Stocks Rising into Final Hour on Central Bank Hopes, Diminished Russia-Ukraine Tensions, Short-Covering, Utility/Healthcare Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: About Even
  

• Sector Performance: Mixed
  

• Volume: Below Average

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• Volatility(VIX) 12.27 -2.93%

• Euro/Yen Carry Return Index 142.15 -.06%

• Emerging Markets Currency Volatility(VXY) 6.40 -1.23%

• S&P 500 Implied Correlation 48.48 -5.77%

• ISE Sentiment Index 98.0 +16.67%

• Total Put/Call 1.03 +6.19%

• NYSE Arms 1.11 +42.03% 

Credit Investor Angst:

• North American Investment Grade CDS Index 56.46 -.81%

• European Financial Sector CDS Index 56.0 -2.15%

• Western Europe Sovereign Debt CDS Index 26.12 -6.50%

• Asia Pacific Sovereign Debt CDS Index 62.52 -.68%

• Emerging Market CDS Index 226.66 +.17%

• China Blended Corporate Spread Index 306.67 -.15%

• 2-Year Swap Spread 21.75 +.25 basis point

• TED Spread 21.25 unch.

• 3-Month EUR/USD Cross-Currency Basis Swap -19.5 +3.25 basis points

Economic Gauges:

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

• Yield Curve 195.0 +4.0 basis points

• China Import Iron Ore Spot $83.60/Metric Tonne -.83%

• Citi US Economic Surprise Index 37.90 -9.1 points

• Citi Emerging Markets Economic Surprise Index -13.40 -.2 basis point

• 10-Year TIPS Spread 2.16 -1.0 basis point

Overseas Futures:

• Nikkei Futures: Indicating -22 open in Japan

• DAX Futures: Indicating +19 open in Germany

Portfolio: 

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

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

• Market Exposure: Moved to 50% Net Long

Today's Headlines

Bloomberg:

• Ukraine Truce Set as EU Considers Russian Sanctions. (video) Ukraine agreed on a cease-fire with pro-Russian separatists to stem months of bloodshed as U.S. and European leaders said they plan more penalties on Russia until it’s clear President Vladimir Putin is serious about peace. The two sides agreed to stop fighting at 6 p.m. local time today, Heidi Tagliavini, a representative of the Organization for Security and Cooperation in Europe, which will help monitor the accord, told reporters after negotiations in Minsk, Belarus. The talks included representatives of Ukraine, Russia, the self-proclaimed people’s republics of Donetsk and Luhansk, where most of the fighting has occurred, and the OSCE. 

• Ukraine's Cease-Fire Is Putin's Victory. Ukraine has signed a cease-fire deal with the Russian-backed rebels holding part of its territory. For Kiev, this is an admission of defeat: Having failed to secure meaningful Western help, President Petro Poroshenko, who had vowed never to negotiate with the "terrorists," is cutting his losses.

• Obama Says NATO Supports Action Against Islamic State. U.S. President Barack Obama said NATO allies are prepared to join military action to battle Islamic State extremists and urged Arab states in the Middle East to engage in the fight. “There was unanimity over the last two days that ISIL poses a significant threat to NATO members, and there was a recognition that we have to take action,” Obama said at a news conference in Newport, Wales, wrapping up the annual summit of the North Atlantic Treaty Organization.

• ‘Abenomics’ at risk as firms put brakes on spending, hoard their cash. Japanese companies from NTT Docomo Inc. to Honda Motor Co. are putting the brakes on spending as they pile up cash, showing the challenge Prime Minister Shinzo Abe’s new Cabinet faces in reviving the economy. Capital expenditure growth by nonfinancial companies will slow on aggregate to 1.3 percent next fiscal year from an estimate of 7.9 percent this year, according to a Moody’s Investors Service study of rated companies.

• Euro-Area Economy Stagnates on Slump in Investment. Euro-area investment fell in the second quarter for the first time in more than a year, reflecting the gloomy outlook presented by Mario Draghi yesterday as he unveiled new European Central Bank stimulus. The economy stagnated in the three months through June as investment fell 0.3 percent, data today showed.

• European Stocks Decline Amid Skepticism of ECB Measures. Stocks in Europe dropped from a two-month high amid investor concern that the latest European Central Bank stimulus measures aren’t enough to spur the economic recovery. The Stoxx Europe 600 Index fell 0.4 percent to 347.57 at the close of trading.

• Iron Ore Drops Below $85 for First Time Since ’09 as China Slows. Iron ore declined below $85 a metric ton for the first time in five years as China’s economy, the world’s biggest buyer, showed signs of losing momentum amid an expanding global glut. Ore with 62 percent content at the Chinese port of Qingdao dropped 1.7 percent to $83.80 a dry ton today, sliding to the lowest level since September 2009, according to data compiled by Metal Bulletin Ltd. The raw material decreased for a fifth week in the longest run of losses since May. Prices tumbled 38 percent this year as Vale SA, Rio Tinto Group (RIO) and BHP Billiton Ltd. (BHP) increased production, pushing the market into a glut.

• WTI, Brent Oils Set for Weekly Drop on Slow Jobs Growth. WTI for October delivery slipped 98 cents, or 1 percent, to $93.47 a barrel at 1 p.m. on the New York Mercantile Exchange. Prices are down 2.6 percent this week and 5 percent this year.

• Fisher Says Booming Junk Markets Have ‘Overshot the Mark'. Federal Reserve Bank of Dallas President Richard Fisher said a decline in interest rates on riskier credit suggests U.S. markets have become overheated. “The dashboard shows that we have overshot the mark,” Fisher said in a speech in Dallas. “I have been involved with the credit markets since 1975. I have never seen such ebullient credit markets.”

Wall Street Journal:

• CFTC to Scrutinize Banks Shifting Trading Operations Overseas. Chairman Massad Says Commission Is Working With Fellow Regulators to Assess Moves.

CNBC:

• US, NATO agree to broaden Russian sanctions. The United States and its allies are readying another round of sanctions against Russia.

• NATO agrees cyberattack could trigger military response.

ZeroHedge:

• 53 Million Temps: All You Need To Know About The "Jobs Recovery". (graph)

• "The People On Wall Street Aren't Seeing What's Really Going On In America". (video)

• The Real Reason American Capitalism Is Failing.

• Labor Participation Rate Drops To Lowest Since 1978; People Not In Labor Force Rise To Record 92.3 Million. (graph) 

• As Fighting Rages In Mariupol, Ukraine Soldiers Say President Would "Betray The Country" If He Backs Peace.

Business Insider:

• Tesla(TSLA) Is Sinking After Elon Musk Calls Stock Overvalued.

• MORGAN STANLEY(MS): We Could See The 'Largest Decline In Used Car Prices In History'. Morgan Stanely analyst Adam Jonas is out with a note about August U.S. new car sales, and he's concerned. The gist is that he thinks incentives and generous financing terms are pulling forward consumer demand from the future. 

• Obama Just Completely Changed His Tune On ISIS. President Barack Obama on Friday said unequivocally that the extremist group calling itself the Islamic State must be dismantled, degraded, and "ultimately defeated," days after he earned criticism for saying the goal was to roll back the organization to a point it was "manageable.""We are going to degrade and ultimately defeat ISIL, in the same way we went after Al Qaeda," Obama said Friday, later adding that "you can’t contain an organization [like ISIS]. The goal has to be to dismantle them." 

• Estonian President: One Of Our Counterintelligence Officers Was Abducted And Taken Into Russia At Gunpoint.

Reuters:

• Wall St Week Ahead-Leveraged ETFs, lovers of market waves, lose favor amid the calm. Leveraged exchange-traded funds, designed to magnify short-term returns, have fallen out of favor this year as investors who had embraced them are finding costs excessive in a calm market that is not rewarding bets on wild daily swings.

Telegraph: 

• The ECB is blowing smoke in our eyes.

Ukrayinska Pravda:

• About 6,000 Russian Troops Fight in Ukraine. Head of Ukrainian Defense Ministry's reconnaissance headquarters Yuri Pavlov tells lawmakers at closed parliament meeting yesterday that Russia also sent "several hundred" military vehicles to Ukriane, citing a lawmaker who was present.

Asia Asset Management:

• Is China heading towards a financial crisis? Uncontrolled subprime lending made it possible for millions of ill-qualified borrowers in the United States to live beyond their means and buy houses that they would not otherwise be able to afford. As the system got stretched, the housing bubble eventually burst, triggering the most severe global financial crisis since the Great Depression. Many people are now starting to find parallels in today’s China.

Bear Radar

Style Underperformer:

• Small-Cap Growth +.16%

Sector Underperformers:

• 1) Steel -.93% 2) Biotech -.72% 3) Retail -.62%

Stocks Falling on Unusual Volume:

• TSLA, GLNG, TUMI, ZUMZ, ST, WATT, CONN, KORS, ACHN, FNSR, GPS, KERX, RPRX, MOBL, GILD, GDO, RARE, PCLN, EMES, SLCA, DG, WTS, TSLA, PAY, WRLD, CLVS, PNNT and MOBL

Stocks With Unusual Put Option Activity:

• 1) XLP 2) XLU 3) CMI 4) SLB 5) XLB
  

Stocks With Most Negative News Mentions:

• 1) TSLA 2) GILD 3) ZUMZ 4) PAY 5) GPS
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Mid-Cap Value -.07%

Sector Outperformers:

• 1) Utilities +.76% 2) Hospitals +.38% 3) REITs +.25%
  

Stocks Rising on Unusual Volume:

• AMBA, BLOX, VRNT, CMGE, BDSI, CIEN, LTM, YNDX and MED

Stocks With Unusual Call Option Activity:

• 1) ZQK 2) HL 3) AMBA 4) VEEV 5) SPXU
  

Stocks With Most Positive News Mentions:

• 1) DG 2) CPB 3) AAPL 4) ADBE 5) MRK
  

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Friday Watch

Evening Headlines 
Bloomberg: 

• Ukraine Cease-Fire Talks Set as East’s Fate Teeters. .Ukraine’s President Petro Poroshenko voiced “careful optimism” that talks today with pro-Russian rebels in Minsk, Belarus, will set the course for a cease-fire after more than five months of fighting After Poroshenko met yesterday with leaders of the North Atlantic Treaty Organization, the alliance’s Secretary General Anders Fogh Rasmussen said it’s too early to tell whether peace overtures by Russian President Vladimir Putin are genuine. “We have seen similar statements and initiatives, and they have actually just been a smokescreen for continued Russian destabilization of the situation in Ukraine,” Rasmussen told reporters at the summit in Newport, Wales. “Based on experience, we have to be cautious.”

• Al-Qaeda India Jihad Vow Tests Modi Bid to Unite Muslims, Hindus. Al-Qaeda’s announcement that it plans to conduct jihad operations in India will provide a test of Prime Minister Narendra Modi’s efforts to overcome divisions between Hindus and Muslims and find ways to work with Pakistan to counter extremism.

• Macau Casino Bulls Seen Capitulating After Stocks Tumble.

• Asian Stocks Fall for Second Day on Material Producers. Asian stocks fell, with the regional benchmark index heading for a second daily decline, as material companies slid. Newcrest Mining Ltd. (NCM), Australia’s biggest gold producer, slipped 3.7 percent after the price of bullion fell. Fortescue Metals Group Ltd., the nation’s third-largest iron ore miner, sank 3.5 percent after a gauge of prices for the raw material in China dropped to an almost five-year low. Sekisui House Ltd. rose 2.5 percent in Tokyo after the homebuilder reported first-half net income increased. The MSCI Asia Pacific Index slipped 0.5 percent to 148.17 as of 10:57 a.m. in Hong Kong, with about four shares declining for every three that rose.

• Investors Pull $435 Million From Loan Funds in U.S., Lipper Says. Investors pulled $435 million from U.S. funds that buy leveraged loans, the eighth straight weekly outflow, according to Lipper. The withdrawal increased this year’s net outflows to $4.3 billion, Lipper data show. Investors have soured on the debt after depositing a record $62.9 billion last year into loan funds. U.S. high-yield bond funds lost $198 million in the five days through yesterday, the first outflow in four weeks, according to Lipper. That brought net withdrawals this year to $9.5 billion. 

• Gap(GPS) Falls After August Same-Store Sales Trail Estimates. Gap Inc. (GPS) fell in late trading after posting August same-store sales that trailed analysts’ estimates amid weakness at its namesake clothing chain. Sales online and at stores open at least a year declined 2 percent, the company said today in a statement. Analysts estimated a 1.7 percent gain. Sales by that measure at Gap-brand stores slid 6 percent, while analysts projected a 0.4 percent drop.

• 'Worst Case' BP Ruling on Gulf Spill Means Billions More in Penalties. BP Plc acted with gross negligence in setting off the biggest offshore oil spill in U.S. history, a federal judge ruled, handing down a long-awaited decision that may force the energy company to pay billions of dollars more for the 2010 Gulf of Mexico disaster. 

Wall Street Journal:

• West Raises Pressure on Russia Ahead of Ukraine Peace Talks. Foreign Minister Sergei Lavrov's Comments Come as World Leaders Meet for Alliance Summit. The U.S. and Europe moved to toughen sanctions on Moscow over the Ukraine crisis amid signs that some countries could go even further and send weapons to Kiev—ratcheting up the pressure on pro-Russia rebels a day ahead of peace talks. At a summit of the North Atlantic Treaty Organization in Wales, Ukrainian President Petro Poroshenko expressed what he called "careful optimism" that a cease-fire would be agreed to Friday in...

• Coalition Emerges to Battle Islamic State Militants. American allies including the U.K. and France said they would help form an international military coalition to fight a growing threat from Islamic State militants. While members of the North Atlantic Treaty Organization meeting here on Thursday were weighing what role they would play, U.S. officials urged them to commit to a strategy that includes providing more arms to Kurdish forces fighting the Islamist insurgents...

• Rate Rift Makes Investors Regroup. ECB's Moves Cause Euro to Plunge, While European Stock Markets and Treasury Yields Advance.

• The World Needs a Clarion. Obama can't lead a coalition if nobody can follow his thinking. It is a muddle, a murk and a desperate-looking thing, the president on the subject of the Islamic State. The Islamic State is the junior varsity. No, it is a "cancer." We will "degrade and destroy" it. No, we'll render it "a manageable problem." It's all so halting, herky-jerky and, for a great power, embarrassing. Ich bin ein Limiter of Spheres of Influence. Mr. Obama has been severely criticized and soon will change the story with a new statement. Actually to a degree he already has, in...

MarketWatch.com:

• Dallas Fed chief repeats Gross characterization of Yellen as ‘Hindu goddess’.

CNBC: 

• Amid Ebola crisis, is something worse around corner?

Zero Hedge: 

• Russian General Demands Preemptive Nuclear Strike Doctrine Against NATO.

• Is This Putin's Ukraine Strategy?

• 3 Things Worth Thinking About.

• What Mario Draghi Really Did.

• Obviously Not A Bubble. (graph)

• US Dollar Up - Everything Else Down (Except Trannies).

• Fast-Food Workers Strike, Arrested Across America: The Unseen Costs Of The Minimum Wage.

ValueWalk:

• Hedge Fund Closes Shop, Blames HFT In Investor Letter.

Business Insider:

• A Hacker Breached The Obamacare Website.

• Russian Rockets Are Falling Within Sight Of A Strategically Vital Ukrainian City.

• The NYPD Is Going To Start Putting Body Cameras On Police Officers.

• Pentagon: Russian Forces Near Ukraine Are 'More Lethal' Than Ever.

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

Telegraph: 

• Mario Draghi’s feeble attempt to save the eurozone is bound to fail. Cutting interest rates by 0.1pc will have virtually no impact on the eurozone economy at all.

China Securities Journal:

• China M&As That Are 'Too Radical' May Cause Bubble. Mergers and acquisitions of listed companies in emerging industries that are "too radical" may cause bubbles and investors should be cautious, according to a front-page commentary by reporter Wan Jing.

Economic Information Daily:

• China Asks All Provincial Governments For Balance Sheets. China asked all provincial-level governments to compile local balance sheets this year, citing a person close to the Ministry of Finance.

Evening Recommendations
Suntrust Robinson:

• Rated (ALXN) Buy, target $229.

• Rated (INCY) Buy, target $71.

• Rated (CELG) Buy, target $121.

• Rated (BLUE) Buy, target $57.

Night Trading

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

• Asia Ex-Japan Investment Grade CDS Index 90.0 -2.25 basis points.

• Asia Pacific Sovereign CDS Index 63.0 +.75 basis point.

• FTSE-100 futures -.14%.

• S&P 500 futures -.12%.

• NASDAQ 100 futures  -.12%.

Morning Preview Links

Earnings of Note
Company/Estimate

• None of note

Economic Releases
8:30 am EST

• The Change in Non-Farm Payrolls for August is estimated to rise to 230K versus 209K in July.

• The Unemployment Rate is estimated to fall to 6.1% versus 6.2% in July.

• Average Hourly Earnings for August are estimated to rise +.2% versus unch. in July.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Rosengren speaking and German Factory Orders could also impact trading today.

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

Stocks Reversing Lower into Final Hour on Escalating Russia-Ukraine Tensions, Technical Selling, Profit-Taking, Commodity/Biotech Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Slightly Higher
  

• Sector Performance: Mixed
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 12.24 -.97%

• Euro/Yen Carry Return Index 142.19 -1.18%

• Emerging Markets Currency Volatility(VXY) 6.41 +.31%

• S&P 500 Implied Correlation 50.54 -1.0%

• ISE Sentiment Index 98.0 +11.36%

• Total Put/Call .93 -7.92%

• NYSE Arms .84 +2.72% 

Credit Investor Angst:

• North American Investment Grade CDS Index 57.19 +.55%

• European Financial Sector CDS Index 56.15 -4.73%

• Western Europe Sovereign Debt CDS Index 27.75 -6.65%
• Asia Pacific Sovereign Debt CDS Index 63.05 +1.35%

• Emerging Market CDS Index 228.41 -18.39%

• China Blended Corporate Spread Index 306.67 -1.0%
• 2-Year Swap Spread 21.50 +.5 basis point

• TED Spread 21.25 unch.

• 3-Month EUR/USD Cross-Currency Basis Swap -22.75 -5.5 basis points

Economic Gauges:

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

• Yield Curve 191.0 +2.0 basis points

• China Import Iron Ore Spot $84.30/Metric Tonne -1.63%

• Citi US Economic Surprise Index 47.0 +3.5 points

• Citi Emerging Markets Economic Surprise Index -13.20 unch.

• 10-Year TIPS Spread 2.17 +1.0 basis point

Overseas Futures:

• Nikkei Futures: Indicating +59 open in Japan

• DAX Futures: Indicating -13 open in Germany

Portfolio: 

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

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

• Market Exposure: Moved to 25% Net Long