Bull Radar

Style Outperformer:

• Small-Cap Growth +.79%

Sector Outperformers:

• 1) Homebuilders +2.75% 2) HMOs +1.33% 3) Medical Equipment +1.29%
  

Stocks Rising on Unusual Volume:

• VCI, ABTL, OMER, HALO, VNET, YRCW and NPSP

Stocks With Unusual Call Option Activity:

• 1) JBL 2) HALO 3) WIN 4) RSH 5) AFSI

Stocks With Most Positive News Mentions:

• 1) JBL 2) FDX 3) TWTR 4) OSK 5) GLD
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Wednesday Watch

Evening Headlines 
Bloomberg: 

• China Home Prices Rose in November as Shenzhen Led Increases. New home prices in China’s four major cities rose, with the southern business hub of Shenzhen posting the biggest gain in almost three years, as property measures by local governments failed to deter buyers. Shenzhen and Guangzhou posted increases of 21 percent from a year earlier, while prices climbed 18 percent in Shanghai and 16 percent in Beijing, data from the National Bureau of Statistics showed today. Prices rose from a year earlier in 69 of 70 cities tracked by the government last month, it showed.

• Aussie Broken Link With U.S. Yield Spells Drop: Australia Credit. The tendency for the Australian dollar to rise in step with U.S. bond yields has broken down and that signals more declines for the world’s worst-performing major currency. The 60-day correlation between the Aussie dollar and Treasury yields was -0.42 last week, where a reading of -1 means the two move in opposite directions. That’s the strongest negative link since 2006 and follows a five-year period ending in June in which the assets tended to move together as the outlook for the global economy fluctuated.

• Asian Stocks Rise a Second Day Ahead of Fed Decision. Asian stocks rose, with the benchmark regional index climbing for a second day, as investors await a Federal Reserve decision on its stimulus program. Honda Motor Co. (BHP), which gets 80 percent of its sales abroad, gained 2.2 percent as the yen weakened against the dollar, boosting Japanese exporters. Casio Computer Co. (6952) climbed 4.8 percent in Tokyo after Morgan Stanley advised buying the shares. Wotif.com Holdings Ltd. slumped 30 percent after the Australian online travel company said it will report lower profit. The MSCI Asia Pacific Index added 0.5 percent to 138.22 as of 11:21 a.m. in Hong Kong.

• Rebar Drops to Three-Week Low as China May Curb Property Prices. Steel reinforcement-bar futures declined to the lowest level in three weeks as iron ore dropped after gains in home prices in China spurred concern the central government will take measures to rein in the property market. Rebar for May delivery on the Shanghai Futures Exchange lost as much as 0.5 percent to 3,644 yuan ($600) a metric ton, the lowest intra-day level for the most-active contract since Nov. 26. Futures, falling for a fifth day, traded at 3,653 yuan by 11:27 a.m. local time. 

• Rubber Declines for Second Day on Signs Demand Slowing in China. Rubber dropped for a second day as rising stockpiles in China and Japan signaled slow demand for the commodity used in tires. Futures for delivery in May on the Tokyo Commodity Exchange fell as much as 0.7 percent to 279.2 yen a kilogram ($2,710 a metric ton) before trading at 280 yen at 11:39 a.m. local time. Prices fell 7.4 percent this year. 

• China Said to Refuse More Than 500,000 Tons of U.S. Corn. China has rejected more than half a million metric tons of genetically modified U.S. corn in November and December, almost three times the amount it previously announced, said three people with knowledge of the issue.

• Merkel Prods EU Finance Chiefs as Bank-Failure Talks Heat Up. German Chancellor Angela Merkel called on European Union finance ministers to agree this week on a bank-failure plan for the euro area, as emergency talks that dragged into the night highlighted how much work remained.

• Spanish Defaults Surge as Banks Forced to Come Clean: Mortgages. Liliana Proano Males won’t be decorating her house in Madrid this Christmas because she’s about to lose it. Males and her husband, who was fired from his job during the depths of the financial crisis in 2009, can no longer afford their mortgage. With Spain’s persistently high unemployment rate now at 26 percent, the couple is among the 350,000 homeowners who may be foreclosed upon by lenders in the next two years as the housing crisis worsens, according to AFES, a Madrid-based association that advises on restructuring debt. Since 2008, about 150,000 families have been hit with a foreclosure.

Wall Street Journal: 

• New Mortgages to Get Pricier Next Year. Increase in Fannie, Freddie Fees to Hit Borrowers Without Perfect Credit or Big Down Payments.

• Facebook's(FB) Video Ads Risk Alienating Users. Marketers Applaud Move, but Untested Advertising Presents Challenge.

• The Judge and the NSA. In Klayman v. Obama, a lower court can't simply wish away Supreme Court precedent. Federal Judge Richard Leon has become a sudden political celebrity after his remarkable opinion holding that antiterror surveillance is unconstitutional and, even more remarkably, enjoining the entire program. If only his legal reasoning were as compelling as his new repute.

Fox News: 

• Union official: Smoking, obesity, other health issues could mean paying more under ObamaCare.

MarketWatch.com: 

• Three reasons the Fed should taper QE3. Opinion: Federal Reserve needs to prove that it can rip the Band-Aid off.

CNBC: 

• Bernanke should lay groundwork for QE pullback. It should be a slightly more hawkish Ben Bernanke presiding over his final press briefing Wednesday, even though many Federal Reserve watchers say odds are against a move to taper back on stimulus just now.

• US preparing Citigroup, Merrill Lynch charges: report. The U.S. Justice Department is preparing to file civil fraud charges against Citigroup and Bank of America's Merrill Lynch unit over their sale of flawed mortgage securities ahead of the financial crisis, according to people familiar with the probes. Civil investigators have compiled evidence that allegedly shows that investors lost tens of billions of dollars after purchasing securities Citigroup had marketed as safe even though the bank had reason to believe otherwise, one person said.

Zero Hedge: 

• If You Have Children, You Need To See These Numbers.

• Goldman's(GS) Top 100 Charts Of 2013 - Part 2.

• JPY Dumps And Nikkei Explodes As Japan's (32nd Month In A Row) Adjusted Trade Deficit Hits Record High. (graph)

• Things That Make You Go Hmmm... Like Being Completely Out Of Touch With Reality.

• 83 Numbers From 2013 That Are Almost Too Crazy To Believe.

• Chinese Luxury Spending Growth Slumps To Lowest Since 2000. (video)

• The Hangover From China’s Urbanization Boom.

ValueWalk:

• Starting A Hedge Fund As An Emerging Manager.

Business Insider: 

• Another Person Has Died Of Bird Flu — But This Time It's A New Strain. 

• How China's Weapons Technology Snatchers Are Penetrating US Defenses.

Washington Post: 

• Obamas, Biden to skip the Winter Olympics in Russia. The White House announced Tuesday that President Obama, Vice President Biden and the first lady will not attend the Winter Olympics in Sochi, Russia, in February, a pointed snub by an administration that is feuding with Russian leaders on a range of foreign policy and human rights issues.

South China Morning Post:

• VAT reform could place a strain on Chinese telecoms operators' profitability. Barclays' report suggests that the scheme is a 'confusing transition' that could affect China Mobile, China Unicom and China Telecom.

People's Daily:

• Other Nations Won't Tolerate Japan as Military Power. No country with a normal development strategy will tolerate Japan becoming a major military power as the country denies history and justice, and challenges international order after World War II, according to a commentary published by People's Daily.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -.25% to +.75% on average.

• Asia Ex-Japan Investment Grade CDS Index 127.5 -1.0 basis point.

• Asia Pacific Sovereign CDS Index 102.75 +1.25 basis points. 

• FTSE-100 futures +.27%.

• S&P 500 futures +.21%.

• NASDAQ 100 futures +.20%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (GIS)/.87

• (NX)/.14

• (LEN)/.62

• (FDX)/1.64

• (MLHR)/.40

• (ORCL)/.67

• (PAYX)/.42

• (SCS)/.26

• (RUE)/.29

Economic Releases
 8:30 am EST

• Housing Starts for November are estimated at 954K. 

• Building Permits for November are estimated to fall to 990K versus 1034K in October.

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory decline of -1,999,000 barrels versus a -10,585,000 barrel decline the prior week. Gasoline supplies are estimated to rise by +1,718,000 barrels versus a +6,717,000 barrel gain the prior week. Distillate Inventories are estimated to rise by +209,000 barrels versus a +4,541,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to rise +.14% versus a +.2% gain the prior week.

2:00 pm EST

• The FOMC is expected to leave the benchmark fed funds rate at .25%.

• Fed QE3 Pace for December is estimated at $85B versus $85B in November.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Bernanke speaking, UK Unemployment Rate, weekly MBA mortgage applications report, $35 5Y T-Note auction, (CVS) analyst day, (JCI) analyst day and the (F) analyst briefing could also impact trading today.

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

Stocks Slightly Lower into Final Hour on Yen Strength, Fed Taper Concerns, Earnings Worries, Financial/Transport Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Lower
  

• Sector Performance: Mixed
  

• Volume: Below Average

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• Volatility(VIX) 15.96 -.44%

• Euro/Yen Carry Return Index 147.31 -.36%

• Emerging Markets Currency Volatility(VXY) 9.12 +.55%

• S&P 500 Implied Correlation 53.69 -.04%

• ISE Sentiment Index 126.0 -32.68%

• Total Put/Call .91 +15.19%

• NYSE Arms 1.0 +39.43% 

Credit Investor Angst:

• North American Investment Grade CDS Index 69.88 +.73%

• European Financial Sector CDS Index 96.20 +.03%

• Western Europe Sovereign Debt CDS Index 63.0 +9.1%

• Emerging Market CDS Index 272.15 -1.25%

• 2-Year Swap Spread 8.25 -1.25 basis points

• TED Spread 18.25 unch.

• 3-Month EUR/USD Cross-Currency Basis Swap .25 -.5 basis point

Economic Gauges:

• 3-Month T-Bill Yield .06% unch.

• Yield Curve 252.0 -3.0 basis points

• China Import Iron Ore Spot $134.30/Metric Tonne -.44%
  

• Citi US Economic Surprise Index 45.20 +9.8 points

• Citi Emerging Markets Economic Surprise Index -16.8 -1.5 points

• 10-Year TIPS Spread 2.18 unch.

Overseas Futures:

• Nikkei Futures: Indicating +75 open in Japan

• DAX Futures: Indicating +23 open in Germany

Portfolio: 

• Slightly Higher: On gains in my tech sector longs and emerging markets shorts

• Disclosed Trades: Added to my (IWM)/(QQQ) hedge, then covered some of them

• Market Exposure: 50% Net Long

Today's Headlines

Bloomberg: 

• Spain’s Regions Can’t Endure More Budget Cuts, Andalusia Says. Spanish regions can’t endure more spending cuts, Andalusia’s budget chief said, as she defended levying a tax on bank deposits. Maria Jesus Montero Cuadrado, budget chief of Spain’s most populous region, is resisting central government demands for more cuts through 2015. Undermining health or education is a “red line” for Andalusia, which has a 36 percent jobless rate, she said in an interview in Seville yesterday.  

• China Shibor Jumps Most in Seven Weeks on Year-End Cash Demand. The Shanghai interbank offered rate, or Shibor, for one-month yuan loans climbed 68 basis points to 6.24 percent in the biggest jump since Oct. 25, according to the National Interbank Funding Center. The seven-day repurchase rate, a gauge of cash supply in the banking system, rose the most in more than a month as the central bank refrained from injecting money for the fourth auction in a row, according to a trader at a primary dealer required to bid at the auctions.

• Emerging-Market ETF Declines Before Fed as Turkey Tumbles. The iShares MSCI Emerging Markets Index exchange-traded fund fell, snapping a two-day advance, ahead of the Federal Reserve’s policy statement tomorrow. Turkey’s stocks led world losses amid corruption arrests. The developing-nation ETF slipped 0.4 percent to $41.07 at 10:48 a.m. in New York. The Borsa Istanbul National 100 Index sank 5.2 percent after the sons of two cabinet ministers and the chief executive officer of Turkey’s largest state-owned bank were arrested as part of a corruption probe.

• European Stocks Drop Before Fed Meeting; CGG, Rexel Fall. European stocks retreated, following their biggest rally in two months, as investors awaited the outcome of a two-day Federal Reserve meeting starting today. CGG SA, the largest seismic surveyor of oilfields, fell the most on the benchmark index after cutting its 2013 earnings target. Rexel (RXL) SA lost 1 percent as Ray Investment SARL sold a 7 percent stake in the company. Zurich Insurance Group AG (ZURN) climbed 1.9 percent after naming Swiss Re Ltd.’s George Quinn as its new chief financial officer. The Stoxx Europe 600 Index dropped 0.7 percent to 311.31 at the close of trading.

• Corn Plummeting Spurs Talk of ’80s U.S. Farmland Bust: Mortgages. American farmers have prospered during a three-year boom in corn and cropland prices. As values have soared since 2011, farmers bought more acres and upgraded their harvesters to produce a record corn crop of almost 14 billion bushels in 2013. Now, as corn prices start to decline, bankers and agricultural economists are predicting a slowdown in farmland prices that could turn into a bust. “I can see the fear in farmers’ eyes when they think of all the moving pieces around the world gutting the value of next year’s crop,” said David Kohl, an agricultural economist and president of consulting firm AgriVisions, who last week spoke at several farming conferences in northern Nebraska. “Most of them know the boom in corn prices and farmland prices is coming to a screeching halt.”

• Riskiest U.S. Borrowers Expand to Six-Month High: Credit Markets. The number of U.S. companies with the lowest credit ratings has jumped to the highest level in six months after speculative-grade borrowers obtained a record amount of bonds and loans in 2013. Some 15 borrowers are rated B3 with a "negative" outlook, up from 148 three months ago and the most since reaching a high for the year of 160 in June, according to Moody's Investors Service. Riskier borrowers are benefiting from the Fed's decision to hold interest rates near zero for a fifth year, spurring investor demand for higher-yielding assets. Junk-rated companies in the U.S. have raised about $377 billion of bonds and $310.8 billion of new loans this year, according to Bloomberg.

• Fed’s $4 Trillion in Assets Draw Lawmakers’ Scrutiny. The Federal Reserve’s balance sheet is poised to exceed $4 trillion, prompting warnings its record easing is inflating asset-price bubbles and drawing renewed lawmaker scrutiny just as Janet Yellen prepares to take charge. The Fed’s assets rose to a record $3.99 trillion on Dec. 11, up from $2.82 trillion in September 2012, when it embarked on a third round of bond buying. Policy makers meet today and tomorrow to decide whether to start curtailing the $85 billion monthly pace of purchases. Among Fed officials, “there’s discomfort in the sense that the portfolio could grow almost without limit,” former Fed Vice Chairman Donald Kohn said last week during a panel discussion in Washington. Kohn said there was “discomfort in the potential financial stability effects” and added: “There’s some legitimacy in those discomforts.” 

• High-Speed Trading, Interest Rates Pose Risks, Treasury Says. The U.S. financial system’s vulnerabilities include a sudden spike in interest rates amid greater risk-taking and high-frequency trading, the Treasury Department said. While threats to stability have “generally abated” from a year ago, they remain in markets for short-term funding and credit, interest rates and volatility, and in automated, high-speed trading that represents a significant portion of daily equity and foreign exchange volumes, the Treasury’s Office of Financial Research said in its annual report released today in Washington.

Wall Street Journal: 

• Senate Advances Budget Deal. Two-Year Budget Plan All but Ends Threat of Another Government Shutdown. A two-year budget deal cleared its last major hurdle Tuesday as the Senate voted to advance a compromise designed to ease the impact of impending spending cuts and avoid a government shutdown when funding runs out in mid-January.

• India Removes Security Barriers Around U.S. Embassy. Move Follows Arrest of Indian Diplomat in New York. India retaliated for the arrest of one of its diplomats in New York by dismantling security barriers on streets around the U.S. embassy in New Delhi and revoking some privileges given to American consular officials.

• FCC Withdraws Proposal to Relax Media-Ownership Rules. Proposal Would Have Relaxed Ban on Owning Multiple Media Outlets in Same Market.

• Dollar Lower Against Yen as Possible Fed Tapering in Focus. The dollar fell against the yen amid profit taking during Asian trading Monday as investors adjusted their positions ahead of a Federal Reserve policy decision later this week that could see it start scaling back its massive bond-buying program. The greenback lost some of its gains against the yen as it rose to a five-year high last week on growing speculation that the Fed will begin winding down its monthly $85 billion stimulus at its Dec 17-18 policy meeting.

MarketWatch: 

• Why everyone’s too bullish, with a nod to Louis C.K. (graph)

CNBC:

• Fed-inflated stocks a 'hall of mirrors': Jim Grant. (video) The stock market is being led by the dangerous "monetary manipulation" of the Federal Reserve's $85-billion-a-month in quantitative easing bond purchases, Jim Grant—founder and editor of Grant's Interest Rate Observer—said Tuesday, as the central bank began its final meeting of the year. "The stock market is now a tool of Fed policy," he said on CNBC's "Squawk Box". "What the Fed is doing is an exercise in price control. This is 'stocks.gov' [and] 'bonds.gov,'" Grant said. "The clear and present risk of the stock market is we're living ... in a hall of mirrors" because the Fed's accommodative policy is distorting the calculations by which the market has been traditionally valued.

ZeroHedge: 

• Headline November Inflation Unchanged, Below Consensus; Core Inflation Higher Than Expected. (graph)

• Homebuilder Confidence Spikes Back To Highest In 8 Years. (graph)

• The US Budget "Deal" Summarized (In One Cartoon).

• Cronyism Strikes Again: Ex-Microsoftee Married To Democrat Congresswoman Set To Take Over Obamacare Exchange.

• A Word Of Caution To The "Vibrant Economic Recovery" Optimists. (graph)

• Meet The New Bundesbank Hawk At The ECB.

Business Insider:

• Here's What You Need To Understand If You Want Your Starter Hedge Fund To Survive.

• In The Last Year, Bill Ackman Has Lost Hundreds Of Millions As Herbalife(HLF) Shares Skyrocketed [TIMELINE].

• Facebook(FB) Is A Fundamentally Broken Product That Is Collapsing Under Its Own Weight.

The Blaze:

• Reminder: A New Light Bulb Ban Kicks in on January 1.

Politico:

• Next Obamacare crisis: Small-business costs? Think the canceled health policies hurt the Obamacare cause? There’s another political time bomb lurking that could explode not too long before next year’s elections: rate hikes for small businesses.

Reuters:

• UAW wants to eliminate two-tier wage system: official. A top official with the United Auto Workers said the American labor union wants to eliminate the two-tier wage system that pays new automotive workers at a lower rate than veterans. Norwood Jewell, nominated to serve as one of three vice presidents when the union meets next June to ratify its new leaders, said on Monday that the UAW wants to dump the two-tier scale that pays entry-level hires at slightly more than half the rate of veteran workers.

• Honeywell(HON) 2014 sales forecast falls short of estimates. Honeywell International Inc, a maker of cockpit electronics and climate-control systems, forecast slightly lower 2014 sales than analysts had expected, citing a sluggish recovery in the global economy.

Financial Times: 

• China accuses US of ‘harassing’ naval vessels. A Chinese newspaper has accused a US navy ship of “harassing” a group of Chinese naval vessels in connection with a maritime incident that occurred as US Vice-President Joe Biden was visiting China.

Telegraph:

• Italy’s president fears violent insurrection in 2014 but offers no remedy. Events in Italy are turning serious. President Giorgio Napolitano has warned of “widespread social tension and unrest” in 2014 as the Long Slump drags on. Those living on the margins are being drawn into “indiscriminate and violent protest, a sterile lurch towards total opposition”.

• EU chaos and nine other 'outrageous predictions' for 2014. Saxo Bank publishes its list of 10 "outrageous predictions" of market and political events in 2014.

MailOnline:

• Facebook(FB) tracks everything you type even if you DON'T post the update or comment. Have you ever written a comment, or Facebook status, before deciding not to post it? According to new Facebook research, 70 per cent of us do this regularly. The study found that men are more likely to 'self-censor' their social network posts, compared to women, and this is especially the case if they have a lot of male friends. More surprising, however, is the reason why the site knows this information - because it can track what you type, even if you never post it. 

Bear Radar

Style Underperformer:

• Large-Cap Value -.50%

Sector Underperformers:

• 1) Hospitals -1.83% 2) Airlines -1.71% 3) Restaurants -1.15%

Stocks Falling on Unusual Volume:

• KKR, RMTI, ENT, RYN, FCN, AFSI, FDS, MTB, AGCO, CEMP, MGLN, VNQI, HAE, CFN, ENZY, RPTP, AXS, SHW, CMN, IPCM, KBR, PCYC, GLF, CEO, RALY, AGCO and RPTP

Stocks With Unusual Put Option Activity:

• 1) YUM 2) KRE 3) F 4) HPQ 5) ISRG
  

Stocks With Most Negative News Mentions:

• 1) DIS 2) THC 3) MSFT 4) JPM 5) KBH
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Mid-Cap Value -.45%

Sector Outperformers:

• 1) Semis +.58% 2) Telecom +.47% 3) Utilities +.05%
  

Stocks Rising on Unusual Volume:

• KKR, IRBT, WMB, AVGO, GNTX, KFN and CVLT

Stocks With Unusual Call Option Activity:

• 1) LSI 2) TMO 3) RMTI 4) WMB 5) LNCO

Stocks With Most Positive News Mentions:

• 1) BA 2) T 3) MMM 4) FDS 5) GOOG
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume