Bear Radar

Style Underperformer:

• Large-Cap Growth -.4%

Sector Underperformers:

• 1) Drugs -1.6% 2) Computer Services -1.0% 3) Steel -.9%

Stocks Falling on Unusual Volume: 

• SAEX, BMY, CLM, PPH, BGSF, CRF, NVO, NAP, LMT, LILAK, AHS, TEAM, DF, IRMD, DVAX, OLED, MRK, QTWO, CCRN, EBIX, SHEN, BCC, LILA, BITA, CENTA and AGN

Stocks With Unusual Put Option Activity:

• 1) COH 2) BID 3) BMY 4) HLT 5) JCP

Stocks With Most Negative News Mentions:

• 1) CYH 2) FRED 3) SHEN 4) BCC 5) RPTP

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running +36.50% Above 100-Day Average
• 10 Sectors Rising, 3 Sectors Declining
• 80.6% of Issues Advancing, 18.1% Declining
• 3 New 52-Week Highs, 67 New Lows
• 14.2% of Issues Above 200-day Moving Average
• Average 14-Day RSI 28.6%
• Vix 25.4 -7.9%
• Total Put/Call 1.16 -1.69%
• TRIN/Arms .75 -39.1%

Thursday Watch

Evening Headlines
Bloomberg:

• Global Shareholders Have $27 Trillion Locked in Bear Markets. At least 40 stock markets around the world with a total value of $27 trillion are in bear territory, as investors witness the worst start to a year on record. The U.K. was the latest market to fall 20 percent from its peak, while India is 1 percent away from crossing the threshold that traders describe as the onset of bear market. Nineteen countries with $30 trillion have declined between 10 percent and 20 percent, thereby entering a so-called correction, according to data compiled by Bloomberg from the 63 biggest markets.
• PBOC Injects Most Cash in Three Years in Open-Market Operations. (video) The People’s Bank of China injected the most cash in almost three years in its open-market operations, helping ease a cash squeeze as the coming Chinese New Year holiday spurs demand for funds at a time when capital outflows are mounting. The central bank said it conducted 110 billion yuan ($16.7 billion) of seven-day reverse-repurchase agreements and 290 billion yuan of 28-day contracts. That compares with 160 billion yuan of contracts that matured and resulted in a net cash injection of 315 billion yuan for this week’s two auctions. Other lending tools were used to add about 700 billion yuan this week for terms ranging from three days to a year.
• Why Markets Should Get Used to a Weaker Renminbi. (video)
• China Burns Through FX Reserves. (video)
• Brazil Balks at Rate Rise, Picks Recession Fight Over Prices. In a surprise decision, Brazil balked at raising interest rates as it wagers the nation’s worst recession in decades will be enough to damp double-digit inflation. Just 15 of 57 analysts surveyed by Bloomberg predicted the outcome, which marks the fourth straight meeting that borrowing cost were kept unchanged at 14.25 percent. The remainder of economists expected an increase of 25 or 50 basis points, and two members of the eight-person central bank board voted for a 50-point hike to 14.75 percent. Since the bank’s last meeting in November, surging inflation and hawkish central bank commentary had most observers anticipating a half-point increase Wednesday. Upsetting those expectations, the International Monetary Fund on Tuesday published revised forecasts for Brazil, estimating a deeper and longer recession that central bank President Alexandre Tombini dubbed “significant.” Policy makers said in a statement accompanying the decision they took into consideration increased uncertainties, especially those abroad.
• Merkel in Peril With Window to Tame EU's Refugee Crisis Closing. Angela Merkel is running out of time and allies who’ll help her find a solution to Europe’s refugee crisis. The net drew tighter this week as Germany’s southern neighbor Austria announced plans to impose an upper limit on refugees, and President Joachim Gauck suggested Germany may need to follow suit to maintain social order. To the north, once-open Sweden is already tightening border controls, while European Union states to the east of Germany are refusing point blank to take asylum seekers.
• Even the ECB's Cash Can't Stop Investors Worrying About Portugal. As bonds tumble across southern Europe, it’s beginning to look like the European Central Bank’s market stimulus never existed for Portugal. The country’s bonds have slid since an inconclusive election on Oct. 4 led to weeks of political wrangling and a minority Socialist government promising to ease austerity. Yields on 10-year securities have climbed more than 60 basis points since then to 2.93 percent. They’re higher than when ECB President Mario Draghi unveiled his bond-buying program, or quantitative easing, last January.
• Global Bond Downgrades Climb to Highest in Six Years, S&P Says. The number of issuers that had credit ratings cut by Standard & Poor’s in 2015 rose to the highest in six years, as emerging-market economies slowed and commodity prices tumbled. S&P last year downgraded 892 issuers, representing 69 percent of all ratings actions, according to a report published on Wednesday. That’s the most since 2009, when it downgraded 1,325 issuers, or 83 percent of total actions. 
• Asian Stocks Rally With Aussie to Copper Amid Risk Asset Revival. (video) Asian stocks rebounded with high-yielding currencies and industrial metals amid speculation the selloff that took global equities to the brink of a bear market may have gone too far. The revival in risk appetite hit haven assets, with Treasuries and gold retreating. The MSCI Asia Pacific Index climbed 0.8 percent as of 11:55 a.m. Tokyo time, rallying from its lowest level since September 2012. Japan’s Topix index rose 1.3 percent after sliding 3.7 percent last session, while the Nikkei 225 Stock Average pedaled back from its own bear market, rebounding 1.6 percent.
• The Coal Miner `On Everybody's List' as Next Bankruptcy Victim. Plummeting coal prices have pushed almost half the debt issued by U.S. coal companies into default, and for miners and their investors there’s no end in sight. Patriot Coal Corp., Walter Energy Inc. and Alpha Natural Resources Inc. have all filed for bankruptcy in the past year. Now that Arch Coal Inc., the second largest coal miner in the U.S., has joined their ranks, investors are wondering if the biggest, Peabody Energy Corp., could be next.
• U.S. Orange-Juice Demand Seen Slumping to Lowest in 30 Years. The U.S. predicted Wednesday that domestic orange-juice demand will slump to the lowest in at least 30 years, as consumers shift to a wider array of beverages. Meanwhile, futures prices in New York entered a bear market, shrugging off prospects for the smallest Florida crop since 1964. Domestic demand for the breakfast staple will drop 11 percent to 600,000 tons in the 12 months that started Oct. 1, the lowest since at least 1986, the U.S. Department of Agriculture said in a report after the futures market closed. Orange production will drop 18 percent to 4.8 million tons from a year earlier as citrus-greening disease continues to hurt groves in Florida, the nation’s top grower. The USDA had forecast the state’s harvest will be the smallest in 52 years.
• Junk-Bond Market Risk Gauge Stages Biggest Jump Since 2009. A measure of investors’ fear of junk-bond defaults has staged its biggest jump at the start of a year since 2009, when the world was in the midst of a financial crisis, as investors have globally rushed out of riskier assets. The risk premium on the Markit CDX North American High Yield Index, a credit-default swaps benchmark tied to the debt of 100 speculative-grade companies, surged 87 basis points between Dec. 31 and Wednesday, reaching 564 basis points, the highest level since 2012. That jump was the biggest since the start of 2009, when it rose 227 basis points. A similar index for investment-grade debt also rose to a three-year high.
• How Much Will Markets Fall? Top Investors See No Bottom Yet. Investment managers are warning that markets probably have further to fall as China’s growth slows, oil prices plunge and central bankers lack tools to prop up economies. The Standard & Poor’s 500 Index will drop another 10 percent to 1,650 and oil could fall as low as $20 a barrel as investors flee for safety, according to Scott Minerd, chief investment officer of Guggenheim Partners. Jeffrey Rottinghaus, whose T. Rowe Price mutual fund beat 99 percent of rivals over the past year, said stock prices could fall another 10 percent as the U.S. economy slips into a mild recession. "I expect a protracted decline in the S&P 500," Jeffrey Gundlach, co-founder of DoubleLine Capital, said in an e-mailed response to questions. "Investors should sell the bounce-back rally which could come at any time."
• Gross Says Global Selloff Shows Failure of Central Bank Efforts. (video)
• These Favorite Hedge Fund Holdings Are Among 2016's Worst Stocks.

Wall Street Journal:

• Global Stocks Sink on Fresh Growth Fears. Dow industrials pare losses to drop 249 points, while shares in Japan and the U.K. enter bear markets. Global stocks plunged, driven by heightened concerns about growth and fading confidence in the willingness or ability of central banks to boost their economies. The concern is the outlook for inflation, which in small doses is crucial to a healthy economy and which monetary-policy makers around the world have failed to accelerate. Another sharp fall in oil prices and weak consumer-price data in the U.S. on Wednesday gave traders...   
• Florida Latinos Say Trump Hurts the GOP Brand. Dennis Freytes, an Army veteran and Puerto Rican activist in Orlando, has voted for every Republican presidential candidate going back to Ronald Reagan in 1980. That streak may end if Donald Trump secures the GOP nomination—an outcome he said could prompt him to bolt the party and become an independent.
• ‘13 Hours’: It’s Political. Hillary Clinton was complicit in Barack Obama’s Benghazi tale.
• Hillary’s ‘Special Access’ Server. More evidence that she mishandled highly classified information. When Team Clinton warns of a vast right-wing conspiracy, it’s a sure sign of political distress. Hillary Clinton’s accusation that even an independent federal watchdog is conspiring against her is another sign that her email problems are escalating.

Fox News:

• Inside Fallujah: ISIS-held ghost town ruled by fear, paranoia as battle looms. Two years after Fallujah became one of the first prizes claimed by ISIS, the Iraqi city is a ghost town where fearful residents turn on one another and resistance is met with unspeakable brutality, according to sources trapped inside the Pittsburgh-sized community just 40 miles west of Baghdad. The sources, who spoke by phone with FoxNews.com, painted a bleak picture of life under an increasingly brutal and desperate ISIS, as it prepares for an expected assault by Iraqi government forces.

MarketWatch:

• Default risk in energy debt seen as higher than Great Recession. As the following chart shows, the spread on the energy sector of the Barclays U.S. Corporate High-Yield Bond Index, a widely followed gauge of market-priced risk, reached 1,530 basis points as of Tuesday’s close, compared with 1,420 basis points reached during the height of the financial crisis seven years ago.

CNBC:

• Big banks find a perfect storm in 2016. (video) One problem hit banks' stock to start the year, another could keep share prices low in 2016.

Zero Hedge:

• PBOC Injects Massive $60 Billion Liquidity - Most In 3 Years; China Stocks, Yuan Drop. (graph)
• The U.S. Is At The Center Of The Global Economic Meltdown.
• For Emerging Markets, It Is Now Worse Than The Asian Financial Crisis.
• We Know How This Ends - Part 2.
• Tom DeMark: "Today Is An Interim Low" Followed By A 5-8% Rebound, Then Another Selloff; China To Fall Further.
• Canada's "Other" Problem: Record High Household Debt. (graph)
• The "Historic" Winter Blizard Was Just Upgraded To A "Potentially Epic Winter Blockbuster".
• "If Assets Remain Correlated, They'll Be A Depression": Ray Dalio Says QE4 Just Around The Corner. (video)
• David Morgan: We Are On The Precipice.
• Why Oil Under $30 Is A Major Problem. (graph)
• 7 Striking Images From Deadly Taliban Attack On Pakistani University. (pic)
• Is China's "National Team" Now Bailing Out US Markets? (graph)
• Oil Slides After API Reports Another Large Crude, Gasoline Inventory Build. (graph)
• It Is Now Cheaper To Rent A Dry Bulk Tanker Than A Ferrari.
• Fantasy? North Korea's "Hangover-Free Alcohol" Or America's "Consequence-Free Debt".
• "My Career Basically Ended Today": What Is Really Happening In China. (graph)
• Dumpster-Diving Massive-Short-Squeeze Rescues Stocks From 2014 Ebola Lows. (graph)

Business Insider:

• Bill Ackman is getting slammed in 2016. Hedge fund titan Bill Ackman's Pershing Square Holdings, the fund's publicly traded vehicle, has fallen 14.5% in 2016, according to a performance update.
• This might be the riskiest oil stock in the world.
• This might be as good as it gets for US debt. (graph) This may be as good as it gets regarding the US debt situation. This from the CBO:
• The most powerful force buttressing the stock market has been broken. (graph)
• Senate blocks legislation proposing tighter screening for Syrian refugees entering the US.

Reuters:

• Plunging commodities prices take toll on Goldman Sachs(GS), others. Goldman Sachs Group Inc on Wednesday became the latest company to report a quarterly revenue decline as oil prices extended their slump and unseasonably warm weather reduced the demand for natural gas and power. Goldman's revenue from fixed income, currency and commodities client execution was $1.12 billion for the fourth quarter, down 8 percent from the prior-year period primarily on "significantly lower" earnings in commodities, the bank said in a statement. That was more than 20 percent down from $1.46 billion during the third quarter.
• EMERGING MARKETS-Mexico peso sinks to record low, Brazil stocks slump.
• U.S. mutual fund investors put most cash in foreign equity in nearly five months: ICI.

Telegraph:

• Fears of global liquidity crunch haunt Davos elites. Rising Fed interest rates means "liquidity could drop dramatically, and that scares everyone", warns IMF deputy.   
• Davos 2016: Cautious optimism could soon turn ugly. The possibility that recent market turmoil could transmogrify into something much more serious is all too obvious on the slopes this year.  
• Is Italy the next Greece? Italy’s banks stocks are plunging, igniting fears over the strength of the long-troubled industry.  

Night Trading 

• Asian equity indices are -.50% to +1.0% on average.

• Asia Ex-Japan Investment Grade CDS Index 154.0 -1.0 basis point.

• Asia Pacific Sovereign CDS Index 80.50 +2.5 basis points.

• Bloomberg Emerging Markets Currency Index 66.65 +.08%.

• S&P 500 futures +.85%

• NASDAQ 100 futures +.80%.

Morning Preview Links 

Earnings of Note 

Company/Estimate

• (ALK)/1.41
• (BBT)/.72
• (BK)/.64
• (CP)/2.76
• (FITB)/.40
• (JBHT)/.99
• (KEY)/.28
• (PPG)/1.22
• (PCP)/3.03
• (LUV)/.90
• (TRV)/2.66
• (UNP)/1.41
• (UAL)/2.57
• (VZ)/.88
• (AXP)/1.13
• (CE)/1.24
• (ETFC)/.30
• (ISRG)/5.02
• (MXIM)/.32
• (SLB)/.63
• (SBUX)/.45

Economic Releases

8:30 am EST

• The Philly Fed Business Outlook Index for January is estimated at -5.9 versus -5.9 in December.
• Initial Jobless Claims for last week are estimated to fall to 278K versus 284K the prior week.
• Continuing Claims are estimated to fall to 2250K versus 2263K prior.

11:00 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory build of +2,806,000 barrels versus a +234,000 barrel increase the prior week. Gasoline supplies are estimated to rise by +1,800,000 barrels versus a +8,438,000 barrel gain the prior week. Distillate inventories are estimated to rise by +330,000 barrels versus a +6,136,000 barrel increase the prior week. Finally, Refinery Utilization is estimated to fall by -.88% versus a -1.3% decline prior.

Upcoming Splits

• None of note

Other Potential Market Movers

• The ECB rate decision/Press Conference, 10Y T-Note auction, Bloomberg Economic Expectations Index for January, weekly Bloomberg Consumer Comfort Index, weekly EIA natural gas inventory report and the (AVP) investor day could also impact trading today.

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

Stocks Falling Substantially into Afternoon on Surging Eurozone/Emerging Markets/US High-Yield Debt Angst, Emerging Market Currency Fears, Oil Decline, Commodity/Gaming Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Lower
  

• Sector Performance: Almost Every Sector Declining
  

• Volume: Heavy

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 30.9 +18.5%

• Euro/Yen Carry Return Index 132.85 -.97%

• Emerging Markets Currency Volatility(VXY) 12.23 +2.86%

• S&P 500 Implied Correlation 65.83 +2.7%

• ISE Sentiment Index 37.0 -53.75%

• Total Put/Call 1.27 +41.1%

• NYSE Arms 1.02 -7.72% 

Credit Investor Angst:

• North American Investment Grade CDS Index 114.22 +3.64%

• America Energy Sector High-Yield CDS Index 1,982.0 +8.4%

• European Financial Sector CDS Index 95.65 +6.1%

• Western Europe Sovereign Debt CDS Index 19.71 +7.56%

• Asia Pacific Sovereign Debt CDS Index 80.25 +3.0%

• Emerging Market CDS Index 405.01 +2.44%
  

• iBoxx Offshore RMB China Corporate High Yield Index 122.25 -.04%

• 2-Year Swap Spread 6.25 -.25 basis point

• TED Spread 37.0 -2.0 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -23.25 +.25 basis point

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 66.56 -.91%
• 3-Month T-Bill Yield .26% +2.0 basis points

• Yield Curve 116.0 -2.0 basis points

• China Import Iron Ore Spot $41.61/Metric Tonne -2.73%

• Citi US Economic Surprise Index -45.1 -9.9 points

• Citi Eurozone Economic Surprise Index 12.80 -2.8 points

• Citi Emerging Markets Economic Surprise Index -9.40 -1.1 points

• 10-Year TIPS Spread 1.33% -7.0 basis points
• 23.9% chance of Fed rate hike at March 16 meeting, 26.7% chance at April 27 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -201 open in Japan 
• China A50 Futures: Indicating -254 open in China

• DAX Futures: Indicating -23 open in Germany

Portfolio: 

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

• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges

• Market Exposure: Moved to 50% Net Long

Bear Radar

Style Underperformer:

• Mid-Cap Value -3.6%

Sector Underperformers:

• 1) Coal -9.2% 2) Gaming -7.3% 3) Oil Service -6.3%

Stocks Falling on Unusual Volume:

• DOC, SSS, CRF, CLM, THS, AXDX, MAIN, FV, LORL, CRR, RUSHA, ETV, ARI, ETB, IEP, IBKR, FFC, DXJS, ALDW, BXMX, EUFN, ADTN, IBM, GDV, REG, TFM, TDG, CL, FITB, TKR, PLNT, CVRR, AB, MTGE, NTRS, SSS, AMT, BXMT, EOG, FB, ETFC, NCLH, C, AMTD, TPX, TIF, ADTN, DOC, CLNY, POST, COMM, MITT, EAT, EGN, WTFC, BAC, RH, PANW, NFLX, WWD, CVX, ARI, THS, XEC, SYNA, NUVA, LNC, BPL, CIM, SBY, FCE/A, CHUY, SPLK, MAIN, SCHW, OUT, RGLD, ARR, CHRS, CRZO, COP, FGP, MIC, BYD, MMP, EPD, TUBE, DO, NS, HES, SUN, CF, UNVR, EEQ, CLR, CFMS, DPM, EEP, DVN, TEGP, NVCR and WGP

Stocks With Unusual Put Option Activity:

• 1) SQ 2) SMH 3) JWN 4) EWJ 5) DHR
  

Stocks With Most Negative News Mentions:

• 1) TK 2) CWEI 3) DUK 4) GS 5) IBM
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume