Stocks Higher into Final Hour on Diminished Russia-Ukraine Tensions, Short-Covering, Bargain-Hunting, Utility/Homebuilder Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Higher
  

• Sector Performance: Almost Every Sector Rising
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 15.75 -5.4%

• Euro/Yen Carry Return Index 142.90 +.32%

• Emerging Markets Currency Volatility(VXY) 7.05 -2.08%

• S&P 500 Implied Correlation 58.14 -2.56%

• ISE Sentiment Index 74.0 -21.28%

• Total Put/Call 1.08 +6.93%

• NYSE Arms .83 -58.01% 

Credit Investor Angst:

• North American Investment Grade CDS Index 65.09 -3.74%

• European Financial Sector CDS Index 76.51 -3.13%

• Western Europe Sovereign Debt CDS Index 39.0 -2.69%
• Asia Pacific Sovereign Debt CDS Index 76.59 -.31%

• Emerging Market CDS Index 295.55 -.59%

• China Blended Corporate Spread Index 321.92 +1.38%
• 2-Year Swap Spread 23.75 +1.75 basis points

• TED Spread 21.25 -.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -11.75 unch.

Economic Gauges:

• 3-Month T-Bill Yield .02% -1.0 basis point

• Yield Curve 198.0 unch.

• China Import Iron Ore Spot $95.70/Metric Tonne -.31%

• Citi US Economic Surprise Index 3.0 +.4 point

• Citi Emerging Markets Economic Surprise Index 2.9 +3.8 points

• 10-Year TIPS Spread 2.24 +1.0 basis point

Overseas Futures:

• Nikkei Futures: Indicating +180 open in Japan

• DAX Futures: Indicating +55 open in Germany

Portfolio: 

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

• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges and some of my (EEM) short

• Market Exposure: Moved to 75% Net Long

Bear Radar

Style Underperformer:

• Small-Cap Value +.75%

Sector Underperformers:

• 1) Hospitals -1.03% 2) Education -.60% 3) Alt Energy -.05%

Stocks Falling on Unusual Volume:

• POST, HGR, VOLC, RATE, FI, BCOR, MNTX, MED, HIBB, SEM, BPL, BID, NES, MYRG, SLXP, NWSA, JRN, SNN, MASI, PODD, RNF, KND, DEO, FF, KRA, SSP, JRN, CCC, SCTY, CSC, KND, BCOR, BID, HIBB, FF and RATE

Stocks With Unusual Put Option Activity:

• 1) BID 2) DXJ 3) EWY 4) XLV 5) SCTY
  

Stocks With Most Negative News Mentions:

• 1) MCD 2) JCP 3) BID 4) HIBB 5) YELP
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Small-Cap Growth +.59%

Sector Outperformers:

• 1) Homebuilders +1.47% 2) Utilities +1.19% 3) Retail +1.08%
  

Stocks Rising on Unusual Volume:

• TKMR, AIRM, MELI, MDVN, NVDA, UBNT, SFM, BCRX, LGF, HMSY, GPS, YOKU, RPTP, LEAF, EGOV, WGL, MNST, MCRL, DK, ENOC, RLYP and PDCE

Stocks With Unusual Call Option Activity:

• 1) DKS 2) MNST 3) COH 4) TMO 5) UBNT
  

Stocks With Most Positive News Mentions:

• 1) F 2) NVDA 3) LULU 4) COH 5) GPS
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Friday Watch

Evening Headlines 
Bloomberg:  

• Obama Authorizes Air Strikes as U.S. Drops Food in Iraq. President Barack Obama said he authorized air strikes against militants in Iraq if they threaten U.S. personnel and dispatched planes to drop food and water for trapped civilians. Obama said the U.S. will strike Islamic State militants if they move toward the Kurdish city of Erbil, where the U.S. has diplomatic personnel. U.S. aircraft today dropped supplies to Iraqis threatened by fighters from the Islamic State extremist group near Sinjar, a city close to the border of Syria. All of the planes safely left the airspace.

• Israel Says Gaza Cease-Fire Is Violated as Rockets Hit in South. Israel said a cease-fire with Hamas forces in Gaza was violated hours before it was due to expire, following a failure by negotiators from the two sides to reach a longer-term deal. “Moments ago, 2 rockets fired from Gaza hit southern Israel,” Israel Defense Forces said in post on its Twitter feed. “Terrorists have violated the cease-fire.” The charge followed threats from both sides before the end of a 72-hour truce that was scheduled to run until 8 a.m. local time today. A spokesman for the armed wing of Hamas, which is classified as a terrorist organization by Israel, the U.S. and European Union, told al-Jazeera there would be no extension unless Israel lifted an eight-year blockade of land crossings and its port. Hamas official Mushir al-Masri told a Gaza rally the “battle is not over yet” and “our fingers are on the trigger, and our rockets are trained at Tel Aviv.”

• RBA Lowers Growth, Inflation Forecasts; Says Rates on Hold. The Reserve Bank of Australia cut its growth and inflation forecasts amid a steeper drop in mining investment and reiterated interest rates will remain on hold. The outlook reflects “the opposing forces of the decline in mining investment and ongoing fiscal consolidation on the one hand, and the strong growth in resource exports and the support from very low interest rates on the other,” the RBA said in its quarterly monetary policy statement in Sydney today. “The unemployment rate is likely to remain elevated for some time.” 

• Asian Stocks Drop to June Low as U.S. OKs Iraq Air Strike. Asian stocks dropped, with the regional benchmark index heading for a seven-week low, as U.S. President Barack Obama authorized an air strikes in Iraq. Nikon Corp. slumped 8.1 percent in Tokyo after the camera maker reduced its full-year profit forecast. Taiyo Yuden Co. plunged 8.5 percent as the Japanese maker of electronic components cut its first-half profit target and posted a quarterly loss. Neptune Orient Lines Ltd. fell 1.6 percent in Singapore after the cargo carrier posted a wider second-quarter net loss. The MSCI Asia Pacific Index (MXAP) fell 0.9 percent to 144.82 as of 9:48 a.m. in Hong Kong, on course for a 2 percent loss this week and the lowest close since June 25. 

• U.S. Junk Bond Funds Post Record $7.1 Billion Weekly Outflow. U.S. high-yield bond funds posted a record $7.1 billion outflow in the week ended Aug. 6, according to Lipper. The withdrawal came after the debt tumbled 1.3 percent in July, its first monthly loss since August 2013, according to Bank of America Merrill Lynch index data. It surpasses the $4.6 billion that was pulled in the week ended June 5, 2013, and brings year-to-date net outflows to $9.75 billion, Lipper data show. Investors also pulled $1.5 billion from U.S. funds that buy leveraged loans for the largest weekly outflow since $2.1 billion in the week ended Aug. 17, 2011, according to Lipper. That brings this year’s loan-fund net outflows to $2.3 billion. 

• Copper Heads for Second Weekly Drop Ahead of China Data. Copper headed for a second weekly decline before trade data that’s forecast to signal a slowdown in imports by China, the biggest user of industrial metals. The contract for delivery in three months on the London Metal Exchange fell 0.3 percent to $6,981 a metric ton at 9:53 a.m. in Tokyo. The metal touched $6,951.75 on Aug. 6, the lowest since June 30. Prices are down 1.3 percent this week.

Wall Street Journal:

• U.S. Approves Airstrikes on Iraq, Airdrops Aid. Bid to Protect Refugees Fleeing Extremists. The Obama administration was preparing plans late Thursday for airstrikes against Islamist militants in northern Iraq, and began an emergency airdrop of water and food to members of a religious minority trapped in the mountains by advancing Islamist militants, U.S. officials said.

• Pilots Say U.S. Failed to Assess Ukraine Threat. U.S. pilot union leaders alleged that federal agencies failed to promptly assess and publicize potential threats posed to airliners flying over eastern Ukraine before the downing of Malaysia Airlines Flight 17 last month.

• FICO Recalibrates Its Credit Scores. Changes Could Lead to More Bank Lending, Easier Credit for Some Consumers. A change in how the most widely used credit score in the U.S. is tallied will likely make it easier for tens of millions of Americans to get loans. Fair Isaac Corp. said Thursday that it will stop including in its FICO credit-score calculations any record of a consumer failing to pay a bill if the bill has been paid or settled with a collection agency. The San Jose, Calif., company also will give less weight to unpaid medical bills..

• The Jihadist March in Iraq. Only the U.S. can prevent a humanitarian and strategic disaster.
  

• Putin's Campaign Continues—So Does Ukraine's by Olexander Motsyk. We welcome support from the international community and hope it expands as we move against Russia's aggression.

Fox News:

• Ukraine’s Donetsk becomes ghost town as national forces shell separatists. (video) Residents of this eastern Ukrainian city are fleeing in droves as national forces step up mortar attacks aimed at dislodging the pro-Russian separatists who are clinging to control of a city once populated by 1 million people.

MarketWatch.com:

• Lululemon(LULU) shares surge as Advent buys stake for $845 million

CNBC: 

• Is the Russian economy on the verge of collapse? Ten months ago, before anyone ever dreamed that Russia's President Vladimir Putin would invade Crimea and stir unrest in eastern Ukraine, the oligarch, who keeps a low profile and asked not to be named, was very concerned. "The economy is so unstable and will not survive at the current pace. And Russia does not make anything on its own," he said.

• Sheila Bair: What if banks fail now? (video)

• Gundlach reveals 2020 vision for bond market. 

Zero Hedge: 

• If You Like Your Exemption, Keep It: 90% Of Uninsured Won't Pay Obamacare Penalties.

• First BRICS Bank, Now BRICS Food Bank.

• 70% Of Americans Believe Illegal Immigrants Threaten Way Of Life.

• Martin Armstrong Warns Italy's Recession Means "The End Of Democracy". (graph)

• Checkers Vs Chess: The Reason Europe Is Imploding On "Russian" Sanctions.

Business Insider:

• BLACKROCK(BLK): The US Deleveraging Story Is A Lie. Tell a lie often enough and people start to believe it. For several years, media headlines have been filled with references to a “deleveraging,” or a reduction in the level of U.S. debt. Consider the following three points:  1. U.S. household debt remains high. 2. Fueled by cheap credit, corporations have been adding new debt. 3. Federal government debt has exploded.  

• Liberia's Health System Is Collapsing As Ebola Spreads.

• Russia And Iran Reportedly Signed A Huge Oil Deal — But No One Knows The Details.

Reuters:

• Nvidia's(NVDA) 3rd-qtr revenue outlook exceeds expectations.

• Chinese banks get serious about risk of bad debts swell. Chinese banks are scrambling to get on top of bad debts they have downplayed for years, cutting off riskier borrowers, further tightening lending terms and, in one case, deploying teams of investigators to assess the risk of loan defaults.

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

Shanghai Securities News:

• China Finds Potential Risks in Some Trust Products. China's insurance regulator found potential risks in some trust products insurers invested in, citing a person familiar with the matter. Risks are due to debt problems, operation difficulties, frequent or large scale of financing.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -1.50% to . on average.

• Asia Ex-Japan Investment Grade CDS Index 115.50 +5.5 basis points.

• Asia Pacific Sovereign CDS Index 76.75 +2.5 basis points.

• FTSE-100 futures -.70%.

• S&P 500 futures -.54%.

• NASDAQ 100 futures  -.56%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (CHH)/.28

• (EBIX)/.38

• (MGA)/2.22

• (BID)/1.46

Economic Releases 
8:30 am EST

• Preliminary 2Q Non-Farm Productivity is estimated to rise +1.6% versus a -3.2% decline in 1Q.

• Preliminary 2Q Unit Labor Costs are estimated to rise +1.1% versus a +5.7% gain in 1Q.

10:00 am EST

• Wholesale Inventories for June are estimated to rise +.7% versus a +.5% gain in May.

• Wholesale Trade Sales for June are estimated to rise +.7% versus a +.7% gain in May.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The German trade balance report could also impact trading today.

BOTTOM LINE: Asian indices are lower, weighed down by industrial and technology shares in the region. I expect US stocks to open modestly lower and to maintain losses into the afternoon. The Portfolio is 25% net long heading into the day.

Stocks Reversing Lower into Final Hour on Escalating Russia-Ukraine/Mideast Tensions, Surging Eurozone Debt Angst, Global Growth Fears, Biotech/Energy Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Lower
  

• Sector Performance: Almost Every Sector Declining
  

• Volume: Slightly Below Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 16.68 +1.89%

• Euro/Yen Carry Return Index 142.34 -.22%

• Emerging Markets Currency Volatility(VXY) 7.10 +2.60%

• S&P 500 Implied Correlation 59.25 +.15%

• ISE Sentiment Index 100.0 +9.89%

• Total Put/Call .93 -16.96%

• NYSE Arms 1.73 +34.09% 

Credit Investor Angst:

• North American Investment Grade CDS Index 67.70 +2.54%

• European Financial Sector CDS Index 78.70 +6.89%

• Western Europe Sovereign Debt CDS Index 40.08 +2.35%
• Asia Pacific Sovereign Debt CDS Index 76.22 +2.60%

• Emerging Market CDS Index 298.19 +1.24%

• China Blended Corporate Spread Index 317.55 +1.27%
• 2-Year Swap Spread 22.0 +1.25 basis point

• TED Spread 21.75 +.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -11.75 +.5 basis point

Economic Gauges:

• 3-Month T-Bill Yield .03% +1.0 basis point

• Yield Curve 298.0 -3.0 basis points

• China Import Iron Ore Spot $96.0/Metric Tonne +.10%

• Citi US Economic Surprise Index 2.6 +2.6 points

• Citi Emerging Markets Economic Surprise Index -.9 +.2 point

• 10-Year TIPS Spread 2.23 unch.

Overseas Futures:

• Nikkei Futures: Indicating -260 open in Japan

• DAX Futures: Indicating -56 open in Germany

Portfolio: 

• Slightly Higher: On gains in my index hedges and emerging markets shorts

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

• Market Exposure: Moved to 25% Net Long

Today's Headlines

Bloomberg: 

• U.S. Weighs Aid Drops, Airstrikes on Islamist Militants in Iraq. The U.S. is considering airdrops of aid for thousands of refugees driven from their homes by Islamist militants in Iraq, and possible airstrikes against the insurgents, according to a defense official. Aircraft dropping food and other humanitarian supplies to the refugees would be accompanied by military planes, the official said, asking not to be identified because discussions are private. If the insurgents target the planes, the U.S. and Iraq would consider a larger air campaign against them, the official said. The potential escalation in U.S. involvement comes as the Islamic State, the group that seized swathes of northern Iraq in June, extended its advance today by seizing the Mosul dam, the country’s largest. They have also driven tens of thousands of people from their homes during an offensive in the past week, many from minority Yezidi and Christian communities.
• Putin Ban Hits Cold War Foes as Developing Nations Gain. President Vladimir Putin countered U.S. and European sanctions over Ukraine with a ban on a range of food products, opening the door for developing nations such as Brazil to fill the $9.5 billion hole created by the curbs. The restrictions include all cheese, fish, beef, pork, fruit, vegetables and dairy products, Prime Minister Dmitry Medvedev told ministers today in Moscow, fulfilling a presidential decree issued yesterday. The curbs hit nations that have penalized or supported measures against Russia, including Canada, Australia and Norway. Russia may also introduce “supportive measures” for the car, shipping and aerospace industries, Medvedev said.
• Russian Retail Stocks Slide on Putin Import Ban as Ruble Weakens. Most Russian stocks dropped as OAO Magnit slid the most in five months on concern food-import bans imposed in retaliation for U.S. and European sanctions will hurt earnings of retailers. The ruble fell for a sixth day. Magnit, the nation’s largest supermarket chain, retreated 5.2 percent and its shares in London slumped. OAO Dixy Group and Lenta Ltd. lost 1.8 percent and 4.1 percent. The Micex Index (INDEXCF) slid as much as 2.1 percent before trimming declines after an unconfirmed report that a leader of a pro-Russian separatist group in Ukraine resigned. The ruble weakened 0.3 percent versus the dollar by 6 p.m. in Moscow, when the central bank stops market operations. 
• Israel, Hamas Trade Threats Amid Truce Countdown, Cairo Talks. Israeli officials and Hamas leaders exchanged warnings with a three-day cease-fire set to expire early tomorrow and negotiations in Cairo resuming to reach a long-term deal to end the Gaza conflict and rebuild the area.
• Draghi Says Geopolitical Risks to Economy Increasing. Mario Draghi said risks to the euro area’s economic recovery are increasing because of conflicts such as the Ukraine crisis. “Heightened geopolitical risks, as well as developments in emerging-market economies and global financial markets, may have the potential to affect economic conditions negatively,” the European Central Bank president told reporters in Frankfurt today after policy makers kept interest rates unchanged. “We are strongly determined to safeguard the firm anchoring of inflation expectations over the medium to long term.”
• Germany’s Bond Advance Sends 2-Year Note Yield Below Zero. German bond gains sent the two-year rate below zero for the first time since May 2013 and 10-year yields to an all-time low as the European Central Bank kept interest rates at a record low today. German securities have rallied this year, with higher returns than stocks, as the ECB cut borrowing costs and introduced stimulus measures including targeted longer-term loans to banks to try to counter the threat of deflation. Now they’re extending gains with bonds from Austria to Finland as investors seek haven assets after Russia massed troops along its border with Ukraine and data points to slower growth in the 18-nation currency bloc.
• European Stocks Decline as Munich Re Misses, Draghi Warns. European stocks fell to their lowest level in more than three-and-a-half months as European Central Bank President Mario Draghi warned that geopolitical risks in countries such as Ukraine could hurt the economic recovery, while Munich Re’s earnings missed forecasts. Munich Re slipped 2.3 percent. Adidas AG lost 4.5 percent after cutting its profit forecast for 2014. Commerzbank AG rose after saying second-quarter profit more than doubled as it shed unwanted assets. Nestle (NESN) SA added 3.4 percent after it announced plans for a share buyback as first-half revenue growth beat analysts’ estimates. The Stoxx Europe 600 Index retreated 0.7 percent to 326.96 at the close of trading, for a second day of declines. The benchmark posted its first back-to-back monthly losses in two years in July as the crisis in Ukraine escalated. The measure has fallen 6.5 percent from a six-year high on June 10.
• HSBC Sage Flags Emerging-Market Pullback on Dollar. HSBC Holdings Plc (HSBA), which in February foresaw the longest emerging-market currency rally in five years, says it’s time to pull back as increasing signs of U.S. growth support the dollar. HSBC, which operates in 74 countries worldwide and gets more than half its revenue from emerging markets, recommends clients reassess their investments in South Africa’s rand, Russia’s ruble and Mexico’s peso. A Bloomberg index of 20 developing currencies has slipped 2.2 percent in the past two weeks, retracing half its gains from February to July. “The tide is turning,” David Bloom, HSBC’s global head of currency strategy in London, said in an Aug. 5 phone interview. “It’s a mini-wobble in emerging markets. Be careful.”
• Default Risk Rises on 20% of Boom-Era Home-Equity Loans. As much as 20 percent of home equity lines of credit worth $79 billion are at increased risk of default as their payments jump a decade after the loans were made during the U.S. housing boom, according to TransUnion Corp. Borrowers face rate shocks as payments on the credit lines, known as HELOCs, switch from interest-only to include principal, causing monthly bills to surge more than 50 percent, according to a report today by the Chicago-based credit information company.

Wall Street Journal:

• China Tightens Restrictions on Messaging Apps. Beijing Says Rules Aim to 'Help Build a Clean Cyberspace' and Safeguard National Security.

MarketWatch.com: 

• Cash-rich spending spree is sign of a growing tech bubble. Insight: Tech giants throwing money at products and people.

CNBC: 

• Feared natural gas rally short-circuited by cool summer.

ZeroHedge:

• It Begins: Canada To Send Military Equipment To Ukraine.
• Pentagon Confirms Russia Violated US Airspace 16 Times In Last 10 Days, "Not Just Training Missions".
• Separatist Donetsk People's Republic Gets A New Leader "To Beef Up The Military Wing".
• Germany's DAX Slumps Into "Correction" - Down 10.25% From Highs. (graph)
• Nigeria Declares State Of Emergency: "Everyone In The World Is At Risk" From Ebola, CDC Issues Level 1 "All-Hands Call".
• Initial Claims Four-Week Average Slides To 2006 Lows. (graph)

Business Insider:

• American Apparel's Provocative Back To School Ads Are Igniting Fury.
• ISIS, Which Might Control Iraq's Most Important Dam, Compared Itself To Noah's Flood In Its English Language Magazine.
• ISIS Militants Have Overrun Iraq's Largest Christian Town And Are 30 Minutes From The Kurdish Capital.
• Goldman Sachs(GS) Economist Dashes Our Hopes For A Big US Business Spending Boom.
• 'Panic Selling' In London Drives Fear That The UK Housing Bubble Is About To Burst. 

Telegraph:

• Russian "biggest threat to global trade since the oil embargoes of the 1870s".

Bild:

• German Exports to Russia Declined Almost 16% in 2014. Exports to Ukraine down 32%. German automakers' sales volume in Russia fell 23% in June. Federation of German Wholesale, Foreign Trade and Services expects 20% slump in demand in wake of sanctions.

Gatestone Institute:

• World Ignores Christian Exodus from Islamic World. While the world fixates on the conflict between Israel and Hamas—and while most mainstream media demonize Israel for trying to survive amid a sea of Arab-Islamic hostility—similar or worse tragedies continue to go virtually ignored.