Bull Radar

Style Outperformer:

• Mid-Cap Value +.02%

Sector Outperformers:

• 1) Gold & Silver +3.12% 2) Steel +2.34% 3) Utilities +1.76%
  

Stocks Rising on Unusual Volume:

• AOL, ALKS, LOCO, EBIX and BLUE

Stocks With Unusual Call Option Activity:

• 1) HBAN 2) ACAS 3) AEO 4) INFN 5) HL
  

Stocks With Most Positive News Mentions:

• 1) WAG 2) STZ 3) HUM 4) SLXP 5) CNC
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Tuesday Watch

Evening Headlines 
Bloomberg: 

• Global Sovereign Bonds Rally as Yields Fall to Record Low 1.28%. Global sovereign bonds rallied, pushing yields to a record low, after oil tumbled and traders prepared for the European Central Bank to start buying government debt as soon as this month. Bonds in the Bank of America Merrill Lynch Global Broad Market Sovereign Plus Index had an effective yield of 1.28 percent as of yesterday, an all-time low based on data starting in 1996. Stock declines are fueling demand for the relative safety of debt. From Japan to Australia to Germany (GDBR10), yields are dropping to records. 

• Singapore Alert to Risks as Cracks Emerge for Junk: Asean Credit. Demand for higher returns in Singapore bonds from the city’s swelling private banking industry has brought with it greater risks. Three out of every 10 notes sold last year are yielding more than 6 percent. Halcyon Agri Corp. (HACL) went to debtholders last month asking them to waive interest cover requirements before it’s even had to stump up a coupon payment. Bloomberg’s default model shows that VTB Capital SA has an almost 50 percent chance of reneging on its debt. “The recent swings have been a good wake-up call,” said Vishal Goenka, the Singapore-based head of local currency trading in Asia for Deutsche Bank AG. “Investors need to analyze the credit quality of issuers more thoroughly.”  

• Asian Stocks Extend Selloff With Oil Near $50; Yen Climbs. Asian stocks fell the most in seven weeks, extending a global selloff after crude oil plunged to the lowest level since 2009. The yen rose and a gauge of government bond yields fell to a record as investors sought haven assets. The MSCI Asia Pacific Index sank 1.4 percent by 10:11 a.m. in Tokyo.

• Oilfield Writedowns Loom as Market Collapse Guts Drilling Values. Tumbling crude prices will trigger a flood of oilfield writedowns starting this month after industry returns slumped to a 16-year low, calling into question half a decade of exploration. With crude prices down more than 50 percent from their 2014 peak, fields as far-flung as Kazakhstan and Australia are no longer worth pumping, said a team of Citigroup Inc. (C:US) analysts led by Alastair Syme. Companies on the hook for risky, high-cost projects that don’t make sense in a $50-a-barrel market include international titans such as Royal Dutch Shell Plc and small wildcatters like Sanchez Energy Corp. 

• Biggest Oil-Rig Drop Since 2009 Spells Tough Year Ahead. U.S. oil drillers laid down the most rigs in the fourth quarter since 2009. And things are about to get much worse. The rig count fell by 93 in the three months through Dec. 26, and lost another 17 last week, Baker Hughes Inc. (BHI) data show. About 200 more will be idled over the next quarter as U.S. oil explorers make good on their promises to curb spending, according to Moody’s Corp. Drillers are already running the fewest rigs in nine months after a 46 percent drop in U.S. benchmark West Texas Intermediate oil in 2014, the steepest decline in six years and the second-worst since the commodity began trading in 1983.

• Hedge Funds Resume Bullish Gold Bets as Greece Vote Looms. Hedge funds are stepping back onto the gold bandwagon as political turmoil in Greece and government actions in Asia helped send prices to their biggest monthly advance since June. Bullish wagers on the metal increased for the first time in three weeks and have more than doubled since mid-November, U.S. government data show. Short holdings dropped for the sixth week in seven. Bullion rose for a second straight month in December.

• Trahan Pauses 39-Month Bull Call Citing Contagion Risk. Francois Trahan, a three-year U.S. equity market bull who was ranked top portfolio strategist by Institutional Investor in 2014, is turning cautious on stocks. U.S. shares are “at risk” because oil’s decline makes a crisis in a crude-producing nation “inevitable,” wrote Trahan, the head of strategy for Cornerstone Macro LP in New York, in a note to clients. Slowing growth in China and the possibility of a financial meltdown in Japan also pose threats to American equities, he wrote. 

Wall Street Journal:

• IG to Play Starring Role in Review of Fed. Inspector General’s Office Will Be Front and Center in Look at Whether the Central Bank Goes Easy on Wall Street. The Federal Reserve’s inspector general, a little-noticed presence outside the central bank, is poised to play a starring role in a high-profile review of the Fed’s ability to regulate Wall Street.

Barron's: 

• Emerging Market Fund Outflows Hit $23 Billion, 3-Year Record.

CNBC: 

• Verizon(VZ) approached AOL(AOL) about possible takeover, joint venture: Report.

Zero Hedge: 

• "We Are Extremely Over-Retailed" Picturing The Death Of America's Malls. (pics)

• "Something Is Not Right" Jeff Gundlach Is "Concerned About Health Of The Economy & Financial System".

• In Japan, Top Tuna Sells Below ¥5 Million For The First Time In Eight Years, Down 22% From A Year Ago.

• Sayonara Global Economy. (graph)

• Scotiabank's Haselmann: "The 30 Year Will Trade With A One Handle In 2015".

• As We Enter 2015, Charts "Bulls" Should Consider. (graph)

• Obamacare Architects At Harvard Furious After Learning They Are Not Exempt From Obamacare.

Business Insider:

• The S&P 500 Just Broke An 87-Year Streak.

• Europe May Not Be Ready For Another Greek Crisis.

• There's Been A Staggering Drop In Arrests In New York For The Second Week In A Row.

Telegraph: 

• Greece vs Europe: who will blink first? The eurozone stands on the brink of another crisis as Athens confronts Brussels and Berlin.

China Business News:

• China Local Debt Estimates May Rise 'significantly'. Debt that local govts owe with fiscal funds may stand at as much as 15t yuan, compared with 10.9t yuan as of end-June in 2013 reported by the National Audit Office, citing a person familiar with the matter.

Evening Recommendations 

• None of note

Night Trading

• Asian equity indices are -2.0% to -1.0% on average.

• Asia Ex-Japan Investment Grade CDS Index 115.0 +6.0 basis points.

• Asia Pacific Sovereign CDS Index 70.5 +2.25 basis points.

• S&P 500 futures -.03%.

• NASDAQ 100 futures  -.08%.

Morning Preview Links

Earnings of Note
Company/Estimate

• None of note

Economic Releases
10:00 am EST

• Factory Orders for November are estimated to fall -.5% versus a -.7% decline in October.

• ISM Non-Manufacturing Composite for December is estimated to fall to 58.0 versus 59.3 in November.

Upcoming Splits

• None of note

Other Potential Market Movers

• The UK Services PMI report, RBC Consumer Outlook Index for January, Final Markit US Services PMI for December, US weekly retail sales reports and CES could also impact trading today.

BOTTOM LINE: Asian indices are lower, weighed down by technology and industrial 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 Falling into Final Hour on Soaring European/Emerging Markets Debt Angst, Global Growth Fears, Yen Strength, Energy/Transport Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Lower
  

• Sector Performance: Almost Every Sector Declining
  

• Volume: Below Average

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• Volatility(VIX) 20.98 +17.99%

• Euro/Yen Carry Return Index 149.06 -1.32%

• Emerging Markets Currency Volatility(VXY) 10.85 +.84%

• S&P 500 Implied Correlation 68.38 +3.81%

• ISE Sentiment Index 84.0 +18.31%

• Total Put/Call 1.14 -5.0%

• NYSE Arms 2.07 +61.69% 

Credit Investor Angst:

• North American Investment Grade CDS Index 69.87 +4.25%
• America Energy Sector High-Yield CDS Index 664.0 +2.43%

• European Financial Sector CDS Index 68.96 +9.34%

• Western Europe Sovereign Debt CDS Index 27.09 +8.51%
• Asia Pacific Sovereign Debt CDS Index 69.90 +2.21%

• Emerging Market CDS Index 380.71 +10.3%

• China Blended Corporate Spread Index 345.65 +.93%
• 2-Year Swap Spread 22.75 unch.

• TED Spread 23.50 +1.0 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -15.75 -1.0 basis point

Economic Gauges:

• 3-Month T-Bill Yield .01% -1.0 basis point

• Yield Curve 137.0 -9.0 basis points

• China Import Iron Ore Spot $70.87/Metric Tonne -.55%

• Citi US Economic Surprise Index 27.60 -.7 point
• Citi Eurozone Economic Surprise Index 12.40 +3.4 points

• Citi Emerging Markets Economic Surprise Index -14.30 -2.4 points

• 10-Year TIPS Spread 1.65 -6.0 basis points

Overseas Futures:

• Nikkei Futures: Indicating -294 open in Japan

• DAX Futures: Indicating -13 open in Germany

Portfolio: 

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

• Disclosed Trades: None

• Market Exposure: 25% Net Long

Today's Headlines

Bloomberg:

• 'Grexit' Is Back: A Greek Exit From the Euro Raises Fears of Fiscal Contagion. (video) Mario Draghi’s July 2012 pledge to do “whatever it takes” to keep the euro intact has kept speculators at bay for almost three years. Bond yields fell from Dublin to Athens, giving governments room to cut budgets and start revamping their economies. While it’s not been a period of robust growth, the talk of crisis has abated and even Greece’s six-year recession ended. What’s not changed is the risk entailed by Greece’s potential departure from the 19-nation currency bloc. What Citigroup Inc.’s Ebrahim Rahbari termed “Grexit” is back in play and it remains the worst possible outcome in the view of economists at Berenberg Bank and ING-DiBa AG. 

• Samaras Faces Greeks Skeptical of His Euro-Exit Warnings. “It’s all propaganda meant to scare people,” Moschou said on Jan. 2 as she served Greek wine and brandy to customers at Vrettos, a 106-year-old distillery tucked away in the old town of Athens below the Acropolis. “I don’t believe it.”

• Ruble Starts New Year With Plunge as Oil Declines to 2009 Low. The ruble picked up right where it left off last year, weakening as oil prices extended declines. Russia’s currency slid 7.2 percent to 60.37 per dollar at 8:06 p.m. in Moscow, in its first day of trading of 2015 after a 46 percent decline last year. Government bonds fell, with the five-year yield climbing 16 basis points to 15.63 percent.

• EU’s Fractured Politics Is Biggest 2015 Risk, Eurasia Group Says. The success of anti-European Union parties and fraying bonds among EU nations are the biggest risks facing investors in 2015, Eurasia Group said. The stand-off over Ukraine between Russia and the U.S. and its European allies, China’s slowing economy and Islamic State’s designs outside of its Iraqi and Syrian bases are among the New York-based Eurasia Group’s leading threats for this year, according to its annual Top Risks report released today.

• German Inflation, Weakest Since 2009, Raises Pressure on ECB. German consumer prices are close to stagnating, adding to signs that euro-area inflation is turning negative and potentially bolstering the case for more European Central Bank stimulus. Inflation in the region’s largest economy slowed to 0.1 percent in December, the Federal Statistics office said today. That’s the lowest rate since October 2009 and below the median forecast of 0.2 percent in a Bloomberg survey of economists. 

• Get Used to Higher Stock Volatility, Deutsche Bank Says: Options. While unanimity is the buzzword for strategists forecasting gains in the U.S. stock market this year, another consensus is developing among options analysts. Deutsche Bank AG became at least the third major bank telling equity derivatives clients to prepare for more frequent bouts of turbulence in 2015 as the Standard & Poor’s 500 Index (VIX)’s bull market approaches its seventh year. The opinion came before the benchmark gauge plunged as much as 1.9 percent today and the Chicago Board Options Volatility Index increased for the fifth time in six days. 

• Aurelius Pushes Petrobras Debt Claim as Default Odds Soar. Aurelius Capital Management LP’s bid to declare Petroleo Brasileiro SA (PETR4) in default underscores just how far the state-controlled oil producer has fallen in the eyes of bond investors. The cost to protect against a Petrobras non-payment for one year has soared to the highest since the aftermath of the financial crisis, after the New York-based hedge fund said in a letter obtained by Bloomberg News last week that the company had violated debt contracts by failing to report third-quarter results.

• Emerging Stocks Decline With Currencies on Greece; Ruble Weakens. Emerging-market stocks fell for a third day and currencies weakened as speculation that Greece may drop the euro reduced demand for riskier assets. A gauge of 20 developing-nation currencies slid 0.6 percent to a 12-year low. Sasol Ltd. (SOL), world’s biggest maker of motor fuel-from-coal, dropped the most in a month in Johanesberg. Petroleo Brasileiro SA paced a slump in Brazilian stocks. Dubai’s DFM General Index led losses in the Gulf region as Brent crude touched the lowest level since May 2009. The ruble tumbled 6.2 percent. Turkish bonds and stocks climbed after a report showed the nation’s inflation rate dropped more than economists forecast. The MSCI Emerging Market Index slid 1.3 percent to 941.35 at 11:05 a.m. in New York.

• Europe Stocks Slide Most in More Than Three Years on Oil, Greece. A slump in energy shares and concern that Greece may leave the European currency union sent euro-area stocks to their biggest slump in more than three years. The Euro Stoxx 50 Index slid 3.7 percent to 3,023.14, and the Stoxx Europe 600 Index dropped 2.2 percent to 333.99 at the close of trading. Greek lenders posted some of the biggest losses on the Stoxx 600, as the ASE slid 5.6 percent to its lowest close since November 2012. Piraeus Bank SA slumped 5.2 percent, National Bank of Greece SA dropped 7.4 percent, Alpha Bank AE slid 5.7 percent and Eurobank Ergasias SA declined 6.9 percent. 

• WTI Falls Below $50 a Barrel First Time in 5 1/2 Years. WTI slid as much as 5.2 percent in New York. Brent fell below $55 in London for the first time since May 2009. Russia’s output rose to a post-Soviet high while Iraq, the second-largest producer in OPEC, plans to boost crude exports to a record this month. 

• Copper Extends Drop to Lowest in Four Years Amid Greece Concern. Copper futures for March delivery declined 1.8 percent to settle at $2.766 a pound at 1:23 p.m. on the Comex in New York, the biggest drop for a most-active contract since Dec. 15. Earlier, prices reached $2.744, the lowest since June 2010.

• Bears go missing in S&P 500 forecasts. Two years of stocks going straight up have chased just about every skeptic from the U.S. market. Among professional forecasters on Wall Street, none tracked by Bloomberg sees a retreat in 2015, with the average estimate calling for an 8.1 percent advance. At the same time, buyers of exchange-traded funds ended an obsession with bonds last quarter, sending four times as much cash to U.S. shares. Pessimism, the constant companion of a bull market poised to become the second-longest since the Kennedy administration, is suddenly nowhere to be found after the Standard & Poor’s 500 Index climbed 44 percent since 2012. While strategists are predicting a rally that would rank as the smallest in four years, the threat of higher interest rates and weakening prospects for global growth aren’t creating any full-blown bears after the U.S. beat all but four of the largest developed markets in 2014.

Wall Street Journal: 

• France and Germany Push Athens on Bailout Commitments. French President Francois Hollande Raises Possibility of Greece Leaving Eurozone. France and Germany on Monday stepped up pressure on Greece to meet the terms of its two international bailouts, returning to the brinkmanship of the eurozone debt crisis as the shared currency dropped to a nine-year low. 

• As the Euro Takes a Fresh Dive, Here’s What Strategists Think. 

MarketWatch.com:

• 8 technologies that will change the way you do everything.

• Some traders are betting on $20 oil. 

CNBC: 

• Paul Tudor Jones shutting down a fund; here's why. (video)

• Gilead(GILD) fights back: CVS to cover its hepatitis C drugs exclusively.

ZeroHedge:

• Is Citi(C) The Next AIG: 70 Trillion Reasons Why Citigroup And Congress Scrambled To Pass The Swaps "Push-Out" Rule. (graph)

• Jeff Gundlach: "If Oil Drops To $40 The Geopolitical Consequences Could Be Terrifying".

• Blackstone's Byron Wien Unveils 10 Surprises (Non-Predictions) For 2015.

• "There Is Moar Blood" WTI Crude Plunges Into The $40s. (graph)

• 10% Of Morgan Stanley High Net Worth Clients Just Had Their Data Stolen.

• Goldman's(GS) Modest Proposal: It May Be Time To Break Up JPMorgan(JPM).

• 2014 Hedge Fund Hall Of Fame: The 100 Best-Performing Hedge Funds. (table)

Business Insider:

• 2015 Could Be The Year We Witness The 'Weaponization Of Finance'.

• The American Dream Is Dying. (graph)

• This Annotated S&P 500 Chart Gives Investors The Chills. (graph)

• Greek Stocks Are Getting Hammered Again.

• It Isn't Clear Which US Official Is Actually In Charge Of The War Against ISIS.

Telegraph:

• China's reaction to oil prices may be hidden factor behind oil price plunge. Plunging oil price and cyber attacks are the two big risks to global security according to security consultancy Control Risks.

Bear Radar

Style Underperformer:

• Large-Cap Value -2.01%

Sector Underperformers:

• 1) Oil Tankers -6.76% 2) Coal -5.93% 3) Energy -4.85%

Stocks Falling on Unusual Volume:

• IGOV, CHRW, LOCK, NOC, USM, AVX, VNCE, ARMK, SSL, FLS, E, WTW, TOT, CIB, PEO, APOG, BTI, ESL, PHG, SNY, BBL, GDV, BP, NNI, NRX, AB, SEM, CAT, WTW and SCHN

Stocks With Unusual Put Option Activity:

• 1) BBY 2) XLF 3) EWG 4) KRE 5) DO

Stocks With Most Negative News Mentions:

• 1) CAT 2) MS 3) AKAM 4) COP 5) JPM
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Small-Cap Growth -.62%

Sector Outperformers:

• 1) REITs +.17% 2) Gold & Silver -.41% 3) Biotech -.43%
  

Stocks Rising on Unusual Volume:

• CNAT, CEMP, ISIS, KITE, CMCM, LOCO, ICPT and SGMS

Stocks With Unusual Call Option Activity:

• 1) BBBY 2) CSX 3) KO 4) OCR 5) ISIS
  

Stocks With Most Positive News Mentions:

• 1) CME 2) GPS 3) ZMH 4) REGN 5) CEMP
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume