Into Financial Markets, And There's Virtually Nothing On Investors' Radar.

• Netflix(NFLX) Shares Collapsing. (graph)

• THE SCARIEST JOBS CHART EVER.

• There's A Big Slowdown At Malls Across America.

CNN:

• Polls: Early reviews for HealthCare.gov aren't pretty. Just 12% of people questioned in a CBS News poll released Tuesday say they think the process is going well, with nearly half saying it's not going well and nearly four in 10 saying they can't evaluate the signup process at HealthCare.gov.

Reuters: 

• China central bank may tighten cash supply as home prices fuel inflation fears. China signaled concern on Tuesday that ample credit could fuel inflation as a report showed house prices jumped the most in nearly three years, with double-digit gains in major cities. A policy adviser to the People's Bank of China told Reuters the authority may tighten cash conditions in the financial system to address the inflation risks, while the central bank refrained from supplying cash to money markets for the second day running. If it also avoids injecting cash at its next money market operation on Thursday, the effect will be a net weekly drain of 58 billion yuan - the second biggest since February. "(Policy) will only be tightened slightly as inflation is rising. There are some concerns on bank lending," said Song Guoqing, an academic member of the central bank's monetary policy committee.

• Bankers prep first ever US home-rental cashflow ABS -sources. The first-ever bond backed by home-rental cashflows, a US$300 million asset-backed security from private equity giant Blackstone, will begin pre-marketing within the next two weeks, sources close to the deal said on Tuesday. The security is expected to have credit ratings from Kroll, Morningstar, and Moody's, the sources said.

Bear Radar

Style Underperformer:

• Small-Cap Growth -.30%

Sector Underperformers:

• 1) Disk Drives -1.92% 2) Networking -1.01% 3) Gaming -1.0%

Stocks Falling on Unusual Volume:

• NFLX, COH, RCII, XTXI, ABG, ZION, EMC, ASTE, AXE, FSS, PSMT, CPLA, STML, BT, PNR, WAT, XTEX, BNNY, DANG, DFS, ACC, HXL, ARMH, LAD, TXN, INSM, ENTG, STT, LAD, IDXX, FIO, TPLM, PXD, VECO, PII, ABG, OSIR and UPL

Stocks With Unusual Put Option Activity:

• 1) JNPR 2) KRE 3) ADBE 4) DXJ 5) VMW
  

Stocks With Most Negative News Mentions:

• 1) WAT 2) RF 3) AKS 4) BIDU 5) RCII
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Mid-Cap Value +.52%

Sector Outperformers:

• 1) Gold & Silver +3.35% 2) Homebuilders +1.84% 3) Airlines +1.81%
  

Stocks Rising on Unusual Volume:

• CSII, KRO, RIG, VIP, VMW, ILMN, QEP, NUS, WHR, LXK, THRX, QEP and SBNY

Stocks With Unusual Call Option Activity:

• 1) NUS 2) XLU 3) VMW 4) FDX 5) RSH

Stocks With Most Positive News Mentions:

• 1) UTX 2) DAL 3) HAL 4) CAT 5) HOG
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Tuesday Watch

Evening Headlines 
Bloomberg:

• Survivor of 150 Years of Turmoil Faces Being Buried by Abenomics. When Shigeo Aiba is worried about the survival of his company, it’s time to pay attention. Aiba is president of Togo Seisakusyo Corp., a Japanese maker of industrial springs that traces its roots back more than 150 years to when Jyouuemon Aiba began repairing farm equipment among the rice fields of Chita peninsula 270 kilometers (170 miles) southwest of Tokyo. The business, which survived the effects of the Great Kanto Earthquake, defeat in World War II, destruction by a typhoon and the collapse of the asset bubble in the 1980s, is now struggling to survive Abenomics. 

• China’s Major Cities Post Home-Price Gains as Curbs Kept. Home prices in China’s four major cities rose the most since January 2011 last month, raising concerns that a lack of new property curbs is allowing a bubble to form. New home prices climbed in 69 of the 70 cities the government tracked in September from a year earlier, led by 20 percent increases in the southern business hubs of Shenzhen and Guangzhou, the National Bureau of Statistics said in a statement today. Prices in Beijing rose 16 percent and advanced 17 percent in Shanghai, the biggest gains since the government changed its methodology for the home data in 2011. 

• China Swap Rate Rises a Fourth Day as PBOC Doesn’t Inject Funds. “It looks like we’re entering a phase when the PBOC will refrain from selling reverse repos,” said Cheng Qingsheng, an analyst at Evergrowing Bank Co. in Shanghai. “The PBOC is sending a clear signal to the market about its prudent stance.”

• Asian Stocks Retreat as Ringgit Slips While Crude Slides. Asia’s benchmark stock gauge fell from its highest level in five months and emerging-market currencies slid before U.S. jobs data. Industrial metals rose. The MSCI Asia Pacific Index dropped 0.3 percent at 11:03 a.m. in Tokyo. 

• Rubber Climbs for Second Day as Yen Drops Before U.S. Jobs Data. Rubber advanced for a second day as Japan’s currency extended a decline before U.S. payrolls data, raising the appeal of yen-denominated futures. The contract for March delivery gained as much as 1.1 percent and was 0.4 percent higher at 269.5 yen a kilogram ($2,742 a metric ton) on the Tokyo Commodity Exchange at 11:36 a.m. local time. The increase pared losses to 11 percent this year for a most-active contract.

• Rebar Swings on Concern China Home Price Gains May Spur Curbs. Steel reinforcement-bar futures in Shanghai swung between gains and losses as China may introduce measures to contain property prices after home prices climbed in 69 out of 70 cities last month. Rebar for delivery in May on the Shanghai Futures Exchange was little changed at 3,645 yuan ($598) a metric ton at 9:58 a.m. local time, after gaining as much as 0.4 percent and losing as much as 0.3 percent. 

• Europe Breakup Forces Mount as Stalwarts Regret Losing Relevance. What the EU’s founders in the 1950s intended as “ever closer union” now risks going in the opposite direction: Britain is threatening to secede; the euro, battered by the four-year debt crisis, remains at risk of splintering; anti-euro forces are advancing in France, the EU’s heartland; separatists are pushing to burst the U.K., Belgium and Spain. Economic lethargy combined with a deepening political quagmire and mounting debt load as leaders struggle to tame the legacy of the financial crisis risk condemning Europe to lag further behind emerging powers like China. Europe’s global heft is eroding: the euro zone’s share of global gross domestic product has fallen to 13.1 percent from 18.3 percent when the currency was forged in 1999, according to International Monetary Fund data. 

• Loan Safeguards Drop to Record Low in Risky Debt: Credit Markets. Safeguards on speculative-grade debt are weakening at a record pace as the neediest U.S. companies obtain financings that don't offer typical lender protection.

• BofA(BAC) Said to Face Three More U.S. Probes of Mortgage-Bond Sales. Bank of America Corp., sued by U.S. attorneys in August over an $850 million mortgage bond, faces three additional Justice Department civil probes over mortgage-backed securities, according to two people with direct knowledge of the situation. U.S. attorneys offices in Georgia and California are examining potential violations tied to Countrywide Financial Corp., the subprime lender Bank of America bought in 2008, said the people, who asked not to be identified because the inquiries aren’t public. U.S. attorneys in New Jersey are looking into deals involving Merrill Lynch & Co., purchased by the firm in 2009, the people said.

• Fed Got in Trouble With Transparency, Ferguson Says. Roger W. Ferguson, a former U.S. Federal Reserve vice chairman, said the Fed’s push for transparency amid quantitative easing tripped up the central bank this year. “They got themselves in trouble when they tried to be very transparent, give us our forward guidance, promise things, and then they don’t deliver,” Ferguson, head of insurer TIAA-CREF, said today in New York at a conference held by Limra, an industry group.

Wall Street Journal: 

• Spy Chief Distances Saudis From U.S. Prince Bandar's Move Raises Tensions Over Policies in Syria, Iran and Egypt. Saudi Arabia's intelligence chief told European diplomats this weekend that he plans to scale back cooperating with the U.S. to arm and train Syrian rebels in protest of Washington's policy in the region, participants in the meeting said. Prince Bandar Bin Sultan al-Saud's move increases tensions in a growing dispute between the U.S. and one of its closest Arab allies over Syria, Iran and Egypt policies. It follows Saudi Arabia's surprise decision on Friday to renounce a seat on the United Nations Security Council.

• London House Prices Soar, Fueling Bubble Concerns. London Major Boris Johnson Calls for More House Construction to Meet Demand.

• 1-800-ObamaCare-Denial. Website problems don't matter when your intentions are good. 

Fox News:

• Oregon launching new program to tax drivers per mile. Oregon is moving ahead with a controversial plan to tax motorists based on the number of miles they drive as opposed to the amount of fuel they consume, raising myriad concerns about cost and privacy.

• White House won't rule out delay of ObamaCare individual mandate. The White House appeared to leave the door open Monday to delaying the so-called individual mandate in the federal health care law, as President Obama acknowledged the main website for enrollment is not working as it should.

CNBC:

• Netflix(NFLX) shares soar as outlook blows past forecasts. Netflix shares jumped more than 10 percent after the company said it gained more subscribers than expected at home and abroad, helped by original series like"Orange is the New Black," and predicted additional growth this quarter. 

• Should Sebelius go over Obamacare glitches? (poll)

Zero Hedge:

• "There Will Be No Place To Hide" - Markets Are Over 50% More "Exuberant" Than In 1996. (graph)

• 12 Shocking Clues For What America Will Look Like When The Next Great Economic Crisis Strikes.

• Marc Faber Blasts "We Are The Bubble... There Is No Exit Strategy". (video)

Business Insider:

• Yahoo's(YHOO) Strategic Search Partnership With Microsoft(MSFT) Is Totally Unraveling.

National Journal:

• Why Obama Should Be Freaked Out Over Obamacare. It's worse than we know, this is the easy part, and millions of Americans could be hurt.

Reuters:

• Illumina(ILMN) reports eighth beat in a row, raises profit forecast. Gene sequencing products maker Illumina Inc's results beat analysts' estimates for the eighth straight quarter, and the company forecast higher-than-expected earnings for the year. Illumina shares, which have almost doubled this year, were up 7 percent at $87.20 in extended trading on Monday.

• VMware(VMW) forecasts strong licensing revenue growth for 2014. Cloud software maker VMware Inc reported a higher-than-expected quarterly profit as it sold more licenses to enterprise customers and indicated that strong licensing revenue growth would continue into next year. VMware shares rose 9 percent in extended trading, while those of parent EMC Corp rose 5 percent, even though VMware lowered the upper end of its full-year revenue forecast range to $5.21 billion from $5.26 billion. 

• Texas Instruments(TXN) 4th-qtr revenue outlook misses Street. Texas Instruments Inc forecast unexpectedly low fourth-quarter revenue, underscoring concerns about spotty demand for chips for cars, appliances, computers and industrial products and sending its shares lower. 

• BlackBerry(BBRY) rolls out BBM to Android, iPhone users.

Obama takes on coal with first-ever carbon limits
Read more at http://www.philly.com/philly/news/politics/20130919_ap_0f857b20e0c144a5a1e1b9dddc9f9d72.html#YRThyDOhArykUeYy.99

Financial Times:

• German city apartments overvalued, warns Bundesbank. The Bundesbank has warned that apartment prices in Germany’s biggest cities could be overvalued by as much as 20 per cent, stepping up its concern about a real estate boom in the powerhouse of the European economy. The warning will feed into German concern that the European Central Bank’s monetary policy is far too loose for the country. The bank’s main refinancing rate is 0.5 per cent, a record low.

Economic Daily News:

• Apple(AAPL) Preparing 55-Inch, 65-Inch TVs for 2014. LG Display will be the major supplier of 4K2K panels with Sharp and Innolux also getting orders. Assemblers have been told to prepare for production in 3Q next year.

China Daily:

• Shanghai Zone Free Yuan Float 'Impossible'. A freely floating and convertible yuan in the Shanghai free-trade zone is "impossible" and "ridiculous" for anyone with even a basic knowledge of economics, Mei Xinyu, a researcher at the International Trade and Economic Cooperation Institute of the Minister of Commerce, writes in a commentary.

Evening Recommendations 

• None of note

Night Trading

• Asian equity indices are -.50% to +.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 133.5 +1.0 basis point.

• Asia Pacific Sovereign CDS Index 103.0 unch. 

• FTSE-100 futures -.03%.

• S&P 500 futures -.09%.

• NASDAQ 100 futures -.03%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (KMB)/1.40

• (STT)/1.18

• (CIT)/.95

• (TRV)/2.08

• (UTX)/1.54

• (LXK)/.91

• (FRX)/.14

• (LMT)/2.27

• (R)/1.44

• (FCX)/.62

• (DAL)/1.35

• (DD)/.41

• (WHR)/2.63

• (PII)/1.61

• (IDXX)/.83

• (EMC)/.45

• (COH)/.76

• (AKS)/-.24

• (CREE)/.39

• (RHI)/.48

• (ALTR)/.34

• (JNPR)/.31

• (APOL)/.25

• (PNRA)/1.35

• (BRCM)/.68

• (AMGN)/1.77

• (HMA)/.15

Economic Releases
8:30 am EST

• The Change in Non-farm Payrolls for September is estimated to rise to 180K versus 169K in August.

• The Unemployment Rate for September is estimated at 7.3% versus 7.3% in August.

• Average Hourly Earnings for September is estimated to rise +.2% versus a +.2% gain in August.

9:00 am EST

• Net Long-term TIC Flows for August are estimated to fall to $31.0B versus $31.1B in September.

10:00 am EST

• Construction Spending for August is estimated to rise +.4% versus a +.6% gain in September.

• Richmond Fed Manufacturing Index for October is estimated at 0.0 versus 0.0 in September.

Upcoming Splits

• (HEI) 5-for-4

Other Potential Market Movers

• The weekly retail sales reports, Chicago Fed National Activity Index for September and the Apple(AAPL) iPad event could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by real estate and industrial shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 75% net long heading into the day.

Stocks Slightly Lower into Final Hour on Earnings Concerns, Profit-Taking, Technical Selling, Homebuilding/Biotech Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Modestly Lower
  

• Sector Performance: Mixed
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 13.32 +2.15%

• Euro/Yen Carry Return Index 140.08 +.36%

• Emerging Markets Currency Volatility(VXY) 8.45 +.84%

• S&P 500 Implied Correlation 36.43 +1.0%

• ISE Sentiment Index 124.0 +53.0%

• Total Put/Call .80 +17.65%

• NYSE Arms 1.12 -9.77% 

Credit Investor Angst:

• North American Investment Grade CDS Index 72.38 +1.46%

• European Financial Sector CDS Index 122.08 +1.36%

• Western Europe Sovereign Debt CDS Index 70.99 -.46%

• Emerging Market CDS Index 260.05 +1.14%

• 2-Year Swap Spread 13.25 unch.

• TED Spread 21.25 -.25 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -6.5 unch.

Economic Gauges:

• 3-Month T-Bill Yield .03% unch.

• Yield Curve 229.0 +2 basis points

• China Import Iron Ore Spot $134.40/Metric Tonne unch.

• Citi US Economic Surprise Index 19.60 -3.6 points

• Citi Emerging Markets Economic Surprise Index -10.30 -.7 point

• 10-Year TIPS Spread 2.19 +1 basis point

Overseas Futures:

• Nikkei Futures: Indicating +56 open in Japan

• DAX Futures: Indicating -3 open in Germany

Portfolio: 

• Slightly Higher: On gains in my tech sector longs

• Disclosed Trades: None

• Market Exposure: 75% Net Long