Bear Radar

Style Underperformer:

• Large-Cap Value +.17%

Sector Underperformers:

• 1) Gaming -1.81% 2) Coal -1.67% 3) Telecom -.83%

Stocks Falling on Unusual Volume:

• CLC, APOG, DATA, WWW, MRTX, INTU, HURN, CAF, ORCL, EFOI, MW, BUD, TCP, RMP, VZ, TEX, CAVM, FMC, IMO, CBD, RIO, WUBA, CLH, PAC and ICON

Stocks With Unusual Put Option Activity:

• 1) ORCL 2) TGT 3) MRK 4) ETP 5) IWO
  

Stocks With Most Negative News Mentions:

• 1) CLC 2) PBR 3) HAS 4) WWW 5) HPQ
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Small-Cap Growth +.79%

Sector Outperformers:

• 1) Airlines +1.57% 2) Hospitals +1.14% 3) Biotech +.98%
  

Stocks Rising on Unusual Volume:

• AERI, CVC, ITCI, NVRO, MXL, SHOP, TGTX, UAL, ADXS, DXCM, TTPH, ZUMZ, MXL, LXRX and LLY

Stocks With Unusual Call Option Activity:

• 1) NLY 2) ZTS 3) LC 4) PCL 5) CVC
  

Stocks With Most Positive News Mentions:

• 1) UA 2) AERI 3) GPS 4) HBI 5) NVDA
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Morning Market Internals

NYSE Composite Index:

• Volume Running 7.8% Below 100-Day Average
• 5 Sectors Rising, 5 Sectors Declining
• 52.3% of Issues Advancing, 43.2% Declining
• 22 New 52-Week Highs, 19 New Lows
• 26.8% of Issues Above 200-day Moving Average
• Average 14-Day RSI 42.7
• Vix 22.0
• Total Put/Call .79
• TRIN/Arms 1.31

Thursday Watch

Evening Headlines 

Bloomberg:

• Macquarie: Emerging Markets Are Not Facing a 1997-Style Crisis—They're Facing Something Worse. Instead of sharp heart attack (a la 1997), it is far more likely that EM economies and markets would face an extended period that can be best described as a “chronic disease”, with limited (if any) cures or exits, punctuated by occasional significant flare-ups (short of an outright heart attack). In many ways it is likely to be a far more painful and insidious process. In the meantime, any signs of significant strain (either at a country or corporate level) could easily freeze up the emerging market universe. The crux of their argument is that despite the difficulties of 1997, its effects were mitigated by rising global leverage, liquidity, and trade shortly thereafter. This time around, those factors might not be there.

• Hedge Fund Returning 107% Sees More China, Emerging-Market Pain. (video) Bakhramov finally got his wish in July and August, as did a handful of managers who made multi-year wagers that emerging-market stocks and currencies would begin to tumble, starting with a downturn in China. Forum’s main fund notched a 24 percent gain in July and jumped 60 percent the following month, fueled by short positions in the Chinese yuan and the Taiwanese and Singapore dollars, according to a letter to investors obtained by Bloomberg. All told, the fund has soared 107 percent this year through August. "We’re basically long volatility," Bakhramov, who previously structured asset-backed securities at Credit Suisse Group AG, said in an interview last week. "We’ll have a lot of tremors and then a big shakeout. This is just the first."

• Japan's Exports Add to Abe's Woes as China Slowdown Saps Demand. Japan’s export growth slowed for a second month, signaling waning overseas support for an economy that’s already beset by weakness at home. The value of shipments rose 3.1 percent in August from a year earlier, compared with estimates compiled by Bloomberg for a 4.3 percent increase. Imports dropped 3.1 percent, leaving a deficit of 569.7 billion yen ($4.7 billion), according the figures released by the finance ministry Thursday. Exports to China fell 4.6 percent as a market rout and economic slowdown in Japan’s biggest trading partner sapped demand. Disappointing data in recent months has raised concern on the outlook for economic growth after a contracted last quarter and an inflation rate that’s slid back to zero. 

• Asian Stocks Advance Second Day as Materials Shares Lead Gains. Asian stocks rose on the final stretch of the countdown to the Federal Reserve’s policy decision as material shares led gains. The MSCI Asia Pacific Index increased 0.5 percent to 129.12 as of 9:02 a.m. in Tokyo, advancing for a second day.

• Ray Dalio: We Will Have a Worrisome Downturn. (video)

Wall Street Journal:

• Wall Street Has Doubts About Fed Lifting Interest Rates. Skepticism reflects concerns about the economy and the state of the markets. Wall Street is skeptical that the Federal Reserve has room to raise short-term interest rates Thursday, underscoring persistent doubts about the health of the global economy and financial markets following seven years of easy policy. 

• Republican Presidential Debate — Live Blog.

• Higher Rates a Risk for Emerging-Economy Debt. Funding conditions could tighten just as growth is slowing. Borrowing costs in emerging markets are ticking up, a further blow to economies hit by slowing growth, weak exports and high debt. The rising costs come at a challenging time. Yields will likely rise further if the U.S. Federal Reserve raises interest rates over the next few months, as expected. That means funding conditions at home and in international markets will tighten just as growth is slowing in these economies.

• Doubts Emerge Over Abenomics. Economists increasingly question Japan leader’s growth strategy.

• Tech Firms Venture Into New Territory: Lending. Armed with financial data on small businesses, Intuit, PayPal and Square ramp up loan offerings. 

• GM(GM), Justice Department Near Criminal Settlement Over Defective Ignition Switch. U.S. expected to enter deferred prosecution agreement with auto maker.

• The Joy of Madness. Donald Trump, Bernie Sanders and the mad-as-hell American electorate. Frustration, anger, despair. Allow life’s negatively charged emotions to run free long enough and they all arrive at the same place—madness. We are there.

Fox News:

• Round 2: GOP rivals hammer Trump from outset of debate. Donald Trump and his Republican rivals tangled from the outset of the second GOP presidential primary debate, with Carly Fiorina calling the GOP front-runner an “entertainer” and Sen. Rand Paul calling him “sophomoric.” Asked whether fellow candidates would be comfortable with Trump in charge of America’s nuclear weapons, Fiorina did not answer directly but said: “I think Mr. Trump is a wonderful entertainer.” She said “judgment” and “temperament” will be revealed “over time and under pressure” in the race.

• Commander admits size of US-trained Syrian fighting force at ‘4 or 5’. (video) The top U.S. military commander for the Middle East admitted Wednesday that only "four or five" U.S.-trained fighters remain on the battlefield in Syria, leading to accusations from lawmakers that the program is a "joke" and "total failure." Gen. Lloyd Austin, commander of the U.S. Central Command, addressed the state of the so-called "train and equip" mission in testimony before the Senate Armed Services Committee.

MarketWatch.com:

• Five things to listen for during Janet Yellen’s press conference.

CNBC:

• Altice to buy Cablevision(CVC) for $17.7B including debt: Source.

• Gundlach: I like bonds more than a month ago.

• Chart: How well buffered are EMs now?

Zero Hedge: 

• China Injects More Liquidity, Strengthens Yuan As Foreigners Dump Record Amount Of Japanese Stocks. (graph)

• In China 1300 Hedge Funds "Did Not Fight The Central Bank" And Are Now Liquidating.

• Beijing's South China Sea Military Buildup Continues: The Dramatic Visual Evidence.

• Will They Or Won't They? Five Fed Scenarios & The Market Impact. (graph)

• Massive 8.3 Magnitude Quake Shakes Chile, Tsunami Waves Arrive, Copper Jumps. (graph)

• How Underfunded Are US Corporate Pension Plans? (graph)

• The Fed's Pain-Relieving Policies "Have Made The System More Vulnerable To A Crash".

• Refugees Vs Riot Police: A Photo Album From The Frontlines Of Europe's Migrant Crisis. (pic)

• China Liquidated A Record $83 Billion In Treasurys In July. (graph)

• "Trust Me". (cartoon)

• The Hillary Clinton Death Cross. (graph)

• Fed "Up" - Stocks Squeezed To 'Black Monday' Highs, Crude Rips, Bonds Dip. (graph)

Business Insider:

• A massive earthquake just shook Chile — and now Hawaii is on tsunami watch.

• This skyscraper looks like a reason to be worried about Canada.

• Sweden is making a bunch of war pacts amid ominous warnings from Russia.

• GUNDLACH: When the Fed starts hiking rates, 'GET OUT' of this asset class. (graph)

• Bill Gurley explains why he keeps shouting about the tech bubble.

Reuters:

• Oracle(ORCL) revenue forecast disappoints as license sales continue falling. Oracle Corp's sales fell more than expected in the first quarter, hurt by a strong dollar and a continued drop in licensed software sales and the company warned revenue could fall in the current quarter even on a constant currency basis. Oracle's shares fell as much as 2.8 percent in extended trading on Wednesday.

Financial Times:

• Doubts rise over China’s official GDP growth rate. The view that China is growing far slower than official figures show is increasingly going mainstream.

Evening Recommendations 

• None of note

Night Trading

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

• Asia Ex-Japan Investment Grade CDS Index 129.0 -1.75 basis points.

• Asia Pacific Sovereign CDS Index 80.25 -2.25 basis points.

• S&P 500 futures -.13%.

• NASDAQ 100 futures -.17%.

Morning Preview Links

Earnings of Note

Company/Estimate

• (RAD)/.05

• (ADBE)/.50

Economic Releases

8:30 am EST

• The 2Q Current Account Deficit is estimated at -$111.5B versus -$113.3B in 1Q.

• Housing Starts for August are estimated to fall to 1160K versus 1206K in July.

• Building Permits for August are estimated to rise to 1159K versus 1119K in July.

• Initial Jobless Claims are estimated at 275K versus 275K the prior week.

• Continuing Claims are estimated to fall to 2258K versus 2260K prior.

10:00 am EST

• Philly Fed Business Outlook Index for September is estimated to fall to 5.9 versus 8.3 in August.

2:00 pm EST

• The FOMC is expected to leave the benchmark Fed Funds Rate at 0.00-.25%.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Yellen speaking, Fed EconChina August Property Price report, UK Retail Sales report, Bloomberg Economic Expectations Index for September, EIA weekly natural gas inventory report, weekly Bloomberg Consumer Comfort Index, Stifel Nicolaus Consumer conference, (PGR) August Sales release, Deutsche Bank Tech conference, Morgan Stanley Healthcare conference, (INTU) investor day and the (SNPS) investor day could also impact trading today.

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

Stocks Rising into Final Hour on Central Bank Hopes, Oil Bounce, Short-Covering, Commodity/Gaming Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Modestly Higher
  

• Sector Performance: Most Sectors Rising
  

• Volume: Light

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• Volatility(VIX) 22.23 -1.38%

• Euro/Yen Carry Return Index 142.11 +.26%

• Emerging Markets Currency Volatility(VXY) 11.87 -3.96%

• S&P 500 Implied Correlation 62.81 -.13%

• ISE Sentiment Index 82.0 -40.15%

• Total Put/Call 1.25 +8.70%

• NYSE Arms .44 -13.36% 

Credit Investor Angst:

• North American Investment Grade CDS Index 77.80 -1.24%

• America Energy Sector High-Yield CDS Index 1,916.0 -.23%

• European Financial Sector CDS Index 79.31 -5.38%

• Western Europe Sovereign Debt CDS Index 21.03 -3.0%

• Asia Pacific Sovereign Debt CDS Index 80.68 -2.43%

• Emerging Market CDS Index 336.22 -2.42%
  

• iBoxx Offshore RMB China Corporates High Yield Index 118.69 +.14%

• 2-Year Swap Spread 10.75 -.75 basis point

• TED Spread 28.0 -1.25 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -26.50 +.5 basis point

Economic Gauges:

• 3-Month T-Bill Yield .05% -1.0 basis point

• Yield Curve 149.0 +1.0 basis point

• China Import Iron Ore Spot $57.21/Metric Tonne -.12%

• Citi US Economic Surprise Index -23.5 +1.2 points

• Citi Eurozone Economic Surprise Index 15.9 -4.5 points

• Citi Emerging Markets Economic Surprise Index -23.0 +1.0 point

• 10-Year TIPS Spread 1.57 +1.0 basis point
• # of Months to 1st Fed Rate Hike(Morgan Stanley) 3.52 -.32

Overseas Futures:

• Nikkei 225 Futures: Indicating +264 open in Japan 
• China A50 Futures: Indicating -105 open in China

• DAX Futures: Indicating +23 open in Germany

Portfolio: 

• Slightly Higher: On gains in my 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 Scraps Overseas Debt Quotas as Capital Outflows Worsen. China removed quotas for companies to raise funds in the overseas bond and loan markets, as it tries to staunch capital outflows spurred by a currency devaluation. The National Development and Reform Commission, China’s top planning agency, will remove quota approval processes for foreign currency or yuan notes and loans with a term of more than one year, according to a statement on its website Wednesday. Companies are only required to register with the regulator, the statement said. Previously, the NDRC reviewed each firm’s application for foreign borrowing, according to Moody’s Investors Service.  

• JPMorgan Stops China Synthetic Shorts After Regulatory Crackdown. Some banks are scaling back offerings that enable clients to indirectly wager against Chinese stocks through Hong Kong’s stock exchange link with Shanghai, as China’s regulators clamp down on practices such as short-selling. JPMorgan Chase & Co. stopped offering so-called synthetic shorts on shares under the Shanghai Connect arrangement, according to an e-mail from its prime brokerage unit to clients including hedge funds this week. Credit Suisse Group AG also cut back on products that enable synthetic short-selling of Shanghai Connect stocks, said two people with knowledge of the matter who spoke on condition of anonymity.

• Japan Rating Cut by S&P as Abe Falls Short of Early Promise. Standard & Poor’s cut Japan’s long-term credit rating one level to A+, saying it sees little chance of the Abe government’s strategy turning around the poor outlook for economic growth and inflation over the next few years. The move comes just a day after the Bank of Japan refrained from boosting record asset purchases, betting there will be a resumption in growth and inflation. That’s left the onus on Prime Minister Shinzo Abe and his Cabinet to consider a fiscal stimulus package to boost what evidence indicates is a lackluster recovery in the second half of the year so far. “We believe that the government’s economic revival strategy -- dubbed "Abenomics" -- will not be able to reverse this deterioration in the next two to three years,” S&P said in a statement. “Economic support for Japan’s sovereign creditworthiness has continued to weaken.”

• OECD Issues Warning to Fed on Pace of Future Rate Increases. The Organisation for Economic Cooperation and Development said the Federal Reserve would be right to begin raising interest rates this week while warning that uncertainty about the path of tightening poses a greater threat to the economy. Fed policy makers led by Chair Janet Yellen begin their two-day meeting on Wednesday with economists divided over whether the gathering will conclude with the first U.S. rate increase in almost a decade. 

• Europe Stocks Rise Before Fed Decision; SABMiller, AB InBev Gain. SABMiller Plc led European shares higher, while investors count down to the Federal Reserve’s interest rate decision due tomorrow. SABMiller soared 20 percent after saying that Anheuser-Busch InBev NV intends to make a takeover proposal. The Belgian brewer jumped 6.4 percent. Richemont gained 6.6 percent after the world’s biggest jewelry maker said five-month sales accelerated amid higher demand in Japan and Europe. Hermes International SCA added 3.8 percent. Inditex SA rose 5.9 percent after the owner of Zara reported a 26 percent surge in profit. The Stoxx Europe 600 Index climbed 1.5 percent to 361.87 at the close of trading.

• Grain Prices to Weaken on Less Severe El Nino Weather, Olam Says. Olam International Ltd., one of the world’s largest food commodities traders, expects grain and oilseed prices to weaken further because the El Nino weather phenomenon will be less harmful to harvests than feared. "We are bearish," Olam Chief Executive Officer Sunny Verghese said in an interview in London on Tuesday. "El Nino will not be as severe" as many in the agricultural commodities market expect, he added.

• Goldman(GS) Warns Markets Unprepared for Fed as Treasuries Seesaw. Goldman Sachs Group Inc. says financial markets are vulnerable because nobody can agree on what the Federal Reserve will do. Treasuries whipped around amid the debate. Treasuries rose Wednesday, rebounding from a selloff a day earlier when retail-sales data increased speculation the Fed would raise interest rates this week. Goldman Sachs Group Inc. Chief Executive Officer Lloyd Blankfein said U.S. economic data don’t support the case for higher interest rates, a day after Jan Hatzius, the bank’s chief economist, said policy makers lack consensus and probably won’t act this month amid concern that markets may not be prepared. “I wouldn’t do it unless I was compelled,” Blankfein said Wednesday at a breakfast in New York sponsored by the Wall Street Journal. The Fed’s end of quantitative easing and higher taxes have acted as a brake on the economy and a form of tightening, he said. Futures show there’s a 28 percent chance of the Fed raising rates Thursday, according to data compiled by Bloomberg.  

• QE's Cost: Fed Exit May Hit Economy Faster Than in Past Cycles. The Federal Reserve will have to confront the costs of its massive balance-sheet expansion when policy makers raise interest rates. The U.S. central bank’s exit strategy from unprecedented stimulus looks set to send big ripples through the financial system once it begins. These could hit the economy faster than they did in past tightening cycles, as rate rises radiate through a banking system constrained by new regulations and flooded with cash created by the Fed’s bond-buying program. The question is what that means for the economy and how it alters Fed Chair Janet Yellen’s calculus over the pace of tightening. Understanding the plumbing of the new financial landscape will be vital for policy makers trying to fine-tune the economy and investors navigating turbulent markets.

• Watch for Junk-Bond Air Pockets as Sprint Spirals Downward. Sprint Corp. is a cautionary tale for investors who think they’re immune to carnage in the $1.3 trillion junk-bond market as long as they steer clear of energy debt. Moody’s Investors Service on Tuesday downgraded the wireless company, which has more than $30 billion of debt outstanding, as it struggles to compete with better capitalized competitors such as AT&T Inc. and T-Mobile USA. Much of the company’s debt was downgraded several steps to Caa1, which is considered close to default. The market response was fierce. Sprint’s $2.5 billion of bonds maturing in 2028 plunged as low as 80.8 cents on the dollar from 88.4 cents on Monday. Its $4.2 billion of notes maturing in 2023 fell as low as 90.1 cents from 98.6 cents two days earlier.

• FedEx(FDX) Trims 2016 Forecast as First-Quarter Earnings Fall Short. FedEx Corp., considered a bellwether for the U.S. economy because of the range of products it moves, cut its full-year profit forecast just three months into the company’s new fiscal year. The company cited softer demand for some shipments that crisscross the U.S. by truck and higher costs in its Ground unit. Earnings will be $10.40 to $10.90 per share before some costs, short of the company’s previous projection of $10.60 to $11.10. Profit for the quarter ended Aug. 31 was $2.42 a share, FedEx said Wednesday. That trailed the $2.45-a-share average of 25 estimates compiled by Bloomberg.

 Wall Street Journal: 

• GOP Candidates Must Win Over Dissatisfied Voters. Whether or not Donald Trump remains the frontrunner for the GOP presidential nomination, his supporters will be a potent political force that other candidates must confront.

MarketWatch.com:

• The typical household makes less than it did before the recession. (graph)

Fox News: 

• Elusive crime wave data shows frightening toll of illegal immigrant criminals. (video)

CNBC: 

• The only certainty is more Fed uncertainty. (video) Whatever the Federal Reserve does Thursday, it won't end "uncertainty." 

• How will newbie fund managers handle their first Fed hike? The last time the Fed raised interest rates was in 2006. There was no Twitter. There were no iPhones. The world has changed a lot since then, and almost 10 years later, we may be close to seeing another rate hike by the Fed, if not Thursday, then at some point in the next few weeks or months. But there are so many financial professionals now who have no experience with this. To be specific, that number is 13.9 percent, according to data from eVestment.

Zero Hedge:

• Obama's Recovery In Just 9 Charts. (graph)

• Will The Fed Pick A Winning Combination?

• Dow Up 400 Points From Monday Lows As Bad-News-Is-Good-News Rally Extends. (graph)

• The Only Thing That Matters For The Rate-Hike Decision.

• Record 46.7 Million Americans Live In Poverty; Household Income Back To 1989 Levels. (graph)

• WTI Crude Soars Above $47 As Algos Finally Read DoE Report. (graph)

• Riot Police Unleash Tear Gas, Water Cannons As Migrants Storm Hungarian Border Barriers. (pic)

• Mortgage Applications Lowest Since 2000 For This Time Of Year. (graph)

• RANsquawk PREVIEW: FOMC Monetary Policy Meeting Decisions & Projections - 17th September 2015. (video) 

• The Last Time Homebuilder Confidence Was This High, The Housing Market Crashed. (graph)

• "The End Of The EU": Merkel's "Heroic" Refugee Response May Destroy Union, Slovakia Warns. (pic)

• T-Minus One Day: How Were The Markets Positioned The Day Before The Last Three Rate Hikes. (table/graph)

• Axel Merk Warns "Investors Are In For A Rude Awakening".

• Fed Enters Rate Hike Meeting With First Headline Deflation Since January. (graph)

USA Today:

• GOP debate looks to be outsiders vs. insiders battle. Republican presidential hopefuls are preparing for their second televised debate later tonight at the Ronald Reagan Library in California, as polls show Donald Trump as the party's front-runner. Bloomberg's Phil Mattingly previews the de Bloomberg.

Reuters:

• Citigroup(C) CFO expects 5 percent decline in third-quarter markets revenue. Citigroup Inc (C.N) expects its third-quarter markets revenue to fall by about 5 percentfrom a year earlier, Chief Financial Officer John Gerspach said on Wednesday.

Telegraph:

• Claims Brexit would be disastrous for trade are 'highly misleading'. The UK's exporters could be "relatively unaffected" by a withdrawal from the EU, according to a new report.

• Debt storm looms as US walks tightrope of higher rates. 'Major uncertainties' including a hard landing in China and threat of rapid US rate rises pose serious risks to global growth, says OECD.  

• Japan's credit rating cut as S&P deals blow to Abenomics' credibility. Leading credit ratings agency Standard & Poor's has raised doubts over the prospects of Japan's attempts to revive its economy.