Bull Radar

Style Outperformer:

• Mid-Cap Value -.80%

Sector Outperformers:

• 1) Airlines +1.43% 2) Gold & Silver +.25% 3) REITs +.07%
  

Stocks Rising on Unusual Volume:

• NBIX, BDC, NCS, KITE, GMCR and BMS

Stocks With Unusual Call Option Activity:

• 1) ALLY 2) COST 3) XLU 4) WLL 5) DG
  

Stocks With Most Positive News Mentions:

• 1) COST 2) PGR 3) HOV 4) WDFC 5) AEO
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Wednesday Watch

Evening Headlines 
Bloomberg:

• Russia Set to Raise Main Rate as Ruble Rout Endangers Stability. Russia’s central bank will probably raise borrowing costs to avert threats to financial stability as oil prices near the lowest in more than five years and sanctions over Ukraine risk the collapse of the ruble. The Bank of Russia will increase its key rate to 10 percent from 9.5 percent, according to the median estimate of 27 economists surveyed by Bloomberg. Eleven forecast no change. Fifty of 77 traders polled by brokerage Tradition project a rate increase of between 100 and 400 basis points. The regulator will announce the decision at about 1:30 p.m. tomorrow in Moscow, followed by a news conference.

• It’s Oil, Stupid, as Russian Rates Powerless: Chart of the Day. Investors are betting that the Bank of Russia will raise interest rates tomorrow after it exhausted all other options for stabilizing the ruble. A look at the oil price suggests that too may be futile.

• AAA-or-Nothing Ruling Adds to China Bond Default Concern. With $90 billion of bonds sold by local government financing vehicles coming due next year, China is walking a fine line between teaching investors a lesson and preventing widespread defaults. The nation’s clearing agency said this week that local bonds rated lower than the highest AAA grade are too risky to be used as collateral for short-term loans. That means about half of the outstanding 1 trillion yuan ($162 billion) securities sold by local government financing vehicles, or LGFVs, in the exchange market can no longer be pledged to raise funds, according to Morgan Stanley.

• Asia Stocks Drop With Oil as Dollar Gains After China CPI. Asian stocks fell, with the regional index heading for for its biggest two-day drop in a month, and the dollar advanced as oil erased yesterday’s gains. Chinese stocks fluctuated as inflation data missed estimates, underscoring growth concerns in Asia’s largest economy. The MSCI Asia Pacific Index slid 1.3 percent by 11:29 a.m. in Tokyo, set for its lowest close since Oct. 24 as Japan’s Topix gauge slid 1.5 percent. The Hang Seng China Enterprises Index (HSCEI) was little changed after tumbling 4.6 percent yesterday. The Bloomberg Dollar Spot Index increased 0.1 percent as the yen weakened and the Australian currency held a record losing streak. Oil fell for the fourth time in five days. 

• Copper Leads Industrial Metals Lower on China Growth. Copper fell for the third time in four days on concern demand is slowing in China after factory-gate deflation deepened and consumer prices climbed at the slowest pace since 2009 in the world’s largest metals user. Copper dropped as much as 0.7 percent.

• Oil Resumes Drop as Iran Sees $40 If There’s OPEC Discord. Brent resumed its decline as an Iranian official predicted a further slump in prices if solidarity among OPEC members falters. West Texas Intermediate in New York also erased yesterday’s gains. Futures slid as much as 1.6 percent in London after snapping a five-day losing streak. Crude could fall to as low as $40 a barrel amid a price war or if divisions emerge in the Organization of Petroleum Exporting Countries, said an official at Iran’s oil ministry. The 12-member group, which supplies 40 percent of the world’s oil, may need to call an extraordinary meeting in the first quarter if the drop continues, according to Energy Aspects Ltd.

Wall Street Journal: 

• Beijing Taps Brakes, and Markets Drop. China Notches Biggest Market Loss in 5 Years After Surprise Move to Rein In Lending. China notched its biggest market loss in five years after Beijing made a surprise move to rein in lending, fueling concerns about growth in the world’s No. 2 economy. Tuesday’s selloff came as policy makers convened in Beijing to plot an economic policy course for the next year—a meeting widely expected to yield a drop in the 2015 growth target to 7% from 7.5%.

• Fed Sets Tough New Capital Rule for Big Banks. J.P. Morgan(JPM) Would Face $21 Billion Shortfall. Eight of the largest U.S. banks will need fatter capital cushions as part of U.S. regulators’ latest efforts to make the financial system less risky. The biggest impact will be felt by J.P. Morgan Chase & Co., the nation’s largest bank by assets, which is $21 billion short of the requirement, according to Fed officials. 

• Spooks of the Senate. The report on CIA interrogations is a collection of partisan second-guessing. The Senate Intelligence Committee report on CIA interrogations is a moment for reflection, but not for the reasons you’re hearing. The outrage at this or that ugly detail is politically convenient. The report is more important for illustrating how fickle Americans are about their security, and so unfair to those who provide it. After the trauma of 9/11 and amid the anthrax letters in 2001, Americans wanted protection from another terror attack. 

• Ex-CIA Directors: Interrogations Saved Lives. The Senate Intelligence investigators never spoke to us—the leaders of the agency whose policies they are now assailing for partisan reasons.

Fox News:

• House leaders unveil budget bill, race to avert partial shutdown. (video) House leaders unveiled a $1.1 trillion spending bill Tuesday night that would avert a partial government shutdown while delaying a fight over President Obama's immigration actions until early 2015. The GOP-led House Appropriations Committee released the plan, which would keep most of the government funded through September 2015, following days of backroom negotiations.

Zero Hedge: 

• Welcome To The Recovery: 40% of Americans Live Paycheck To Paycheck (Up From 30% In 2012).

• Markets Turmoiled As 5th Hindenburg Looms. (graph)

• Deutsche Bank Is Stumped: The Broad Market Is Ignoring The Bear Market In Energy, "Something Has To Give". 

• Do Not Underestimate How Low Treasury Yields Can Fall.

• If At First You Fail Miserably & Blow Up The Financial System, Do It Again!

• Chart Of The Day: This Is What 6 Years Of Central Bank Liquidity Injections Look Like. (graph)

• Beijing, We Have A Problem.

• Profit Recession On Deck Due To Surging Dollar And Plunging Crude, Deutsche Warns.

• Popping The Chinese Stock Market Mania. (graph)

Business Insider:

• Here's Jeff Gundlach's Awesome Presentation On The Changing World Of Investing.

• The OPEC Era Is Over.

Evening Recommendations 

• None of note

Night Trading

• Asian equity indices are -1.25% to +.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 104.75 +3.25 basis points.

• Asia Pacific Sovereign CDS Index 65.5 +2.25 basis points.

• S&P 500 futures -.09%.

• NASDAQ 100 futures  -.13%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (TOL)/.73

• (COST)/1.09

• (HOV)/.22

• (RH)/.47

• (MW)/.87

• (TITN)/.23

• (VRA)/.19

Economic Releases
10:30 pm EST

• Bloomberg consensus estimates call for a weekly crude oil inventory decline of -2,625,000 barrels versus a -3,689,000 barrel decline the prior week. Gasoline supplies are estimated to rise by +2,450,000 barrels versus a +2,143,000 barrel gain the prior week. Distillate supplies are estimated to rise by +887,500 barrels versus a +3,028,000 gain the prior week. Finally Refinery Utilization is estimated to rise by +.31% versus a +1.9% gain the prior week.
  

2:00 pm EST

• The Monthly Budget Deficit for November is estimated at -$65.0B versus -$135.2B in October.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The Australian Unemployment report, $21B 10Y Note auction, weekly MBA mortgage applications report, USDA's WASDE report, Oppenheimer Healthcare Conference, BofA Basic Materials Conference, (DBD) investment conference, (TSN) investor day, (BGG) investor day and the (BF/A) analyst meeting could also impact trading today.

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

Stocks Mostly Lower into Afternoon on Surging Emerging Markets/European Debt Angst, Global Growth Fears, Yen Strength, Transport/Telecom Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Higher
  

• Sector Performance: Mixed
  

• Volume: Around Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 15.30 +7.67%

• Euro/Yen Carry Return Index 154.42 -.52%

• Emerging Markets Currency Volatility(VXY) 9.01 +1.81%

• S&P 500 Implied Correlation 67.59 +1.14%

• ISE Sentiment Index 64.0 -3.03%

• Total Put/Call 1.09 +4.81%

• NYSE Arms 1.05 -29.32% 

Credit Investor Angst:

• North American Investment Grade CDS Index 65.50 +1.47%

• European Financial Sector CDS Index 59.95 +4.77%

• Western Europe Sovereign Debt CDS Index 26.70 +3.99%
• Asia Pacific Sovereign Debt CDS Index 65.28 +3.32%

• Emerging Market CDS Index 332.18 +2.77%

• China Blended Corporate Spread Index 328.40 +.81%
• 2-Year Swap Spread 22.25 +.25 basis point

• TED Spread 22.50 unch.

• 3-Month EUR/USD Cross-Currency Basis Swap -9.75 +.5 basis point

Economic Gauges:

• 3-Month T-Bill Yield .01% unch.

• Yield Curve 160.0 -3.0 basis points

• China Import Iron Ore Spot $69.06/Metric Tonne -1.06%

• Citi US Economic Surprise Index 17.90 +2.0 points
• Citi Eurozone Economic Surprise Index -17.10 +4.3 points

• Citi Emerging Markets Economic Surprise Index -6.5 +.3 point

• 10-Year TIPS Spread 1.74 +2.0 basis points

Overseas Futures:

• Nikkei Futures: Indicating -123 open in Japan

• DAX Futures: Indicating +62 open in Germany

Portfolio: 

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

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

• Market Exposure: Moved to 50% Net Long

Bear Radar

Style Underperformer:

• Large-Cap Growth -.63%

Sector Underperformers:

• 1) Airlines -3.07% 2) Drugs -1.61% 3) Telecom -1.41%

Stocks Falling on Unusual Volume:

• TRNO, CBST, CONN, LHO, CAF, MANU, ENV, NOAH, SAVE, XLRN, GLP, KPTI, IBKC, CVRR, VZ, GMZ, WLDN, LCI, WRB, IDT, UTIW, MC, CTRP, YPF, T, MRK, BKS, HRB, SGMS, TMUS and DRIV

Stocks With Unusual Put Option Activity:

• 1) CONN 2) XLV 3) AA 4) XLNX 5) SPLS

Stocks With Most Negative News Mentions:

• 1) SAVE 2) C 3) CONN 4) BA 5) KEX
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Small-Cap Growth -.31%

Sector Outperformers:

• 1) Gold & Silver +4.15% 2) Oil Service +.89% 3) Utilities -.05%
  

Stocks Rising on Unusual Volume:

• BLUE, SC, BTE, BURL, PDCE, ANF, OAS, KITE, BCEI, CRZO, CLR, EMES and SM

Stocks With Unusual Call Option Activity:

• 1) PRU 2) SAVE 3) LPI 4) SEE 5) SC
  

Stocks With Most Positive News Mentions:

• 1) NRG 2) LULU 3) CXO 4) LHCG 5) PDCE
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Tuesday Watch

Evening Headlines 
Bloomberg: 

• Russia Capital Control Jitters Appear in Moscow-to-London Spread. Evidence is surfacing in Russia’s bond market that investors are concerned President Vladimir Putin will impose capital controls to stem the ruble’s 39 percent plunge this year. Bond buyers are demanding a growing premium to own ruble-denominated bonds traded in Moscow rather than ruble debt that trades in London and other international markets. The yield gap between the two securities has swelled to 0.66 percentage point, the widest since January 2013 and more than six times the average over the past two years, according to data compiled by Bloomberg. It had been as small as 0.03 percentage point in September.

• Ukraine to Observe One-Day Truce Amid Plan for New Peace Talks. Ukraine will observe a day of truce in the east, which may set the stage for a new round of peace talks with pro-Russian separatists this week. Ukraine will hold a “day of silence” today after a deal with representatives from Russia, rebels and the Organization for Security and Cooperation in Europe. Talks in the Belarusian capital Minsk are possible later this week, the Tass news service reported, citing representatives of separatists and unidentified officials in Kiev.

• China’s Rate Swaps Surge Most Since June 2013 as Bonds Tumble. China’s one-year interest-rate swaps jumped 29 basis points, the most since a record cash crunch in June 2013, to 3.67 percent. The yield on government debt due October 2019 surged 16 basis points to 3.90 percent as of 9:04 a.m. in Shanghai, according to prices from the National Interbank Funding Center. That’s the biggest increase for a five-year note since November 2013, ChinaBond data show. China has halted new corporate bond repurchase applications for debt with ratings below AAA, according to a statement posted to the China Securities Depository and Clearing Corp.’s website yesterday. Rising rates in the bond and money markets pose a challenge for policy makers as they seek to spur spending in an economy that’s forecast to expand this year at the slowest pace in more than two decades.

• Australian Business Confidence at 16-Month Low as Rate Cuts Seen. Australian business sentiment dropped to the lowest level since before last year’s election, National Australia Bank Ltd. said as its economists predicted the central bank will cut interest rates twice in 2015. The confidence index dropped to 1 in November from a revised 5 a month earlier, a NAB survey of more than 400 companies taken Oct. 27-31 and released in Sydney today showed. The business conditions gauge, a measure of hiring, sales and profits, slid to 5 from 13. 

• Brazil’s Real Touches Nine-Year Low as China’s Imports Decline. Brazil’s real touched a nine-year low after an unexpected decline in China’s imports last month added to concern that Latin America’s largest economy will struggle to regain momentum. The real dropped 0.5 percent to 2.6004 per U.S. dollar at the close of trade in Sao Paulo, after falling to 2.6174, the weakest intraday level since April 2005. Swap rates, a gauge of expectations for changes in Brazil’s borrowing costs, climbed seven basis points, or 0.07 percentage point, to 12.48 percent on the contract maturing in January 2016.

• Asian Stocks Follow U.S. Shares Lower as Oil Slides, Yen Gains. Asian stocks fell, after U.S. shares dropped the most in almost seven weeks, as oil extended its decline and a stronger yen weighed on Japanese exporters. The MSCI Asia Pacific Index (MXAP) slid 0.3 percent to 139.70 as of 9:06 a.m. in Tokyo after adding 0.1 percent yesterday. Japan’s Topix (TPX) index decreased 0.7 percent after the yen added 0.6 percent against the dollar yesterday.

• JPMorgan Cuts Iron Ore Outlook as Growth in Supply Beats Demand. Iron ore prices will extend declines as growth in low-cost supply from the world’s largest producers outstrips demand, according to JPMorgan Chase & Co., which reduced forecasts through 2017. The steel-making raw material will average $67 a metric ton next year, 24 percent less than previously forecast, and $65 in 2016, down 23 percent, the bank said in an e-mailed report received today. So far this year, it’s averaged $98.95 a ton, according to data from Metal Bulletin Ltd. In 2017, prices will average $69 a ton, 16 percent less, the bank said. 

• Copper Retreats for Third Day as Demand Seen Slowing. Copper for delivery in three months on the London Metal Exchange slipped 0.2 percent to $6,393 a metric ton at 9:58 a.m. in Shanghai. In New York, March futures retreated 0.2 percent to $2.8785 a pound, while in Shanghai the metal for February delivery fell 0.5 percent to 45,670 yuan ($7,385) a ton.

• Oil Drops as Deeper OPEC Discounts Signal Fight for Market Share. West Texas Intermediate fell to a five-year low as Iraq followed Saudi Arabia in cutting prices for crude sales to Asia, adding to signs that OPEC’s biggest members are defending market share. Brent was steady in London.

• Too-Big-to-Fail May Lead to U.S. Bank Pay Rules: Hoenig. U.S. lawmakers may follow their European counterparts and regulate bankers’ pay if reforms aimed at ending government bailouts for lenders stall, Federal Deposit Insurance Corporation Vice Chairman Thomas Hoenig said. Regulatory focus on bankers’ pay “will become more of an issue in the U.S. if we don’t solve the too-big-to-fail problem,” Hoenig said in an interview in Amsterdam yesterday. “If we focus on that and get that solved, then the remuneration issue will become less significant and we’ll just see how that plays.”

Wall Street Journal: 

• Fed Aims to Signal Shift on Low Rates. Central Bank Could Drop ‘Considerable Time’ Phrasing in Policy Statement. Federal Reserve officials are seriously considering an important shift in tone at their policy meeting next week: dropping an assurance that short-term interest rates will stay near zero for a “considerable time” as they look more confidently toward rate increases around the middle of next year. 

• Crude Oil’s Fall Pressures Energy Megaprojects. Oil Industry’s Multibillion-Dollar Investments Come Under New Scrutiny.

• ObamaCare’s Casualty List. Three elections later, the law continues to be a political catastrophe for Democrats. Mary Landrieu’s defeat in Saturday’s Louisiana Senate runoff was no surprise, but that doesn’t mean it should be ignored as inevitable. Ms. Landrieu was a widely liked three-term incumbent, and her GOP foe was hardly a juggernaut, yet she lost by 14 points after Washington Democrats all but wrote her off. Think of Ms. Landrieu as one more Democrat who has sacrificed her career to ObamaCare.

Fox News:

• St. Louis police allege hate crime in latest attack on Bosnian resident. The St. Louis police chief has asked for the FBI's help investigating what he believes was a hate crime attack against a woman in the same Bosnian neighborhood where a man was beaten to death days earlier by hammer-wielding teens, and where assaults have spiked dramatically in recent months.

Zero Hedge:

• Did Blackstone(BX) Just Call The Top In Commercial Real Estate? (graph)

• Q3 2014 Earnings Breakdown - Do You Still Believe In Miracles? (graph)

• "Cash-Strapped" Venezuela Stares Into The Abyss... And Its Default Risk Goes Parabolic.

• Why James Bullard Won't Bail Out The Market's Next Correction.

• Angry Eurodollar Traders Have Had Enough: "This Is The Year The Fed Is Going To Lose Credibility". (graph)

• Meet China's Morlocks: 1 Million Beijing Residents Live Undeground.

• What The Fed's Shift From "Considerable Period" To "Patient" Means.

• PBOC Tries To Pop Equity Bubble, Tightens FX & Slashes Collateral/Margin Availability; Yuan Crashes Most Since 2008.

• Baltic Dry Plunges Back Below $1000 - Lowest December Since 2008. (graph)

Business Insider:

• Tesla(TSLA) Has Been Getting Hammered.

Telegraph:

• China's stock mania decouples from economic reality. The stock boom comes as Chinese industry battles with massive overcapacity in everything from steel to shipbuilding, coal output, cement and solar panels.

Securities Times:

• Local Chinese Regulator Warns of Margin-Trading Risk. A local securities regulator in China expressed concerns over rapidly growing risks in margin trading and short-selling businesses at a meeting yesterday, citing a person who participated in the meeting. Securities cos.' margin trading and short selling businesses will face high risks if stock market encounters sharp decline after surging. Some brokerages use working capital on these businesses, which may result in liquidity risks once the market shifts direction. Brokerages that open accounts for unqualified clients will be severely punished.

Evening Recommendations 

• None of note

Night Trading

• Asian equity indices are -1.0% to +.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 101.50 +.5 basis point.

• Asia Pacific Sovereign CDS Index 63.25 +1.5 basis points.

• FTSE-100 futures n/a.

• S&P 500 futures -.18%.

• NASDAQ 100 futures  -.10%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (AZO)/7.16

• (KKD)/.19

• (KFY)/.45

Economic Releases
7:30 am EST

• The NFIB Small Business Optimism Index for November is estimated to rise to 96.5 versus 96.1 in October.
  

10:00 am EST

• The JOLTS Job Openings report for October is estimated to rise to 4790 versus 4735 in September.

• Wholesale Inventories for October are estimated to rise .2% versus a +.3% gain in September.

• Wholesale Trade Sales for October are estimated to rise +.1% versus a +.2% gain in September.

• The IBD/TIPP Economic Optimism Index for December is estimated to rise to 47.0 versus 46.4 in November.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's meeting on risk-based capital, Japan CPI report, China CPI report, $25B 3Y Note auction, US weekly retail sales reports, Wells Fargo Energy Symposium, CapitalOne Energy Conference, Goldman Financial Services Conference, Barclays Tech Conference, (BRCM) analyst day, (PHM) investor day, (WEX) investor day and the (TSO) analyst presentation could also impact trading today.

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