Stocks Rising into Final Hour on Less Eurozone/Emerging Markets/US High-Yield Debt Angst, Central Bank Hopes, Short-Covering, Tech/Healthcare Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Higher
  

• Sector Performance: Almost Every Sector Rising
  

• Volume: Slightly Below Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 17.61 -9.41%

• Euro/Yen Carry Return Index 152.36 -.39%

• Emerging Markets Currency Volatility(VXY) 11.15 unch.

• S&P 500 Implied Correlation 63.92 +.55%

• ISE Sentiment Index 145.0 +35.51%

• Total Put/Call .78 -37.10%

• NYSE Arms .90 +145.15% 

Credit Investor Angst:

• North American Investment Grade CDS Index 66.43 -4.67% 
• America Energy Sector High-Yield CDS Index 622.0 -4.41%

• European Financial Sector CDS Index 65.68 -3.94%

• Western Europe Sovereign Debt CDS Index 30.10 -7.47%
• Asia Pacific Sovereign Debt CDS Index 69.12 -3.26%

• Emerging Market CDS Index 352.74 -6.10%

• China Blended Corporate Spread Index 348.30 -1.99%
• 2-Year Swap Spread 21.75 -.25 basis point

• TED Spread 22.25 +1.0 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -14.5 -1.75 basis points

Economic Gauges:

• 3-Month T-Bill Yield .04% +2.0 basis points

• Yield Curve 157.0 +3.0 basis points

• China Import Iron Ore Spot $68.42/Metric Tonne +.54%

• Citi US Economic Surprise Index 31.60 +.4 point
• Citi Eurozone Economic Surprise Index -2.10 +.4 point

• Citi Emerging Markets Economic Surprise Index -12.90 +.8 point

• 10-Year TIPS Spread 1.65 -1.0 basis point

Overseas Futures:

• Nikkei Futures: Indicating +350 open in Japan

• DAX Futures: Indicating +13 open in Germany

Portfolio: 

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

• Disclosed Trades: None

• Market Exposure: 50% Net Long

Bear Radar

Style Underperformer:

• Small-Cap Value +1.02%

Sector Underperformers:

• 1) Oil Service -.45% 2) Coal -.20% 3) Energy +.36%

Stocks Falling on Unusual Volume:

• DNKN, KEX, MLHR, CAF, ATU, STLD, SJT, LINE, APOG, SM, JONE, CAG, ASPS, RRC, CIVI, SAFM, CP, PTR, LNCO, ANET, DK, AMZN, STLD, LNCO, LINE, KEX, WGO and WOR

Stocks With Unusual Put Option Activity:

• 1) MYL 2) EWG 3) MDR 4) BHI 5) JOY

Stocks With Most Negative News Mentions:

• 1) XL 2) SD 3) HGR 4) ABMBC 5) LGCY
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Large-Cap Growth +1.43%

Sector Outperformers:

• 1) Software +3.35% 2) Gold & Silver +2.88% 3) Hospitals +2.86%
  

Stocks Rising on Unusual Volume:

• OVAS, MGNX, EXAM, ACN, ORCL, GRUB, KRFT, BTE, TTPH, CPHD, FSLR, NAV, LNG, MEMP, EMES, MGM and ARCC

Stocks With Unusual Call Option Activity:

• 1) ZQK 2) KRFT 3) RAD 4) OCR 5) GNC
  

Stocks With Most Positive News Mentions:

• 1) WDR 2) ORCL 3) RAD 4) OCR 5) 
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Thursday Watch

Evening Headlines 
Bloomberg:

• U.S. Said to Conclude North Korea Is Behind Sony Hack. U.S. investigators have concluded North Korea is responsible for the cyber-attack that crippled Sony Pictures Entertainment computers and forced the studio to pull “The Interview,” a person with knowledge of the situation said. An announcement could come as soon as Thursday, CNN reported. The person wasn’t authorized to speak publicly on the matter and asked not to be named. Sony Corp. (6758)’s Culver City, California-based studio today canceled the planned Dec. 25 release, after several major theater chains said they wouldn’t show the picture. 

• Russia Bailout Talk Absent as Pariah Putin No Latter-Day Yeltsin. Here’s what is happening with Russia: Its currency has lost half its value and investors have pulled out tens of billions of dollars amid a plunge in oil, its biggest export. Here’s what isn’t happening: any public discussion among world leaders of a rescue package. Russia, desperate to stem the ruble’s collapse, has been a diplomatic pariah since it annexed Crimea in March, prompting the U.S. and European Union to impose sanctions on Vladimir Putin’s government and setting the stage for its worst economic crisis since the 1998 default. Back then, Boris Yeltsin’s fledgling democracy was opening its financial markets and had a reservoir of goodwill with the U.S. and Europe, which assembled a $22.6 billion bailout from the International Monetary Fund and World Bank. 

• Putin’s Secret Gamble on Reserves Backfires Into Currency Crisis. Kremlin insiders gathered in secret last February to answer a crucial question for Vladimir Putin: Could Russia afford the economic blowback from taking over Crimea? Moscow said yes. Markets aren’t so sure.

• Draghi Counts Cost of Outflanking ECB’s Home Nation in QE Battle. As Mario Draghi prepares to push the European Central Bank into quantitative easing, he’s counting the cost of alienating its home nation. With the ECB president signaling that he’ll override German-led concerns on government bond purchases if needed, his institution is under attack in the country whose DNA inspired it. The outrage reflects concern that the Frankfurt-based central bank, which is modeled on the Bundesbank, is taking risks that its forerunner would never tolerate.

• Asia Isn't Ready for a China Crash.

• China Fault Lines: Where a Hard Landing Could Be Exposed in 2015. China’s leaders are seeking to deleverage the economy without a hard landing. Six fault lines will be closely watched next year to gauge their success. Risks to a soft-landing scenario include a credit crunch sparked by a shadow bank default or capital outflows, an external shock that undermines business confidence, a further slump in home sales, or rising U.S. interest rates, said economists and analysts interviewed by Bloomberg. While they don’t expect such outcomes, these are the areas identified that could trigger a plunge in growth or systemic risk in the financial industry.

• China Said to Plan Sweeping Shift From Foreign Technology to Own. China is aiming to purge most foreign technology from banks, the military, state-owned enterprises and key government agencies by 2020, stepping up efforts to shift to Chinese suppliers, according to people familiar with the effort. The push comes after a test of domestic alternatives in the northeastern city of Siping that was deemed a success, said the people, who asked not to be named because the details aren’t public. Workers there replaced Microsoft Corp.’s (MSFT) Windows with a homegrown operating system called NeoKylin and swapped foreign servers for ones made by China’s Inspur Group Ltd., they said.

• Greece Fails to Gather Support to Elect New President. Greece moved a step closer to early elections after Prime Minister Antonis Samaras failed to gather enough support for his nominee in a parliamentary vote for a new head of state.

• Asian Stocks Rise After S&P 500 Surges on Fed; Oil Swings. Asian stocks climbed, with the regional benchmark index rebounding from an almost nine-month low, after a Federal Reserve pledge to be patient on interest-rate increases sent U.S. equities up the most since 2013. Metals advanced and oil swung between gains and losses. The MSCI Asia Pacific Index advanced 0.9 percent by 11:27 a.m. in Tokyo, as Hong Kong’s Hang Seng Index (HSI) climbed from its lowest since May and Japan’s Topix index headed for its biggest gain in six weeks. 

• Iron Ore Shipping Rates, Prices Slump to 5-Year Low on China. Iron ore prices and shipping costs fell to the lowest levels in five years amid signs China’s slowing growth is sapping demand for cargoes just as the world’s largest mining companies press on with raising output and spur a glut. The rate to ship the steel-making commodity on a Capesize vessel to Qingdao, China from Tubarao, Brazil fell 4.4 percent to $12.47 a ton yesterday, the lowest since Jan. 9, 2009, data from the Baltic Exchange in London show. Iron ore delivered to Qingdao declined 0.8 percent to $68.05 a ton yesterday, the lowest since June 3, 2009, according to Metal Bulletin Ltd.

• Yellen Makes It Clear That Fed’s Patience on Rates Has Limits. Federal Reserve Chair Janet Yellen restored clarity to the central bank’s monetary policy plans, saying it was on course to raise interest rates, though not right away, after officials issued a statement that some Fed-watchers found confusing. Yellen told reporters following a two-day meeting that the Fed is likely to hold rates near zero at least through the first quarter. She also laid out the economic parameters that would need to be met for liftoff to begin later in the year and said that rates probably would be raised gradually thereafter. They may not return to more normal levels until 2017, she added.

Wall Street Journal: 

• Port Delays Leave Retail Goods Stuck in Transit. Retailers Send Some Products by Air as West Coast Slowdown Disrupts Schedules Amid Holiday Season.

• Sony Pulls Korea Film ‘The Interview;’ U.S. Blames Pyongyang for Hack. Studio Scraps Dec. 25 Debut After Terrorist Threats Prompted Movie Chains to Skip Film.

• Fed Sets Stage for Rate Hikes in 2015. Central Bank Plans Patient Approach to Tightening Monetary Policy. The Federal Reserve took a delicate step toward raising short-term interest rates in 2015, but at the same time exposed its skittishness about signaling a historic move away from easy-money policies in place since the global financial crisis.

Fox News:

• Radar ‘blimps’ to monitor Washington-area skies. The first of two radar-detecting blimps is slated to rise up over Aberdeen Proving Grounds in Maryland on Friday as part of a three-year exercise testing the integration of an Army air surveillance system with the North American Aerospace Defense Command.

• Congressional critics ready to block Obama push to normalize Cuban relations.

CNBC:

• How Russian crisis could be like 1998—but worse.

• Investors walking, not running out of Russia funds. Investors pulled just $55.9 million over Monday and Tuesday from the largest Russia-focused exchange-traded fund, Van Eck's Market Vectors Russia, according to data from ETF.com. The Russian stock-focused fund still manages $1.23 billion and has seen net inflows of $1.22 billion over 2014 despite losing more than 50 percent of its value (The net flow number reflects big swings over 2014; the fund started the year at $1.05 billion, with a high point of $2.1 billion and a low point of $719 million).

Zero Hedge: 

• The Fracturing Energy Bubble Is the New Housing Crash. (graph)

• Russian Food Suppliers Have Begun Halting Shipments.

• Mortgage Applications Tumble As Citi Warns Oil-Drop Risks Housing/Jobs Slum9p. (graph)

• The End Of Exuberance? (graph)

• The Terrorist Hackers Win: Sony Pulls Release Of "The Interview" Due To Fears Of "9/11-Style Retaliation".

• Veteran EM Fund Manager Warns "The Youngsters Are About To Be Schooled". (graph)

• The Secular Extinction Of Stock Market Bears. (graph)

Business Insider: 

• Hollywood Is Outraged That Sony Pulled 'The Interview'.

• Now That The US Government Thinks North Korea Hacked Sony, Here's How It Could Respond.

South China Morning Post:

• China's A-share investors deserve a bull market that's no bubble. Andy Xie says the surge in China's A-share market is, like many others before it, a bubble that won't last. Only structural reforms can bring about what retail investors deserve - a genuine bull market.

China Times:

• China to Cut Central SOE Executives' Pay by 30%. Central govt-administrated state-owned cos. will cut compensation for executives by an average 30%, while executives at monopolies will see a bigger cut, citing a person involved in plan drafting.

China Securities Journal:

• China TV Set Market Won't Likely Grow Next Year. Sales volume may remain at 42m units, a 6.7% decline from 2013, citing an industry report.

Evening Recommendations 

• None of note

Night Trading

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

• Asia Ex-Japan Investment Grade CDS Index 111.0 -8.0 basis points.

• Asia Pacific Sovereign CDS Index 71.5 -6.75 basis points.

• S&P 500 futures -.15%.

• NASDAQ 100 futures  -.19%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (SAFM)/4.01

• (SCHL)/2.22

• (CAG)/.61

• (NKE)/.70

• (RHT)/.40

• (CTAS)/.78

• (SD)/.04

Economic Releases
8:30 pm EST

• Initial Jobless Claims are estimated to rise to 295K versus 294K the prior week.

• Continuing Claims are estimated to fall to 2436K versus 2514K prior.
  

9:45 am EST

• Preliminary US Markit Services PMI for December is estimated to rise to 56.3 versus 56.2 in November.
  

10:00 am EST

• Philly Fed Business Outlook for December is estimated to fall to 26.0 versus 40.8 in November.

• Leading Index for November is estimated to rise +.5% versus a +.9% gain in October.

Upcoming Splits

• None of note

Other Potential Market Movers

• The German IFO, Bloomberg Economic Expectations Index for December and the weekly Bloomberg Consumer Comfort Index could also impact trading today.

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

Stocks Surging into Final Hour on FOMC Commentary, Yen Weakness, Bargain-Hunting, Commodity/Homebuilder Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Higher
  

• Sector Performance: Almost Every Sector Rising
  

• Volume: Around Average

• Market Leading Stocks: Outperforming

Equity Investor Angst:

• Volatility(VIX) 20.84 -11.67%

• Euro/Yen Carry Return Index 152.88 +.55%

• Emerging Markets Currency Volatility(VXY) 11.15 -2.82%

• S&P 500 Implied Correlation 64.05 -12.22%

• ISE Sentiment Index 112.0 +14.29%

• Total Put/Call 1.30 +30.42%

• NYSE Arms .48 -47.97% 

Credit Investor Angst:

• North American Investment Grade CDS Index 70.70 -7.23% 
• America Energy Sector High-Yield CDS Index 647.0 -4.58%

• European Financial Sector CDS Index 68.48 -5.36%

• Western Europe Sovereign Debt CDS Index 32.53 -1.77%
• Asia Pacific Sovereign Debt CDS Index 77.25 -7.15%

• Emerging Market CDS Index 334.53 -12.56%

• China Blended Corporate Spread Index 355.37 +2.75%
• 2-Year Swap Spread 22.0 -1.25 basis points

• TED Spread 21.25 -1.0 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -12.75 -3.5 basis points

Economic Gauges:

• 3-Month T-Bill Yield .02% unch.

• Yield Curve 154.0 +3.0 basis points

• China Import Iron Ore Spot $68.05/Metric Tonne -.77%

• Citi US Economic Surprise Index 31.20 -.2 point
• Citi Eurozone Economic Surprise Index -2.50 +.5 point

• Citi Emerging Markets Economic Surprise Index -13.70 unch.

• 10-Year TIPS Spread 1.66 +2.0 basis points

Overseas Futures:

• Nikkei Futures: Indicating +350 open in Japan

• DAX Futures: Indicating +35 open in Germany

Portfolio: 

• Slightly Higher: On losses in my retail/tech sector longs and index hedges

• 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:

• Large-Cap Growth +.85%

Sector Underperformers:

• 1) Gaming -1.86% 2) Tobacco +.02% 3) Airlines +.22%

Stocks Falling on Unusual Volume:

• FDX, MGM, XL, WYNN,  EXPD, TGTX, CALA, SGNT and BEAV

Stocks With Unusual Put Option Activity:

• 1) LNCO 2) MGM 3) CCL 4) KO 5) UPS

Stocks With Most Negative News Mentions:

• 1) ED 2) JOY 3) CVA 4) ABK 5) CIE
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume