Bull Radar

Style Outperformer:

• Mid-Cap Value -.17%

Sector Outperformers:

• 1) Airlines +1.89% 2) Homebuilders +1.07% 3) HMOs +.83%
  

Stocks Rising on Unusual Volume:

• SJM, DIS, SNE, RNG, KSS, WNC, CTSH, WHR, EW and MANH

Stocks With Unusual Call Option Activity:

• 1) EPI 2) DIS 3) LVLT 4) USG 5) LNCO
  

Stocks With Most Positive News Mentions:

• 1) CLX 2) ATHN 3) COST 4) TE 5) DIS
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Wednesday Watch

Evening Headlines 
Bloomberg:   

• Inflation Outpaces Annual Earnings Gain for Japanese Workers. Rising living costs in Japan outpaced annual earnings that increased for the first time in four years in 2014 as the government sought to reflate the world’s third-largest economy. Average earnings climbed 0.8 percent last year while adjusted for inflation, pay fell 2.5 percent, the labor ministry said in Tokyo. Base wages excluding overtime and bonuses were unchanged in 2014, ending eight years of declines, preliminary data released Wednesday show. Earnings that trail inflation crimp the spending power of Japanese households, undermining the sustainability of price gains.

• Russia’s Shock Rate Turnaround Seen as Harbinger of More Easing. It didn’t take long for economists to change their minds about the road ahead for Russian monetary policy. After a surprise cut on Jan. 30, the Bank of Russia’s next move will be another reduction, according to 30 of 33 economists surveyed by Bloomberg, with 70 percent forecasting the move by the end of April. That compares with a majority predicting last week that borrowing costs would be held until at least June. Four economists now said the key rate may be lowered at an unscheduled meeting as early as this month.

• PBOC Resists Rate-Cut Wave on $91 Billion Outflow: China Credit. China’s markets signal the central bank won’t join a global wave of interest-rate cuts, as capital outflows that reached $91 billion last quarter weaken the yuan. The cost of one-year swaps, a fixed payment to receive the floating seven-day repurchase rate, climbed 16 basis points last week, the most in two months, and was at 3.36 percent as of 10:50 a.m. in Shanghai Wednesday. The Shanghai Composite stock index fell 4.2 percent, the biggest five-day drop in more than a year, as regulators curbed buying of shares with borrowed funds. 

• China Services Gauge Slips to Six-Month Low as Slowdown Spreads. A gauge of China’s services industry expanded at the weakest pace in six months as a slowdown spreads to areas of the economy that had been outperforming the nation’s flagging factories and sagging property market. The Services Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics for January was at 51.8, down from 53.4 a month earlier. Numbers above 50 indicate expansion.

• Asia Stocks Extend Global Gains; Oil Slips as Bonds Slide. Asian stocks headed for the biggest gain in six weeks and emerging-market currencies strengthened after a three-day rally in commodities. The yen weakened and sovereign bonds fell. The MSCI Asia Pacific Index gained 1.5 percent by 11:08 a.m. in Tokyo, as sub-indexes of materials and energy companies surged more than 2 percent. Standard & Poor’s 500 Index futures were little changed. U.S. oil slipped 1.7 percent after a four-day, 19 percent rebound through yesterday, its biggest such rally since January 2009. Malaysia’s ringgit rose with the country’s stocks after a two-day holiday. The yen was 0.4 percent weaker as yields on Japan’s 10-year bond rose three basis points and Australian and U.S. notes dropped. 

Wall Street Journal:

• Russian Intransigence on Ukraine Prompts U.S. to Reconsider Policy. As Kerry Heads to Kiev, Obama Administration Reconsiders Lethal Military Aid. Nearly a year after Russia began its military campaign in Ukraine, the U.S. and its European allies find themselves in a familiar predicament: struggling to devise a strategy to get Moscow to back off. While Western economic sanctions, combined with a steep drop in the price of oil, have inflicted heavy damage on the Russian economy, they’ve done nothing to temper the Kremlin’s support for eastern Ukraine’s separatist insurgency, U.S. officials acknowledge. “It’s fair to say that costs haven’t risen high enough for the Russian leadership to rethink their course of action,” a senior Obama administration official said.

• Wisconsin GOP Gov. Walker Takes Aim at College Outlays, Professors. Likely Presidential Candidate Proposes a $300 Million Cut to State’s University System. Wisconsin Gov. Scott Walker’s 2011 fight with public-sector unions sparked huge protests—and elevated him into a national figure in conservative politics. Now, as he eyes a run for president, he is targeting another group on the public payroll: university professors.

• As Oil Prices Climb, Some Harbor Doubts. Crude Jumps 7% on Indications of Production Slowdown, Even as Inventory Data Point to Supply Glut.

CNBC:

• Oil expert: This is a ‘dead cat bounce’. (video)

• Disney(DIS) earnings: $1.27 per share vs. expected EPS of $1.07.

Zero Hedge:

• Chelsea Clinton's Husband Suffers Massive Hedge Fund Loss On Greek Investment. By 'incorrect' Chelsea Clinton's husband means the Eaglevale fund focused on Greece lost a stunning 48% last year and, as The Wall Street Journal reports, is impacting the overall returns of the roughly $400 million fund which has spent 27 of its 34 months in operation below its "high-water mark."  

• Despite CSX(CSX) CEO's Confidence, US Oil Railcar Rates Have Crashed To 3 Year Lows.

• Stocks Soar On "Higher Gas Prices Are Good" Narrative; Bonds & Greenback Battered. (graph)

• "This Is Effectively 'World War III'", Iraq Warns "All The World's Capitals Are Under Threat From ISIS".

• US Domestic Vehicle Sales Disappoint In January, Drop For 2nd Month. (graph)

• Energy Company Valuations Explode To Dot Com Bubble Levels.

• What The Rig Plunge Really Means For The Price Of Oil. (graph)

• The Health Of This Market Is Fading Fast. (graph)

• Is It Socialism Or Just Failure?

• "The Stage Is Set For A Massive Housing Market Correction in Canada's Oilpatch".

•  Is The Bank Of Japan Losing Control? JGB Yields Surge Most Since 2003. (graph)

Business Insider:

• Chipotle(CMG) sales disappoint, stock falls 6%. Chipotle's fourth-quarter results are out, and the numbers are mostly in line with expectations, though same-store sales came in below expectations. In after-hours trading following the results, shares of the Mexican-food chain were down as much as 7%.

• Putin says Ukraine needs to repay a $3 billion loan because Russia needs the money to fight its financial crisis.

• Wynn(WYNN) earnings were somehow worse than everyone imagined. Macau's malaise strikes again. This time its victim is Steve Wynn and his Wynn Resorts casino empire. The company just released its fourth quarter 2014 earnings, and they were even worse than the mess analysts had pictured. The stock is now falling in after hours trading, down about 3.5%.

• At least 6 killed after New York City commuter train hits vehicle.

Reuters:

• Gilead(GILD) boosts hepatitis C drug discounts, shares slide. Gilead Sciences Inc on Tuesday said it is offering steeper-than-expected discounts on its hepatitis C drugs to health insurers and other group payers who had complained about the price, and the drugmaker's shares slid more than 5 percent.

Bild:

• Three-Fourths of Germans Oppose New Aid for Greece. 73% believe the European Union shouldn't yield to Greek demands for additional financial assistance, citing a survey by the research institute INSA for the newspaper.

vbw-Unternehmermagazin:

• Weidmann Says Sovereign QE Is Not Normal Policy Instrument. "The purchase of government bonds is not a normal monetary-policy instrument in my opinion," Bundesbank President Jens Weidmann says in interview. QE entails "too many risks and side effects, which outweigh the benefits from the current point of view," he said.

Nikkei:

• Japan to Consider Patrolling South China Sea. Govt will consider dispatching self-defense force ships, aircraft to South China Sea, citing Japanese Defense Minister Gen Nakatani.

Evening Recommendations 

• None of note

Night Trading

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

• Asia Ex-Japan Investment Grade CDS Index 107.0 -3.0 basis points.

• Asia Pacific Sovereign CDS Index 67.75 -2.25 basis points.

• S&P 500 futures -.11%.

• NASDAQ 100 futures -.19%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (ADP)/.68

• (BSX)/.21

• (CLX)/.90

• (GM)/.82

• (HUM)/1.15

• (MRK)/.86

• (RL)/2.52

• (SNE)/29.0

• (SO)/.38

• (WHR)/3.16

• (ALL)/1.68

• (CBG)/.70

• (GMCR)/.89

• (NE)/.49

• (PRU)/2.37

• (UA)/.39

• (WFT)/.32

• (YUM)/.66

Economic Releases
8:15 am EST

• The ADP Employment Change for January is estimated at 220K versus 241K in December.

9:45 am EST

• Final Markit US Services PMI for January is estimated at 54.1 versus a prior estimate of 54.0.

10:00 am EST:

• ISM Non-Manufacturing Composite for January is estimated to rise to 56.4 versus 56.2 in December.

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory build of +3,940,000 barrels versus a +8,874,000 barrel gain the prior week. Gasoline supplies are estimated to fall by -450,000 barrels versus a -2,587,000 barrel decline the prior week. Distillate supplies are estimated to fall by -1,210,000 barrels versus a -3,892,000 barrel decline the prior week.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Mester speaking, Fed's Powell speaking, Eurozone Services PMI, weekly MBA Mortgage Applications Report, Cowen Aerospace/Defense Conference, (TXN) strategy update and the (NAV) analyst day could also impact trading today.

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

Stocks Surging into Final Hour on Less Eurozone/Emerging Markets/US High-Yield Debt Angst, Oil Bounce, Short-Covering, Energy/Gaming Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Higher
  

• Sector Performance: Most Sectors Rising
  

• Volume: Around Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 17.93 -7.72%

• Euro/Yen Carry Return Index 141.08 +1.21%

• Emerging Markets Currency Volatility(VXY) 10.72 -2.01%

• S&P 500 Implied Correlation 65.01 +.40%

• ISE Sentiment Index 67.0 -31.6%

• Total Put/Call .96 -9.43%

• NYSE Arms .52 -11.29% 

Credit Investor Angst:

• North American Investment Grade CDS Index 66.22 -3.04%
• America Energy Sector High-Yield CDS Index 768.0 -.11%

• European Financial Sector CDS Index 62.75 -5.97%

• Western Europe Sovereign Debt CDS Index 25.42 -3.49%
• Asia Pacific Sovereign Debt CDS Index 68.78 -1.72%

• Emerging Market CDS Index 383.48 -4.88%

• iBoxx Offshore RMB China Corporates High Yield Index 113.50 +.02%
• 2-Year Swap Spread 25.0 +1.25 basis points

• TED Spread 24.25 -.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -15.25 -.75 basis point

Economic Gauges:

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

• Yield Curve 127.0 +7.0 basis points

• China Import Iron Ore Spot $63.18/Metric Tonne +1.17%

• Citi US Economic Surprise Index -13.0 -4.5 points
• Citi Eurozone Economic Surprise Index 12.60 +.6 point

• Citi Emerging Markets Economic Surprise Index -5.90 -.7 point

• 10-Year TIPS Spread 1.70 +6.0 basis points

Overseas Futures:

• Nikkei Futures: Indicating +245 open in Japan

• DAX Futures: Indicating +24 open in Germany

Portfolio: 

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

• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges, then added them back

• Market Exposure: 50% Net Long

Today's Headlines

Bloomberg:

• Ukraine Conflict Toll Rises as Warring Factions Muster Forces. The death toll of Ukraine’s separatist conflict jumped at end January, the United Nations said, as civilians fled a battle for a crossroad town and the government and rebels moved to pour more weapons and men into the fight. Germany said the European Union may slap new sanctions on Russia if the crisis worsens, while the town of Debaltseve, a key railway and road crossing between the cities of Donetsk and Luhansk, remained under fire from separatists, according to Ukrainian military spokesman Leonid Matyukhin. The region of Donetsk, where 3,070 people have fled the most dangerous locations since Jan. 28, is continuing efforts to evacuate people, the regional government said on its website. The “issue of evacuating civilians, including children, needs to become one of the key priorities,” Iryna Herashchenko, Ukrainian President Petro Poroshenko’s envoy to eastern Ukraine, said in Kiev on Tuesday, calling for a meeting with the Red Cross and the United Nations.
• Greek Retreat on Writedown May Move Fight to Spending. Greece’s retreat from its call for a debt writedown may shift attention to the second front in Prime Minister Alexis Tsipras’s conflict with euro-area leaders: his desire to increase spending and roll back austerity. Tsipras won election Jan. 25 on promises to raise wages and pensions, end public-sector firings and stop state asset sales - - all policies that would breach the conditions on the bailout aid. He also advocated a writedown, a policy dropped late Monday in favor of a debt exchange amid virtually unanimous opposition in the euro area. “Reality is about to bite: Tsipras will realize that the constraints are very tight,” Kevin Featherstone, professor of contemporary Greek studies at the London School of Economics, said in an e-mail. “It seems certain that the euro zone will insist on Greece committing itself to continued structural reform.”  
• Greek Bonds Rally With Italian Peers as Tsipras Said to Retreat. Greece’s three-year notes rallied and credit-default swaps tied to its bonds slid as the government was said to retreat from a demand for a debt writedown, looking to avoid a crisis that may have led to private-investor losses.
• Germany’s Yield Below Japan 1st Time Bodes Ill for Europe. For the first time on record, Germany’s 10-year yields are below Japan’s, an ominous signal for European Central Bank President Mario Draghi as he seeks to revive the euro area’s economy. Tumbling rates on German debt, the euro area’s benchmark sovereign securities, are inviting comparisons with Japan, a nation wracked by decades of zero nominal economic growth and falling consumer prices. Germany’s inflation rate turned negative in January for the first time in more than five years, while the ECB is preparing to pump more cash into the region’s economy via a quantitative-easing program to fend off the risk of deflation. “It doesn’t provide much in the way of reassurance in terms of the market’s take on the ECB’s ability to reflate the economy via its imminent foray into QE,” said Richard McGuire, head of European rates strategy at Rabobank International in London. “Japanification of Europe is quite a familiar theme. The market is of the view that the disinflationary forces currently gripping Europe are by no means transitory.”
• Empty VIP Tables in Macau Means Trouble for $44 Billion Industry. In the heart of Macau stands a 56-story tower with soaring gold-trimmed arches. On the second floor of the L’Arc Macau, there’s a sight that would have been unimaginable a year ago: An abandoned room for high-end gamblers. There are no tables, no dealers and no players. Carpets have been rolled up, leaving a trash-covered concrete floor. A sign on the VIP room reads “Heng Sheng Group,” one of Macau’s top junket operators, which shuttle Chinese high-rollers to exclusive gaming venues and finance their bets.  
• LVMH Earnings Miss Estimates as Chinese Spend Less on Luxury. LVMH Moet Hennessy Louis Vuitton SA, the world’s largest luxury-goods maker, reported full-year earnings that missed analysts’ estimates as Chinese shoppers curbed spending on Vuitton handbags and Hennessy cognac. Profit from recurring operations fell to 5.72 billion euros ($6.6 billion) from 6.02 billion euros in 2013, Paris-based LVMH said today in a statement after markets closed, the first annual decline since 2009. Analysts predicted 5.83 billion euros, according to the average of 25 estimates.  
• European Stocks Rise as Greece Backs Down From Writedown Request. European stocks climbed as concern that Greece would defy its creditors eased after the nation retreated from a plan to ask the euro area to write down debt. The Stoxx Europe 600 Index rose 0.8 percent to 370.28 at the close of trading. The gauge pared gains of as much as 1.3 percent after a person familiar with the matter said Germany expects talks with Greece to drag on until the current round of aid runs out. 
• Commodities Head for Biggest 3-Day Rally Since 2012 as Oil Gains. Commodities are showing signs of life after prices fell to a 12-year low. Brent crude is poised for a bull market, climbing 2.6 percent as of 11:42 a.m. in New York on speculation that production will be curbed. The Bloomberg Commodity Index of 22 raw materials advanced 1.3 percent to 102.68, set for the best performance over three days since 2012. Sugar, copper and wheat advanced more than 2 percent.
• Abu Dhabi Cuts Oil Prices to Six-Year Lows in Global Crude Rout. Abu Dhabi, the desert emirate holding about 6 percent of the world’s oil, cut export prices for its crude for the seventh consecutive month and to the lowest since 2009 amid a global price slump. Murban crude, its main grade, sold in January for $46.40 a barrel, or 23 percent below December’s level, according to an e-mailed statement from Abu Dhabi National Oil Co. Murban hasn’t sold for less since February 2009, data compiled by Bloomberg show.
• Staples(SPLS) and Office Depot(ODP) Surge After Discussing Merger. Staples Inc. and Office Depot Inc. shares soared after the two retailers were said to enter merger talks, bowing to pressure from activist investor Starboard Value to pool their resources.

Wall Street Journal:

• January U.S. Auto Sales Held Strong. GM, Ford, Toyota, Chrysler Post Double-Digit Percentage Increases. 
• S&P Cuts Ratings on Several European Banks. Credit Rater Sees Government Support As Less Predictable Under New Legislation.

MarketWatch.com:

• The Dow Theory is now flashing a ‘sell’ signal.

Fox News:

• New ISIS video purportedly shows Jordanian pilot being burned alive. (video) A new video that surfaced on the Internet Tuesday appears to show ISIS burning alive a Jordanian pilot the terror group has held since December -- an act that reportedly has prompted Jordan to ready its own terrorist prisoners for execution.

CNBC:

• 'Currency war' to be 'lose-lose' game: Strategist.
• Why one veteran VC is investing, despite seeing a bubble.

ZeroHedge: 

• Gallup CEO: "America's 5.6% Unempoyment Is One Big Lie".
• ISIS Burns Alive Jordanian Hostage Pilot; Offers Gold Reward For Death Of More Coalition Pilots.
• WTI Squeezes Above $52 As Gasoline Prices Start 2015 With Biggest Surge In A Decade. (graph)
• S&P Downgrades Numerous European Banks, Warns Deutsche Bank May Be Next.
• Who Owns Greek Debt And When Is It Due?.
• The Best And Worst Hedge Funds Of January 2015. (table)
• Factory Orders Plunge 5th Month In A Row As ISM New York Crashes Most Since 2007. (graph)
• Oil's Biggest Bounce Since OPEC "But Economy Is Not Strong & Stocks Too High". (video)
• Back To Square One: Germany Throws Up All Over Varoufakis Proposal, Calls Greek Plan "Half-Baked"

Business Insider: 

• Chris Christie's London trip was a disaster.
• Russia has announced plans for joint military drills with North Korea.
• Russian oligarch: The Kremlin's 'anti-crisis' plan is 'nonsense'.
• Ultra-low interest rates are actually a very bad sign for stocks.
• The latest ISIS rampages send 3 messages.
• Inflation in Russia is so crazy that officials are considering price controls on 'essential food products'.

Reuters:

• Cuba sounds warning ahead of next round of U.S. talks. Cuba warned the United States on Mondaythat it wants American diplomats to scale back aid for Cuban dissidents before the two countries can reopen embassies in each other's capitals. The long-time adversaries are negotiating the restoration of diplomatic relations as a first step toward reversing more than five decades of confrontation. Officials for both governments met in Havana in January and a second round of talks is expected to be held in Washington this month.
• Russia would lose $160 billion a year from $45 oil - central bank. Russia would lose some $160 billion (106 billion pounds) over a year if oil prices averaged $45 per barrel, Central Bank Governor Elvira Nabiullina said on Tuesday. "The decrease in oil prices from $100 to $45 per barrel has led to a drop in export revenues of $160 billion in annual terms, according to our estimates," Nabiullina told journalists.

Financial Times: 

• European Central Bank resists latest Greek bailout plan. The European Central Bank is resisting a key element of the Greek government’s new rescue plan, potentially leaving Athens with no source of outside funding when its international bailout expires at the end of the month. Yanis Varoufakis, Greek finance minister, had proposed to European officials that Athens raise €10bn by issuing short-term Treasury bills as “bridge financing” to tide the country over for the next three months while a new bailout is agreed with its eurozone partners.

Bear Radar

Style Underperformer:

• Large-Cap Growth +.38%

Sector Underperformers:

• 1) Biotech -2.52% 2) Gold & Silver -1.53% 3) Airlines -.83%

Stocks Falling on Unusual Volume:

• KTWO, SSYS, RCII, RAVE, PRLB, DBVT, GNC, MTSI, ARDX, BAH, OPK, LMNX, DDD, NOV, CCMP, ISIS, MNK, HTLD, IBB, NAO, IPHI, BIB, EGP, ALK, VRX, ALK, GDOT, GNC, BHE, PRLB and BLUE

Stocks With Unusual Put Option Activity:

• 1) SPLS 2) DNR 3) WFM 4) EWG 5) DO

Stocks With Most Negative News Mentions:

• 1) SSYS 2) HCA 3) CNP 4) MMM 5) PBR
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Small-Cap Value +1.17%

Sector Outperformers:

• 1) Steel +3.98% 2) Oil Service +2.90% 3) Coal +2.66%
  

Stocks Rising on Unusual Volume:

• ESPR, ADVS, CSIQ, IDTI, SPLS, WLL, SM, AN, LEA, SPR, LPI, OAS, WPZ, ROSE, SN, LINE, SSNC, TROX, SC and EPE

Stocks With Unusual Call Option Activity:

• 1) FSL 2) ODP 3) NLY 4) OAS 5) SSYS
  

Stocks With Most Positive News Mentions:

• 1) JEC 2) LMT 3) WLL 4) EMN 5) JLL
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume