Wednesday, September 16, 2015

Bear Radar

Style Underperformer:
  • Small-Cap Growth +.19%
Sector Underperformers:
  • 1) Hospitals -1.01% 2) Biotech -1.0% 3) Homebuilders -.63%
Stocks Falling on Unusual Volume:
  • MRTX, SIRO, XRAY, PAYC, GSBD, CBRL, FDX, SONC, THG, FMI, ININ, RMBS, JNP, FOLD, PKE, GRUB, PDCO, ARDX, VLO, XLRN, RTRX, DRI and XPO
Stocks With Unusual Put Option Activity:
  • 1) APA 2) DHR 3) XLP 4) S 5) PYPL
Stocks With Most Negative News Mentions:
  • 1) S 2) FOLD 3) PEB 4) WRK 5) CRI
Charts:

Bull Radar

Style Outperformer:
  • Mid-Cap Value +.95%
Sector Outperformers:
  • 1) Gold & Silver +5.21% 2) Oil Service +3.14% 3) Energy +1.98%
Stocks Rising on Unusual Volume:
  • ADEP, ITCI, AIRM, TAP, BUD, XNCR, COLL, MEG, MXL, STRZA, EFOI, ENDP, ASNA, MTDR and PCL
Stocks With Unusual Call Option Activity:
  • 1) TAP 2) SWFT 3) HRTX 4) ETFC 5) RMD
Stocks With Most Positive News Mentions:
  • 1) HSY 2) PF 3) CMS 4) JD 5) DVN
Charts:

Morning Market Internals

NYSE Composite Index:

Tuesday, September 15, 2015

Wednesday Watch

Evening Headlines 
Bloomberg:
  • China Faces Parlous Path Toward Yuan and Capital Liberalization. President Xi Jinping’s military parade marking the 70th anniversary of the end of World War II in early September showcased China’s latest fighter jets, missiles and rising military prowess. China hopes a super-sized yuan will someday do the same thing in the economic realm. Xi’s first five-year plan since becoming Chinese President in March 2013, expected out as soon as this year, will chart the path for the second-largest economy’s further global integration. A key part of the effort is promoting the yuan as a rival currency of choice to the U.S. dollar, euro, pound and yen for trade and investment and the gradual opening of China’s closed capital account.
  • No Escape for China Hedge Funds Overwhelmed by Stocks Collapse. It’s about to get even uglier for China’s hedge funds. The newfangled industry, short on expertise and ways to protect itself from market declines, has seen almost 1,300 funds liquidate amid China’s $5 trillion stocks selloff, and a similar number may be at risk, according to Howbuy Investment Management Co. Now, a government crackdown on short selling and other hedging strategies have made prospering in a bear market difficult. 
  • Wages Below China Spark Russian Dreams of Manufacturing Revival. It’s taken a currency crisis and the biggest collapse in wages under President Vladimir Putin to put Russian workers on a more level playing field. The decline in nominal salaries has probably pushed them below Chinese earnings in dollar terms, according to Renaissance Capital and Bank of America. Data set to be released this week will show that Russian wages adjusted for inflation plummeted for a 10th month, falling 9 percent in August and weighing on retail sales, according to the median estimates in Bloomberg surveys. 
  • Copying China Bailout Fund Is Great Way to Lose Money in Stocks. It looked like the perfect target for copycat investors in China: a state-run agency armed with more than $400 billion to prop up share prices. When the filings came in -- showing China Securities Finance Corp. had taken major stakes in companies as part of its market-rescue effort -- traders jumped to buy what they dubbed on social media as “the King’s favorite concubines.” Unfortunately for the copycats, an endorsement from the equity market’s savior has done nothing to ensure outsized returns. In fact, it’s just the opposite -- the stock picks have trailed the broader market. The 46 companies that reported the agency as a top 10 shareholder in the past two months lost an average 29 percent since the announcement, versus a 21 percent drop for the Shanghai Composite Index.
  • European Bankers Can't Catch a Break as Firings Keep Coming. Seven years after the collapse of Lehman Brothers Holdings Inc., Europe’s largest banks are poised for more bloodletting. New management teams at Deutsche Bank AG, Barclays Plc and Standard Chartered Plc are among executives contemplating reorganizations that could involve thousands of job reductions. Deutsche Bank, which runs Europe’s biggest investment bank, may trim 8,000 positions across its businesses, a person familiar with the matter said this week.
  • Asian Stocks Follow U.S. Equities Higher as Consumer Shares Gain. Asian stocks rose, following a rally in U.S. equities, as investors sifted through the latest data on the world’s biggest economy before the Federal Reserve’s decision on interest rates. The MSCI Asia Pacific Index climbed 1 percent to 127.90 as of 9:08 a.m. in Hong Kong, with consumer and industrial shares leading gains. 
  • The Doomsayer's Guide to the Fed, Rates and What Could Go Wrong. It’s the most closely dissected and highly anticipated decision on U.S. interest rates in recent memory. Traders and analysts alike have had years to prepare. So if the Federal Reserve finally does raise rates this week, what could possibly go wrong? Plenty it seems. Some market watchers such as former U.S. Treasury Secretary Larry Summers are warning that financial markets still aren’t ready and could easily be caught off-guard. As Summers and others have pointed out, futures traders are pricing in just a 28 percent chance of an increase this week, based on the assumption that the effective fed funds rate will average 0.375 percent after liftoff.
Wall Street Journal:
  • Asset Managers Face Tough Choice If Rates Rise. An increase in interest rates would force many asset managers to make a hard decision: keep the extra money or pass it along to returns-starved clients. Few areas of finance have as much riding on the Federal Reserve’s interest-rate decision this week as the $2.7 trillion money-market-fund industry. While interest rates have been near zero, asset managers including Charles Schwab Corp. and Federated Investors Inc. have waived more than $30 billion worth of fees on their money funds over the past six years to keep expenses from eating up the funds’ yields and
  • Extend and Pretend for Migrants. The European Union’s plan for immigration is as nonexistent as its plan for debt. In the immediate refugee crisis many Europeans are acting on their humanitarian instincts, and that’s laudable. Angela Merkel, Germany’s leader, has been beatified for spontaneously throwing open her country’s doors to an estimated 800,000 Middle Eastern immigrants.
Fox News:
Zero Hedge:
Telegraph:
Evening Recommendations 
  • None of note
Night Trading
  • Asian equity indices are +.50% to +1.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 130.75 -2.75 basis points.
  • Asia Pacific Sovereign CDS Index 82.5 -3.0 basis points.
  • S&P 500 futures -.27%.
  • NASDAQ 100 futures -.29%.

Earnings of Note
Company/Estimate
  • (CBRL)/1.86
  • (FDX)/2.46
  • (MLHR)/.47
  • (ORCL)/.52
Economic Releases
8:30 am EST
  • The CPI for August is estimated to fall -.1% versus a +.1% gain in July.
  • The CPI Ex Food & Energy for August is estimated to rise +.1% versus a +.1% gain in July.
  • Real Avg. Weekly Earnings YoY for August.
10:00 am EST
  • The NAHB Housing Market Index for September is estimated at 61.0 versus 61.0 in August.
10:30 am EST
  • Bloomberg consensus estimates call for a weekly crude oil inventory gain of +1,790,000 barrels versus a +2,570,000 barrel gain the prior week. Gasoline supplies are estimated to fall by -361,560 barrels versus a +384,000 barrel gain the prior week. Distillate inventories are estimated to rise by +427,220 barrels versus a 952,000 barrel gain prior. Finally, Refinery Utilization is estimated to fall by -.55% versus a -1.9% decline prior.
4:00 pm EST
  • Net Long-Term TIC Flows for July.
Upcoming Splits
  • (MDVN) 2-for-1
Other Potential Market Movers
  • The Eurozone CPI report, Japan Trade Balance data, weekly MBA Mortgage Applications report, Credit Suissee Basic Materials conference, Morgan Stanley Healthcare conference, BofA Merrill Healthcare conference, Goldman Sachs Communacopia conference, Deutsche Bank Technology conference, Barclays Financial Services conference, BofA Merrill Real Estate conference, Citi Industrials conference, CSFB Small/Mid-Cap conference, (PBI) analyst day, (UA) investor day, (DV) investor day and the (ETH) investor conference could also impact trading today.
BOTTOM LINE: Asian indices are higher, boosted by consumer 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 Central Bank Hopes, Oil Bounce, Less Emerging Markets Debt Angst, Transport/Financial Sector Strength

Broad Equity Market Tone:
  • Advance/Decline Line: Higher
  • Sector Performance: Almost Every Sector Rising
  • Volume: Light
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • Volatility(VIX) 22.62 -6.72%
  • Euro/Yen Carry Return Index 141.83 -.18%
  • Emerging Markets Currency Volatility(VXY) 12.33 -2.07%
  • S&P 500 Implied Correlation 63.48 -2.65%
  • ISE Sentiment Index 149.0 -1.0%
  • Total Put/Call 1.13 +10.78%
  • NYSE Arms .66 -32.94% 
Credit Investor Angst:
  • North American Investment Grade CDS Index 79.13 -.72%
  • America Energy Sector High-Yield CDS Index 1,906.0 -1.0%
  • European Financial Sector CDS Index 81.12 -1.67%
  • Western Europe Sovereign Debt CDS Index 21.68 -1.32%
  • Asia Pacific Sovereign Debt CDS Index 82.69 -3.42%
  • Emerging Market CDS Index 344.14 -3.31%
  • iBoxx Offshore RMB China Corporates High Yield Index 118.53 +.27%
  • 2-Year Swap Spread 11.5 -2.0 basis points
  • TED Spread 29.25 -2.0 basis points
  • 3-Month EUR/USD Cross-Currency Basis Swap -27.0 -1.75 basis points
Economic Gauges:
  • 3-Month T-Bill Yield .06% +3.0 basis points
  • Yield Curve 148.0 +3.0 basis points
  • China Import Iron Ore Spot $57.28/Metric Tonne -1.41%
  • Citi US Economic Surprise Index -24.7 -4.4 points
  • Citi Eurozone Economic Surprise Index 20.4 -4.1 points
  • Citi Emerging Markets Economic Surprise Index -24.0 +.3 point
  • 10-Year TIPS Spread 1.57 +1.0 basis point
  • # of Months to 1st Fed Rate Hike(Morgan Stanley) 3.84 -.10
Overseas Futures:
  • Nikkei 225 Futures: Indicating +244 open in Japan 
  • China A50 Futures: Indicating -116 open in China
  • DAX Futures: Indicating +53 open in Germany
Portfolio: 
  • Higher: On gains in my biotech/retail/medical/tech sector longs
  • Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges 
  • Market Exposure: Moved to 75% Net Long

Today's Headlines

Bloomberg:
  • China Stocks Sink Again as Growth Concerns Spur Investor Exodus. China’s stocks slumped for a second day in thin turnover amid concern government measures to support the world’s second-largest equity market and economy are failing. The Shanghai Composite Index dropped 3.5 percent to 3,005.17 at the close, led by commodity producers and technology companies. About 14 stocks declined for each one that rose on the gauge, while volumes were 36 percent below the 30-day average. The index completed its biggest two-day loss in three weeks with a decline of 6.1 percent. Mainland Chinese equity funds lost 44 percent of their value at the end of last month compared with July, data showed Monday, as unprecedented state measures to stop a $5 trillion selloff failed to avert redemption. The CSI 300 Index declined 3.9 percent. Hong Kong’s Hang Seng China Enterprises Index slipped 0.3 percent, while the Hang Seng Index retreated 0.5 percent. The Shanghai index may fall to 2,700 as stocks are still expensive, said Francis Cheung, CLSA head of China and Hong Kong strategy, said in a briefing on Tuesday. Equities on mainland bourses traded at a median 45 times reported earnings last week. That’s the highest among the 10 largest markets and more than twice the 18 multiple for the Standard & Poor’s 500 Index. 
  • China Braces for Second Onshore Bond Default by State Firm. China National Erzhong Group Co. may miss an interest payment later this month after one of its creditors filed a restructuring request, putting it at risk of becoming the second state-owned company to default in the nation’s onshore bond market. The smelting-equipment maker might not be able to pay a coupon that’s due Sept. 28 on its 1 billion yuan ($157 million) of 5.65 percent 2017 notes if a local court accepts the creditor’s restructuring application before that date, according to a statement posted on Chinamoney.com.cn. China National Erzhong, based in China’s western Sichuan province, issued the five-year securities in 2012 at par and the debentures are currently trading at 67.72 percent of that.
  • German Investor Confidence Damped by Weaker Emerging Markets. German investor confidence fell for a sixth month in September, adding to signs that the slowdown in emerging markets threatens to drag on growth in Europe’s largest economy. The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months ahead, slid to 12.1 from 25 in August. The reading compares with a median estimate of 18.3 in a Bloomberg survey of economists. A measure for the euro area also fell.
  • Stock Market Rout Not Over for Canada as Bears Boost Positions. Pessimism remains acute over the outlook for Canada’s largest stocks, with derivatives traders raising their bets that August’s turmoil in global equity markets will continue. Short positions have more than quadrupled since the beginning of 2015 and the ratio of put to call options remains elevated in the C$9.5 billion ($7.2 billion) iShares Standard & Poor’s/TSX 60 exchange-traded fund, according to data compiled by Bloomberg. The largest ETF in Canada tracks the performance of the biggest and most liquid equities in the Toronto Stock Exchange, from Suncor Energy Inc. to Teck Resources Ltd. Commodity producers make up about 27 percent of the gauge, second only to financial services. 
  • European Stocks Rebound as Oil Shares, Carmakers Rise Before Fed. European stocks climbed, led by gains in carmakers and energy producers, after worse-than-forecast data signaled weakness in the U.S. recovery ahead of a Federal Reserve rate decision. Equities are volatile amid concern for global growth before the central bank meeting. The Stoxx Europe 600 Index erased gains in the first hour of trading, and fell as much as 0.6 percent as investors weighed a slump in Chinese shares and declining German investor sentiment. Shares then rose as much as 1.1 percent after U.S. data on retail sales, industrial production and manufacturing in the New York region all missed estimates, two days before the Fed decides whether the U.S. economy is strong enough to withstand its first rate increase since 2006. The Stoxx 600 added 0.8 percent at the close of trading, up for the first time in four days.
  • Shale Drillers Pump More Oil From Each Well as Rigs Mean Less. Shale producers in the U.S. have learned to do more with less. Last year’s price crash forced drillers to cut budgets, reducing the number of rigs in U.S. oil fields by 59 percent from the peak. Crude production, though, has fallen only about 5 percent.
  • Glencore Slumps to Record Low, Erasing Gains Since Debt Plan. Shares of Glencore Plc slumped to a record low, erasing gains since announcing a $10 billion debt-reduction plan designed to reassure investors amid mounting concern about the commodity trader and miner’s borrowing load. The stock slumped as much as 7.7 percent to 118.1 pence in London trading and was 4 percent lower at 122.75 pence by 12:38 p.m.  
  • Brazil Real Leads Losses as Goldman Sachs Doubts Political Will. (video) Brazil’s real led global losses as Goldman Sachs Group Inc. questioned the viability of government proposals to shore up its finances. The currency traded near a 12 year-low, extending this year’s rout to 31 percent and dropping the most among the world’s 16 major currencies. Most of the government measures proposed on Monday require approval from Congress, which could be difficult as President Dilma Rousseff struggles with record-low popularity and the longest recession since the 1930s, said Alberto Ramos, the chief Latin America economist for Goldman Sachs.
  • Investors Brace for Defaults as Distressed Debt Swamps Market. Junk-bond investors are bracing for a surge in corporate defaults that would exceed the most pessimistic forecast from credit raters as the Federal Reserve contemplates its first interest-rate increase since 2006. A measure of distress in the market is suggesting investors have priced in a default rate of 4.8 percent during the next 12 months, according to Martin Fridson, a money manager at Lehmann Livian Fridson Advisors LLC. That’s almost two percentage points higher than the pace being projected for June next year by Standard & Poor’s, the world’s biggest credit rater, as concern mounts that energy companies that loaded up on cheap debt are going to struggle to refinance.
  • Yellen's Former Aide Says a Rate Hike Would Be a Serious Error. There's labor supply out there that isn't measured by the jobless rate. The U.S. is probably about two years away from achieving full employment, no matter what the jobless rate suggests and Federal Reserve officials think. That's the view of  Andrew Levin, who served as a special adviser to former Fed Chairman Ben S. Bernanke and then-Vice Chair Janet Yellen from 2010 to 2012. "We're not even close to full employment,'' he said in an interview. 
  • Fed Forgoing September Risks Spoiling Bond Market's Gradual Path. As the Federal Reserve prepares to raise interest rates for the first time since 2006, almost all the talk of a potential policy misstep has centered on the peril of hiking too soon. The bigger concern is if the Fed waits too long, say Thomas Lam at RHB Securities Singapore Pte. Ltd and David Glocke at Vanguard Group Inc. A decision to keep the overnight rate near zero on Sept. 17 may wind up jolting debt markets more than actually raising it, said Lam, who according to Bloomberg was the fourth-most accurate forecaster of the U.S. economy last quarter.
  • What's Behind Hillary Clinton's Drop in the Polls? Clinton has become the most polarizing candidate for members of her own party. Eleven percent of Democrats polled in an August Quinnipiac University survey said they would never vote for her, the most for any Democratic candidate. Worse, “liar” was the first word that came to mind when respondents were asked what they thought of Clinton, according to the poll.

Wall Street Journal
CNBC: 
  • This might be the worst Fed option. Whatever the Fed does Thursday will surprise someone, but not taking action could result in the least favorable course for markets since it will prolong the uncertainty.
Zero Hedge: