Wednesday, January 08, 2014

Bear Radar

Style Underperformer:
  • Large-Cap Value -.40%
Sector Underperformers:
  • 1) Coal -1.08% 2) Energy -.85% 3) Retail -.75%
Stocks Falling on Unusual Volume:
  • AZZ, AMBA, SNY, BR, KRO, NBIX, RBCN, GLPI, SHOO, TAL, INGR, SI, QCOR, AKRX, FEYE, REV, CLI, HRS, HOMB, CLX, VRSK, SCSS, TXTR, ABAX, GES, ITG, IBKR, GOGO, ARII and TCS
Stocks With Unusual Put Option Activity:
  • 1) UTX 2) COH 3) JNPR 4) SNDK 5) BHI
Stocks With Most Negative News Mentions:
  • 1) TWTR 2) FB 3) THC 4) HUM 5) GS
Charts:

Bull Radar

Style Outperformer:
  • Mid-Cap Growth +.24%
Sector Outperformers:
  • 1) Biotech +1.63% 2) Semis +1.18% 3) Gaming +.87%
Stocks Rising on Unusual Volume:
  • FRX, APOL, PWRD, CCIH, STZ, ORMP, TASR, SB, QIHU, FLIR, MCK, BITA, MTW, MU, ROVI, RVBD, SODA, SNDK, YELP, MCK, DV and ENDP
Stocks With Unusual Call Option Activity:
  • 1) TMO 2) APOL 3) RVBD 4) HUM 5) IRM
Stocks With Most Positive News Mentions:
  • 1) FRX 2) STZ 3) YELP 4) RVBD 5) SBUX
Charts:

Tuesday, January 07, 2014

Wednesday Watch

Evening Headlines 
Bloomberg:
  • China’s Credit Hole Seen Limiting 2014 Growth Prospects. China’s new credit probably fell by a record in the second half amid a crackdown on speculative lending, limiting prospects for economic expansion this year as policy makers focus on controlling financial risks. The broadest measure, aggregate financing, was 7.1 trillion yuan ($1.2 trillion) based on published figures plus economists’ median estimate for December data due in coming days. That would be about 931 billion yuan less than in July-to-December 2012, the largest drop in figures going back to 2002
  • Crisis Risk Flagged by Haitong as Debt Snowballs: China Credit. China's second-biggest brokerage said record debt threatens to trigger a financial crisis as borrowing costs jump to unprecedented highs despite a cooling economy. Liabilities at non-financial companies may rise to more than 150% of gdp in 2014, raising default risks, according to Haitong Securities Co. The ratio of 139% at the end of 2012 was already the highest among the world's 10 biggest economies, according to the most recent data. "We are concerned that the debt snowball may be bigger and bigger and turn into a crisis," Li Ning, a Shanghai-based bond analyst at Haitong Securities, said in an interview
  • Thai Army Chief Urges Public to Ignore Rumors of a Coup. Thailand’s army chief urged the public not to believe rumors of a possible coup, saying the movement of military hardware into Bangkok was for an annual parade and not to oust Prime Minister Yingluck Shinawatra. “People are scared of something that hasn’t taken place yet,” Army Chief Prayuth Chan-Ocha told reporters in Bangkok yesterday. “Don’t be scared if you can’t see it. Everything must happen for a reason,” he said, before adding, “without a reason, nothing will happen.” 
  • Asian Stocks Rebound Before Minutes; Gas Climbs on Cold. Asian stocks climbed for the first time this year as Japanese shares rallied on a weaker yen before the release of Federal Reserve minutes. Gold fell a second day while natural gas advanced. The MSCI Asia Pacific Index rose 0.5 percent by 12:53 p.m. in Tokyo, after falling to a 2 1/2-week low yesterday.
  • Rebar Climbs From 7-Month Low on Signs China Supporting Equities. Steel reinforcement-bar futures rose for the first time in four days on speculation that China’s government will take steps to shore up equity markets and as some investors considered a drop to a seven-month low overdone. Rebar for May delivery on the Shanghai Futures Exchange gained as much as 0.5 percent to 3,481 yuan ($575) a metric ton and traded at 3,471 yuan at 10:15 a.m. local time. The most-active contract ended at 3,465 yuan yesterday, the lowest close since its inception in May. 
  • Stress Tests Spurring $82 Billion Bad Debt Selloff: Euro Credit. Skaters gliding across the ice rink at the five-star Le Meridien Lav hotel are unwitting extras in the final acts of the financial crisis as they practice their turns on the shores of the Adriatic Sea. Paying as much as 700 euros ($952) a night, they’ve kept the Split, Croatia-based hotel afloat since it was seized by Hypo Alpe-Adria-Bank International AG when the owners failed to manage repayments on about 50 million euros of loans.
  • EU Puts Banking-Union Credibility on Line in Resolution Talks. The credibility of Europe’s efforts to restore confidence in its financial system hangs in the balance as lawmakers try to broker a deal on a bank-failure authority for the 18-nation euro area. As U.S. Treasury Secretary Jacob J. Lew tours European Union capitals to push for tougher banking regulations, negotiators in Brussels begin a sprint today to create a central agency for saving or shuttering euro-zone banks before elections in May.
  • Hedge Funds Up 7.4% in 2013 to Trail S&P 500 for Fifth Year. Hedge funds returned an average of 7.4 percent in 2013, trailing the Standard & Poor’s 500 Index (SPX) for the fifth straight year as U.S. markets rallied to record levels. Hedge funds rose less than 0.1 percent in December, compared with the S&P 500’s 2.4 percent return. The Bloomberg Hedge Funds Aggregate Index is down 1.8 percent from its July 2007 peak. The index is weighted by market capitalization and tracks 2,257 funds, 1,264 of which have reported returns for December.
Wall Street Journal:
  • Top 10 Revelations From Robert Gates’s Memoir. Mr. Gates says that domestic politics factored into “virtually every major national security problem” the Obama White House faced. At one point, Mr. Gates writes, he witnessed a conversation between Mr. Obama and Mrs. Clinton in which the president “conceded vaguely” that his opposition to the 2007 military surge in Iraq was a political calculation. Mr. Gates called the exchange “remarkable.” 
  • Selloff Accelerates in Emerging Markets. Worries Over Coming Elections, Growth Prospects Rattle Investors. Investors are bailing out of emerging markets from Turkey and Brazil to Thailand and Indonesia, extending a selloff that began last year, amid concerns about faltering economies and political unrest. Indonesia's currency on Tuesday hit its lowest level against the dollar since the financial crisis in Asia trading. Meanwhile, the Turkish lira plumbed record lows against the greenback this week. The MSCI Emerging Markets Index, a gauge of stocks in 21 developing markets, slipped 3.1% in the first four trading days of 2014, building on a 5% loss in 2013. This compares with double-digit-percentage rallies in stock markets in the U.S., Japan and Europe last year.
  • The Future of Coal: New Pollution Rules Choke Old Power Plants. Southern Co. Builds New Plant That Captures CO2. The Price: $5.24 Billion. The world was riveted in October by eerie photos of Harbin, an industrial city in northeastern China that was smothered by thick smog from burning coal. The U.S. had its own encounters with choking pollution several decades ago. Though nearly forgotten today, the incidents sparked the creation of the Environmental Protection Agency and federal regulations that have reshaped the electricity industry—then and now the country's largest industrial source of air pollution.
  • Shanghai Tower Developers Seek Leasing Agent. The state-owned developer of what will be China's tallest building is taking the unusual step of moving to hire a leasing agent, underscoring the challenges of finding tenants as the country's economy cools.
  • Federal Probe Targets Banks Over Bonds. Inquiry Looks for Deliberate Mispricing of Mortgage Bonds Key to Financial Crisis. Federal investigators are probing whether a number of Wall Street banks cheated clients in the years following the financial crisis by deliberately mispricing a type of mortgage bond that was central to the economic turmoil, according to people close to the inquiry. The investigation is a potential blow to the banks, who are just starting to move on from years of intense scrutiny tied to their roles in the crisis.
Fox News:
  • Former Defense Secretary Robert Gates slams Obama's leadership style in new book. Former Defense Secretary Robert Gates, in his upcoming memoir, has harsh words for President Obama’s leadership style and commitment to the Afghanistan war, accusing the president of losing faith in his own strategy. “For him, it’s all about getting out,” he wrote. The tone of Gates’ book is a break from Washington decorum, in which former Cabinet members rarely level tough judgments against sitting presidents. Gates writes that by early 2010 he had concluded the president “doesn’t believe in his own strategy, and doesn’t consider the war to be his.” The book, “Duty: Memoirs of a Secretary at War,” is scheduled for a Jan. 14 release by the Knopf DoubleDay Publishing Group. Excerpts, confirmed by Fox News, were first reported by The Washington Post and New York Times.
  • Vermont plots course for single-payer health care system. While all eyes are on the ObamaCare rollout, an ambitious health care experiment is going forward in Vermont that would create a government-run alternative know as a "single-payer" system -- and it's starting to attract more attention from liberals frustrated with the Affordable Care Act's implementation.
CNBC:
Zero Hedge:
Business Insider:
FXStreet.com: 
Crain's Chicago Business:
  • Chicago vote set on $15 minimum wage. In a potentially big development that hasn't drawn much attention, the Chicago Board of Elections gave the OK for a vote in March on whether the city ought to implement a $15-an-hour minimum wage for many companies.
The Blaze:
Reuters:
  • Fed's Williams expects steady, measured cuts to bond buys. The Federal Reserve will make gradual cuts to its massive bond- buying program in coming months as long as the economy continues to improve, and only a significant deviation from those expectations would force it to change tack, a top Fed official said on Tuesday. "I see us continuing, over the next few meetings, steady measured reductions in the pace of asset purchases," San Francisco Federal Reserve Bank President John Williams told reporters after a speech.
South China Morning Post:
  • China Develops 'Too Dangerous' Web-Profiling Program. Program developed by Chinese Academy of Sciences can determine an Internet-user's personality with 90% accuracy, citing Zhu Tingshao, director of academy's Computational Cyber Psychology Lab. Program is too dangerous to let out of lab without greater privacy protections.
21st Century Business Herald:
  • China May Levy Property Taxes on Rural Real Estate. Chinese authorities are considering the possibility of levying property taxes on real estate built on collectively-owned land in rural areas, citing a person close to the Ministry of Housing and Urban-Rural Development.
Evening Recommendations
CSFB:
  • Rated (CAKE), (CMG), (EAT), (SBUX) Outperform.
  • Rated (DRI) Underperform.
Night Trading
  • Asian equity indices are -.25% to +.50% on average.
  • Asia Ex-Japan Investment Grade CDS Index 137.0 +2.5 basis points.
  • Asia Pacific Sovereign CDS Index 109.50 unch. 
  • FTSE-100 futures -.03%.
  • S&P 500 futures +.03%.
  • NASDAQ 100 futures +.04%.
Morning Preview Links

Earnings of Note

Company/Estimate
  • (STZ)/.91
  • (MON)/.64
  • (RT)/-.28
  • (BBBY)/1.15
  • (GPN)/1.02
  • (SCHN)/-.06
  • (GBX)/.53
Economic Releases
8:15 am EST
  • ADP Employment Change for December is estimated at 200K versus 215K in November.
10:30 am EST
  • Bloomberg consensus estimates call for a weekly crude oil inventory decline of -1,651,000 barrels versus a -7,007,000 barrel decline the prior week. Gasoline supplies are estimated to rise by +2,430,000 barrels versus a +844,000 barrel gain the prior week. Distillate inventories are estimated to rise by +2,060,000 barrels versus a +5,042,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to rise by +.28% versus a -.3% decline the prior week.
2:00 pm EST
  • Dec. 17-18 FOMC Meeting Minutes.
3:00 pm EST
  • Consumer Credit for November is estimated at $14.250B versus $18.186B in October.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The China Trade data, Eurozone retail sales, $21B 10Y T-Note auction, Goldman Sachs Energy Conference, (ROVI) investor meeting and the weekly MBA mortgage applications report could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by industrial and consumer 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 Rising into Final Hour on Less Eurozone Debt Angst, Lower Long-Term Rates, Weaker Yen, Healthcare/Tech Sector Strength

Broad Equity Market Tone:
  • Advance/Decline Line: Higher
  • Sector Performance: Most Sectors Rising
  • Volume: Around Above Average
  • Market Leading Stocks: Underperforming
Equity Investor Angst:
  • Volatility(VIX) 12.97 -4.28%
  • Euro/Yen Carry Return Index 148.42 +.15%
  • Emerging Markets Currency Volatility(VXY) 9.15 -2.56%
  • S&P 500 Implied Correlation 49.60 -1.80%
  • ISE Sentiment Index 165.0 +29.92%
  • Total Put/Call .70 -1.45%
  • NYSE Arms 1.35 +17.12% 
Credit Investor Angst:
  • North American Investment Grade CDS Index 63.77 +1.19%
  • European Financial Sector CDS Index 80.82 -1.13%
  • Western Europe Sovereign Debt CDS Index 52.0 -3.98%
  • Emerging Market CDS Index 274.11 +.38%
  • 2-Year Swap Spread 10.25 -.5 basis point
  • TED Spread 20.0 +.75 basis point
  • 3-Month EUR/USD Cross-Currency Basis Swap -1.75 +2.5 basis points
Economic Gauges:
  • 3-Month T-Bill Yield .04% -1 basis point
  • Yield Curve 254.0 -3 basis points
  • China Import Iron Ore Spot $133.80/Metric Tonne -.74%
  • Citi US Economic Surprise Index 61.0 +11.9 points
  • Citi Emerging Markets Economic Surprise Index 1.5 -.1 point
  • 10-Year TIPS Spread 2.24 -1 basis point
Overseas Futures:
  • Nikkei Futures: Indicating +186 open in Japan
  • DAX Futures: Indicating +1 open in Germany
Portfolio: 
  • Slightly Higher: On gains in my biotech/tech/medical sector longs
  • Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges, then added them back
  • Market Exposure: 50% Net Long

Today's Headlines

Bloomberg: 
  • Euro-Area Inflation Slows to 0.8% as Economy Strains to Grow. Euro-area inflation slowed in December, retreating farther from the European Central Bank’s ceiling as the 18-nation currency bloc struggled to strengthen its recovery from a record-long recession. The annual rate dipped to 0.8 percent from 0.9 percent in November, the European Union’s statistics office in Luxembourg said in a preliminary estimate today. That’s in line with the median forecast in a Bloomberg News survey of 31 economists. The rate has been below the ECB’s 2 percent ceiling for 11 months, and sank to a four-year low of 0.7 percent in October. 
  • Gold Falls for Second Day on Dollar Rally, Fed Taper Bets. Gold futures for February delivery fell 0.8 percent to $1,227.60 an ounce at 9:56 a.m. on the Comex in New York. Yesterday, the price settled less than 0.1 percent lower after plunging by more than $30 in about a minute, spurring a 10-second trading pause.
  • Syria Rebel Infighting Erupts on Rising al-Qaeda Influence. Syrian rebels seeking to topple President Bashar al-Assad are turning on al-Qaeda militants who previously fought alongside them as the rising influence of the group threatens to scuttle their foreign backing. Fighters from the Free Syrian Army, the main rebel force, and other Islamist groups clashed with the al-Qaeda linked Islamic State of Iraq and the Levant in its northeastern stronghold, the U.K.-based Syrian Observatory for Human Rights said yesterday. Other battles broke out in the northern Aleppo province. At least 274 people, including 46 civilians, were killed in fighting from Jan. 3 to Jan. 6, the Observatory said in an e-mailed statement.
  • Yellen’s Record-Low Senate Support Reflects Fed’s Politicization. Janet Yellen’s confirmation as chairman of the Federal Reserve with the least Senate support on record shows that the central bank still faces intense political scrutiny six years after the financial crisis. The Senate vote of 56-26 to confirm Yellen means she garnered even less support than outgoing Chairman Ben S. Bernanke, whose 2010 confirmation for a second term by a vote of 70-30 represented the most opposition for a Fed chief. Bernanke’s term ends Jan. 31
  • Rosengren Signals Support for Taper Strategy After Dissent. Federal Reserve Bank of Boston President Eric Rosengren, the only dissenter against a Fed decision to taper bond buying, said he is now comfortable with the strategy to gradually cut monthly purchases in the future. “I preferred to wait before beginning the program, but the program it looks like we’re embarked on is a very gradual program and I think a gradual removal of accommodation is appropriate,” Rosengren said today in an interview with Bloomberg News, indicating he would not persist in objecting to the Fed’s strategy.

Wall Street Journal: 
  • Brazil Stocks Reverse to Decline Intraday on Ratings Worries. Brazil's Bovespa stocks index gave up an early advance to decline in intraday trading Tuesday following talk that ratings agency Standard & Poors could consider lowering the country's credit ratings in 2014. As of 12:30 p.m. EST, the main Sao Paulo index declined 0.9% to 50,513 points. Traders noted the Bovespa erased moderate gains posted earlier in the session after reports that S&P representatives in a roundtable discussion with journalists Tuesday affirmed they might still consider a ratings cut this year before Brazil's October general elections.
CNBC: 
  • Danger on the rails: New rules could hit stocks. Recent accidents involving crude oil being shipped from the Bakken area of North Dakota and Montana are raising eyebrows on Wall Street and have analysts looking at companies that could be exposed to new rules governing oil shipments from the region.
ZeroHedge: 
Business Insider:
Reuters: 
Telegraph:
  • Eurozone losing 'safety margin' against deflation trap as core gauge falls to record low. Fall in inflation raises fears that eurozone is 'sleepwalking into a deflation trap'. The great unknown is what will happen in China, now the epicentre of global risk. Societe Generale said Beijing may be tempted to push down the yuan to cushion the blow as it pops the credit bubble, and to counter devaluation by Japan. This would risk a repeat of the East Asia currency war in 1998, this time on a bigger scale and with the world less able to handle the consequences.

Xinhua:
  • China to Improve GDP Calculation Method in 2014. Ma Jiantang, head of China's statistics bureau, said China will be rigorous in calculating quarterly GDP data and local GDP data this year. China faces problem that the sum of provincial GDP data is higher than the national figure, the report said. NBS will steadily promote setting up a "national unified economic calculation system," Ma said.

Bear Radar

Style Underperformer:
  • Large-Cap Value +.45%
Sector Underperformers:
  • 1) Coal -1.70% 2) Gold & Silver -1.15% 3) Steel -1.02%
Stocks Falling on Unusual Volume:
  • TWTR, NFLX, PKY, PKT, PBF, TXTR, HGG, EIG, DL, HTGC, CST, MGI, GPOR, PEGI, DISH, TREX, KMX, NOAH, MON, MKTO, MAT, VRTU, MANH, ARMH, ADS, KORS and CCRN
Stocks With Unusual Put Option Activity:
  • 1) VWO 2) CBS 3) DXJ 4) FDO 5) JCP
Stocks With Most Negative News Mentions:
  • 1) RSH 2) MAT 3) KORS 4) GPOR 5) CHK
Charts: