Bull Radar

Style Outperformer:

• Small-Cap Growth +.53%

Sector Outperformers: 

• 1) Hospitals +2.87% 2) Steel +2.37% 3) HMOs +1.25%

Stocks Rising on Unusual Volume: 

• HPY, SRG, SWHC, NSR, CMG, CYBR, GPRO, HPY, TREE, CAMP, CEQP, BLL, RESI, PLAY, SLGN, GPN and ACAS

Stocks With Unusual Call Option Activity: 

• 1) WFM 2) OVTI 3) CIEN 4) ARO 5) HZNP

Stocks With Most Positive News Mentions: 

• 1) SRG 2) TASR 3) CYBR 4) NUVA 5) MENT

Charts: 

• ETFs Rising on Unusual Volume 
• Stocks Rising on Unusual Volume

Morning Market Internals

NYSE Composite Index:

• Volume Running -5.7% Below 100-Day Average
• 8 Sectors Rising, 2 Sectors Declining
• 55.8% of Issues Advancing, 41.7% Declining
• 12 New 52-Week Highs, 98 New Lows
• 31.0% of Issues Above 200-day Moving Average
• Average 14-Day RSI 37.4
• Vix 19.1 -2.8%
• Total Put/Call 1.25 +37.36%
• TRIN/Arms .56 -22.01%

Thursday Watch

Evening Headlines
Bloomberg:  

• First Word Asia: Why China's Economy Will Remain Weak for Some Time. (video)
• China's Hippest Smartphone Maker Warns Shakeout Will Get Worse. The co-founder of one of China’s hottest smartphone makers says a shakeout in the industry is going to get worse before it gets better as dozens of companies with similar products battle for market share and Apple Inc. collects virtually all the profits in the business. “We’re going to have to survive the next few cycles,” Carl Pei, the co-founder of OnePlus, said in an interview. “A lot of pure plays will disappear and big companies will withdraw from the phone market.”
• Asian Stocks Decline as Jump in Yen Weighs on Japanese Exporters. Asian stocks fell, with the benchmark index set to extend a two-month low, as the yen’s biggest gain in three months weighed on Japanese exporters and health-care shares declined. The MSCI Asia Pacific Index slid 0.3 percent to 129.67 as of 9:01 a.m. in Tokyo, poised for its lowest close since Oct. 6, as health-care and consumer shares led losses. Japan’s Topix index dropped 0.8 percent after the yen jumped 1.2 percent against the dollar on Wednesday, the most since Sept. 1.
• Iron Ore Sinks in a Sea of Oversupply. (video)
• No One Knows How Messy the Fed Increase Could Get. The greatest monetary-easing cycle in the history of the U.S. has left a mind-boggling amount of cash floating around in the economy. Banks hold $2.5 trillion in excess reserves -- money they essentially don’t know what to do with -- at the Federal Reserve. So as the Fed prepares to raise interest rates from near zero as soon as next week, bond investors are on edge. Beyond all the "is-this-the-right-move" questions that surround every increase, there’s a logistical concern: With so much cash sloshing around, will Fed officials be able to nudge rates as high as they want? Will the new-fangled tools they’ve created to engineer the move work, or instead sow the kind of confusion that can dent the Fed’s credibility and spur a broader market selloff? Many investors are taking no chances.
• Wall Street Is Pricing Pipeline MLPs Like Half Will Cut Payouts. (video) Investors expect half the partnerships that control most U.S. oil and gas infrastructure to reduce distributions after America’s largest pipeline company cut its dividend by 74 percent. Traders have dragged the shares of pipeline master-limited partnerships so far down that half of them have a yield, the annual payout divided by stock price, of 10 percent to 51 percent, according to data compiled by Bloomberg. Any yield above 9 percent implies that buyers expect a cut, said Rob Thummel, who manages about $15 billion of energy securities at Tortoise Capital Advisors LLC in Leawood, Kansas.
• Republicans Offer Puerto Rico a Helping Hand for the First Time. Republicans in the U.S. Congress are proposing their first measures to help Puerto Rico as it runs out of cash, responding to calls from the island’s government and the Obama administration. Representative Sean Duffy of Wisconsin, who sits on the House Financial Services committee, on Wednesday introduced a bill that would give Puerto Rico agencies the ability to file for municipal bankruptcy as long as the commonwealth agrees to let a federal panel oversee its finances. Senator Orrin Hatch, the chairman of the finance committee, said he will file a bill Wednesday afternoon.

Wall Street Journal:

• Fed Plans to Signal Gradual, Cautious Path on Rate Hikes. After liftoff, central bank will look to strike balance between flexibility and articulating a plan. For Federal Reserve officials, deciding to raise short-term interest rates will be the easy part of their meeting next week. The harder part may be agreeing on how to signal the likely path of rate increases in 2016 and beyond.
• Greece Braces for New Year Drama. Economic outlook looks good on paper, but many hurdles remain. 
• It’s Too Easy for Terrorists. A program that lets people from 38 countries visit the U.S. without a visa needs better security measures. At least four of the terrorists involved in last month’s deadly Paris attacks were French citizens. This means that, under the terms of the Visa Waiver Program, they could have legally entered the U.S. with nothing more than their passports.

Fox News:

• Match made in hell: SoCal terrorists likely forged bond in online jihadist forums. (video)
• ObamaCare to reduce workforce by 2 million jobs' worth of hours, CBO says. (video)
  ObamaCare will reduce work hours equivalent to 2 million jobs in the next decade amid a host of incentives not to work or to work less, a new Congressional Budget Office (CBO) report says -- the latest blow to President Obama’s signature health insurance plan. The report estimates the Affordable Care Act, or ACA, will make the labor supply shrink by 0.86 percent in 2025. This amounts to a shrinkage equivalent to approximately 2 million full-time workers.
• Russia could nuke ISIS, Putin suggests. Russian President Vladimir Putin said Wednesday the Russian missiles used to combat terrorists in Syria could be fitted with nuclear warheads, the Russian government-funded news agency RT reports.

MarketWatch.com:

• First Solar(FSLR) shares down 7% after guidance. 
• America’s middle class has lost nearly 30% of wealth.
• Will hiking average Obamacare tax penalty to $969 boost enrollment? Average tax penalty for uninsured households is jumping 50% to nearly $1,000.

CNBC:

• Hedge fund manager Ken Griffin backing Marco Rubio for president. (video) Ken Griffin, the billionaire hedge-fund manager who has become a major Republican Party donor in recent years, is throwing his support behind Florida Sen. Marco Rubio for president. "I'm really excited to be supporting Marco Rubio," Griffin, who is the founder and chief executive of the Chicago firm Citadel, said in an exclusive interview with CNBC. "He will be the next president of the United States." 
• Texas messes with oil market, diesel glut weighs on price. A Texas tax law could muddy U.S. oil inventory data through year-end, but the crude glut is not going away and is now showing up in an oversupply of diesel and other fuels.
• Citi: Seven warnings signs for stocks in 2016. (video)

Zero Hedge:

• "We Are Living Amid An Islamic Threat", French Mayor Says: "Our Country Is At War Inside Our Borders".
• The Global Economic Reset Has Begun. (video)
• Amid Commodity Collapse, World's Most Resource-Driven Economy Posts Greatest Jobs Gain In 15 Years. (graph)
• How Hillary Clinton Abused Her State Department Role To Help Her Hedge Funder Son-In-Law.
• The "American Dream" Is Over... And Voters Know It.
• Something Did Blow Up In Junk. (graph)
• Credit Card Data Reveals First Core Retail Sales Decline Since The Recession. (graph)
• Corporate Loan Charge-Offs And Delinquencies Surge. (graph)
• Carnage In Currency-Land - Dollar Dump Sparks Stock Slump. (graph)

Business Insider:

• Child soldiers are a cornerstone of ISIS's strategy.
• Oil strippers are suffering from low oil prices. 
• Jos. A. Bank sales are down 35%.
• Surging GOP candidate Marco Rubio just picked up 2 endorsements in a key early state.

The Long War Journal:

• Ex-Guantanamo detainee now an al Qaeda leader in Yemen. Al Qaeda in the Arabian Peninsula (AQAP) released a new video featuring a former Guantanamo detainee, Ibrahim Qosi, who is also known as Sheikh Khubayb al Sudani. In July 2010, Qosi plead guilty to charges of conspiracy and material support for terrorism before a military commission. His plea was part of a deal in which he agreed to cooperate with prosecutors during his remaining time in US custody. Qosi was transferred to his home country of Sudan two years later, in July 2012.

The Daily Caller:

• Records Show Syed Farook Inspected More Than 40 San Bernardino Schools. San Bernardino jihadi Syed Rizwan Farook inspected more than 40 elementary schools, junior high schools, and high schools in his job as a county health inspector, records show.

Reuters:

• Moody's eyes Brazil downgrade to junk citing political risks.
• U.S.-based stock funds post $8.9 bln outflow in latest week - ICI.

Telegraph:

• Chinese devaluation is a bigger danger than Fed rate rises. The yuan has fallen to the lowest in five years against the dollar. If China devalues in earnest, it will be an earthquake. 

Evening Recommendations 

• None of note

Night Trading 

• Asian equity indices are -1.25% to -.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 135.0 +1.25 basis points.
• Asia Pacific Sovereign CDS Index 71.75 +.25 basis point.
• Bloomberg Emerging Markets Currency Index 69.99 +.06%.
• S&P 500 futures +.33%.
• NASDAQ 100 futures +.36%.

Morning Preview Links 

Earnings of Note 
Company/Estimate

• (CIEN)/.38
• (FNSR)/.23
• (RH)/.63
• (VNCE)/.07 
• (ADBE)/.60

Economic Releases
8:30 am EST

• The Import Price Index for November is estimated to fall -.8% versus a -.5% decline in October.
• Initial Jobless Claims are estimated to rise to 270K versus 269K the prior week.
• Continuing Claims are estimated to fall to 2155K versus 2161K prior.  

12:00 pm EST

• 3Q Household Change in Net Worth.

2:00 pm EST

• Monthly Budget Statement for November. 

Upcoming Splits

• None of note

Other Potential Market Movers

• The SNB rate decision, BoE rate decision, $13B 30Y T-Bond auction, Bloomberg Dec. US Economic Survey, weekly Bloomberg Consumer Comfort Index, weekly EIA natural gas inventory report, (YUM) analyst day, (SMG) analyst day, (AMT) investor day, (ALXN) investor day and the (UTX) analyst meeting could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and technology shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 25% net long heading into the day.

Stocks Reversing Lower into Final Hour on Global Growth Fears, Yen Strength, Oil Reversal, Tech/Financial Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Lower
  

• Sector Performance: Most Sectors Declining
  

• Volume: Around Average

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• Volatility(VIX) 19.46 +10.57%

• Euro/Yen Carry Return Index 139.68 -.21%

• Emerging Markets Currency Volatility(VXY) 10.60 -.56%

• S&P 500 Implied Correlation 58.71 +1.07%

• ISE Sentiment Index 67.0 -36.19%

• Total Put/Call .87 -21.62%

• NYSE Arms .59 -55.39% 

Credit Investor Angst:

• North American Investment Grade CDS Index 86.11 +.34%

• America Energy Sector High-Yield CDS Index 1,587.0 +7.25%

• European Financial Sector CDS Index 72.33 +2.0%

• Western Europe Sovereign Debt CDS Index 16.53 -1.20%

• Asia Pacific Sovereign Debt CDS Index 71.63 +.06%

• Emerging Market CDS Index 344.82 -.25%
  

• iBoxx Offshore RMB China Corporate High Yield Index 123.88 -.03%

• 2-Year Swap Spread 11.0 -.5 basis point

• TED Spread 19.75 +1.0 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -32.0 -.75 basis point

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 69.94 +.09%
• 3-Month T-Bill Yield .24% -3.0 basis points

• Yield Curve 130.0 +1.0 basis point

• China Import Iron Ore Spot $39.08/Metric Tonne +1.11%

• Citi US Economic Surprise Index -22.40 +1.2 points

• Citi Eurozone Economic Surprise Index 16.60 -.1 point

• Citi Emerging Markets Economic Surprise Index 11.10 +.1 basis point

• 10-Year TIPS Spread 1.55 -4.0 basis points
• # of Months to 1st Fed Rate Hike(Morgan Stanley) .92 -.20

Overseas Futures:

• Nikkei 225 Futures: Indicating -300 open in Japan 
• China A50 Futures: Indicating -284 open in China

• DAX Futures: Indicating -100 open in Germany

Portfolio: 

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

• Disclosed Trades: Added to my (IWM)/(QQQ) hedges and to my (EEM) short

• Market Exposure: Moved to 25% Net Long

Today's Headlines

Bloomberg: 

• The $1 Trillion Liability Stalking Some European Bond Investors. Another year, another thing for investors in Europe to worry about. The Bank Recovery and Resolution Directive, part of the regulatory changes since the 2008 financial crisis, comes fully into force on Jan. 1. Insolvent banks will need to be “resolved” rather than liquidated like failed companies, and the cost is supposed to be borne by investors and not taxpayers. Among the new tools is the ability to write down the value of senior bonds or convert them into equity to help bring a failed lender back to life. The directive is focusing attention on the toxic assets of banks. There were about 1 trillion euros ($1.09 trillion) of non-performing loans at banks in European Union countries as of the end of 2014, equivalent to more than 9 percent of the bloc’s gross domestic product, according to a study by the International Monetary Fund. “The longer bad loans stay on the balance sheet, the higher the probability that investors have to pay for them,” said Daniel Sarp, a London-based fixed-income manager and a member of the bail-in working group of the International Capital Market Association. “The scenario can get quite scary.”
• China's Banks That Need Over $600 Billion in New Debt Go Abroad. Chinese banks, already the largest issuers of bonds to build capital buffers, are looking beyond the savings of the nation’s 1.4 billion people for more funds as they grapple with mounting bad loans. The nation’s banks may account for about half of at least $100 billion in dollar notes sold by Asian lenders to meet new capital rules over three to five years, according to Barclays Plc. China’s lenders need to sell as much as $222 billion of notes in any currency that comply with Basel III rules and $379 billion of securities that meet rules unveiled by the Financial Stability Board last month, Commerzbank AG estimates. The Asian issuance "would be too large a size for domestic markets to absorb," said Avinash Thakur, managing director of debt capital markets for Barclays in Hong Kong. "That’s why these banks in the next phase will start coming to look internationally.” 
• China's Illicit Outflows Estimated at $1.4 Trillion Over Decade. China’s illicit financial outflows were estimated at almost $1.4 trillion over a decade, the largest amount for any developing nation, as money exited the country through channels including fake documentation on trade deals. The estimate for the 10 years through 2013 was published Wednesday by Global Financial Integrity, a Washington-based group researching cross-border money transfers. The study is based on data reported to the International Monetary Fund and covers money which GFI believes to be illegally earned, transferred or utilized. Money flowing out of China this year has helped to pump up property markets from Sydney to Vancouver, while prospects for a weaker yuan may drive more cash abroad. On Wednesday, China cut the currency’s reference rate to the weakest since 2011.  
• Yuan Bears' Appetite Whetted as PBOC Support for Currency Fades. (video)
• Europe Company Default Rate to Rise on Asia Slowdown, S&P Says. Europe’s corporate-default rate will increase next year as slower growth in Asia hits commodity-related companies, according to Standard & Poor’s. The ratings provider expects 2.4 percent of sub-investment grade issuers in Europe to default next year, up from a 1.5 percent rate currently, it said in a 2016 forecast. Technological and regulatory changes may also dent credit quality in industries including hospitality and utilities, it said.
• Impeachment Means Brazil's Bankers to Wage Inflation Fight Alone. The difficult task of taming inflation in Brazil is about to fall squarely on the central bank. That’s the conclusion economists have come to after a lawmaker initiated impeachment proceedings against President Dilma Rousseff last week, a move that’s threatening to stall austerity measures aimed in part at helping quell the biggest surge in consumer prices in 12 years. Policy makers will keep Brazil’s key interest rate at a nine-year high of 14.25 percent until 2017, a central bank survey of analysts released Monday showed. Just a week ago, they predicted the bank would cut borrowing costs starting in October.  
• European Stocks Temper Losses on Second Day as Miners Rebound. (video) European stocks moderated a decline after yesterday’s selloff as commodity producers rebounded from their lowest level in six years. Gains exceeding 3.8 percent in Glencore Plc and Rio Tinto Group pushed a gauge of mining shares higher for the first time in seven days. That helped the Stoxx Europe 600 Index pare a drop of as much as 0.9 percent. The Stoxx 600 lost 0.4 percent at the close of trading, after rising as much as 0.4 percent earlier.
• Miners Cut Costs, Not Production in Commodity Crush. (video) 
• Dividends Could Be the Next Victim of the Commodity Crunch. As commodity prices tumble to the lowest since the global financial crisis, the dividends paid by the world’s largest oil producers and miners look increasingly hard to justify. Take the world’s largest 500 companies by sales. Of the 20 expected to pay the highest dividend yields over the next 12 months, 17 are natural resources companies, according to data compiled by Bloomberg.
  They include BHP Billiton Ltd., the world’s largest miner, with a yield -- or dividend divided by share price -- of more than 10 percent on its London shares. Plains All American Pipeline LP tops the list with a yield of 13.7 percent. Ecopetrol, Colombia’s largest oil producer, has a payout of 11.6 percent. That compares with an average among all 500 companies of 3.5 percent. “Investors are suggesting that dividend rates announced as recently as half-year results are generally not sustainable,” said Jeremy Sussman, a New York-based analyst at Clarksons Platou Securities Inc. “The current environment is among the toughest we have seen across the resource space, putting increased pressure on management teams to deliver cost savings.”
• Nobel Laureate Says Fed Shouldn't Raise Interest Rates Next Week.
• JPMorgan: The Fed Could Trigger a 'Massive Stop Loss Order' in the S&P 500 if Liftoff Goes Awry. Options expiry could amplify any selling pressure. 
• U.S. Pledges $400 Million for Climate to Close Rift With India. U.S. Secretary of State John Kerry pledged to double funding to countries struggling to adapt to climate change to more than $800 million, part of an effort to close differences with nations such as India over who must act to halt global warming.
• Hedge Funds Leave U.S. Pensions With Little to Show for the Fees. Here’s what U.S. state and city pension funds are getting this year for the hundreds of millions of dollars in fees they’re forking over to hedge funds: almost nothing. The investment pools gained 0.4 percent through November, putting them on pace for the worst year since 2011, according to data compiled by Bloomberg. The industry’s struggle was underscored over the past two months as BlackRock Inc., Fortress Investment Group and Bain Capital closed hedge funds after running up losses. The low returns are dealing a setback to governments that boosted exposure to hedge funds, seeking windfalls to help close a $1.4 trillion shortfall that’s facing public-employee retirement systems nationwide. The investment funds have underperformed stocks since 2008 as share prices rallied and volatility whipsawed global financial markets.
• Einhorn Slump Wipes Out Greenlight Reinsurer Gains From 2007 IPO. Greenlight Capital Re Ltd., the reinsurer whose chairman is hedge-fund manager David Einhorn, erased gains from its 2007 initial public offering price after losses from investments and underwriting. Greenlight Re declined 2.6 percent to $19 at 11:59 a.m. in New York, extending its loss to 42 percent this year. The Cayman Islands-based reinsurer, which counts on Einhorn to oversee its portfolio, sold shares for $19 apiece in its IPO. Einhorn’s main hedge fund is poised for its second losing year in almost two decades after dropping 21 percent through November, according to an e-mail sent to clients that was obtained by Bloomberg.

CNBC:

• Housing's new crisis: Half your income for rent. (video) There are now 9 million more renters than there were just a decade ago, the biggest jump in renters on record, and they are paying more for rent than ever before. 
• Why I'm worried about a recession: Citi strategist. (video)
• Desperate Dow-DuPont megamerger bad for stocks. Dow Chemical and DuPont are in advanced discussions for a megamerger, a tie-up that sent shares of companies in the materials sector soaring. But these gains may be short lived, if history is any guide. Big deals in older, more basic industries normally spell doom for the other companies in that space. What's more, this deal may signal that these two giants believe oil and commodity prices are going to stay under pressure for the foreseeable future, investors said.
• Downbeat Americans may spend less for holidays: Survey. (video)
• That Obamacare penalty will be bigger than you think. (video) A new report underscores what it calls "a key area of uncertainty": The extent to which higher Obamacare penalties will prod uninsured people to sign up for coverage. 
• Russian fighters are joining ISIS in record numbers.

Zero Hedge:

• The IMF Just Entered The Cold War - Forgives Ukraine's Debt To Russia. 
• "The Default Cycle Is Now Unavoidable": How The 'Junk' Cancer Spread To The Entire High Yield Space. (graph) 
• Pains For Trains From Automobiles. (graph)
• "Something Disquieting Is Afoot" For U.S. Bond Markets. (graph)
• Dow Dumps 300 Points From Highs, S&P Breaks Key Support, FANGs FUBAR. (graph)
• Whispers Of Liquidation As Oil Trading "God" Loses 10% In November; Down 26% In 2015. (graph)
• Wholesale Inventories Sink Q4 GDP Hope, Sales-Ratio Signals Looming Recession. (graph)
• Glencore CDS Are Soaring Again As Default Risk Rises Above 50%. (graph)
• Greek Stocks Crash To 30-Month Lows As Trading Restrictions Lifted. (graph)
• The Dollar Is Dumping. (graph)
• Ever Greater Distortions Hint At Rising Crash Probabilities. (graph)
• Angela Merkel Is Time's Person Of 2015, Followed By ISIS Leader Al-Baghdadi And Donald Trump.
• Freeport McMoRan, World's Second Largest Copper Miner, Suspends Dividend.

Business Insider:

• CHANOS: Short Obamacare. Either because companies continue to cut benefits or because of the ACA [Affordable Care Act], Obamacare, co-pays are higher. And people actually pay more out of pocket. That is having an impact, and it’s going to have a political impact, of course, on 2016 as well. I think the days of real easy unit and pricing growth in health care may be behind us, and those are very elevated prices right now. I think that, increasingly now, people are going to look at the downside of the ACA."
• Steve Wynn just sent out a ‘forceful’ message and his company's stock is going bonkers.
• Lululemon(LULU) is crashing.
• ISIS is tearing Europe apart.
• FBI CHIEF: San Bernardino shooters were radicalized 'before they started dating'.

Financial Times:

• Brazilian inflation soars into double figures. Economists had expected the latest release of Brazilian inflation data to be bad, but not quite this bad. The annual rate of inflation struck 10.48 per cent in November, the stats office said, the highest since 2003. Economists polled by Bloomberg had expected a somewhat milder 10.42 per cent, from 9.93 per cent in October. On the month, the rate was 1.01 per cent, against expectations for 0.95 per cent.

Telegraph:

• Mapped: How the world became awash with oil. (map) With Opec blasted as "irrelevant" in the new Hobbesian oil market, the world's supply glut is reaching record levels. Click on the countries to find out where production is heading.

Bear Radar

Style Underperformer: 

• Small-Cap Growth -1.61%

Sector Underperformers: 

• 1) Homebuilders -3.02% 2) I-Banks -2.15% 3) Internet -2.10%

Stocks Falling on Unusual Volume:

• LULU, UTG, COST, CORR, FGP, OXM, OUTR, RH, CHRS, SPWR, LTXB, KEX, BBCN, YHOO, MAN, EQT, JBL, SIG, GWW, SHOP, MW, EGRX, BOH, VFC, WMS and OUTR

Stocks With Unusual Put Option Activity: 

• 1) NFX 2) XLF 3) XLP 4) COST 5) KMI

Stocks With Most Negative News Mentions: 

• 1) LULU 2) RHI 3) EA 4) MS 5) AKAM

Charts:

• ETFs Falling on Unusual Volume 
• Stocks Falling on Unusual Volume