Stocks Slightly Lower into Final Hour on European/Emerging Markets/US High-Yield Debt Angst, Oil Decline, Yen Strength, Commodity/REIT Secotor Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Lower
  

• Sector Performance: Most  Sectors Declining
  

• Volume: Slightly Above Average

• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• Volatility(VIX) 27.06 +4.08%

• Euro/Yen Carry Return Index 135.54 unch.

• Emerging Markets Currency Volatility(VXY) 12.98 +.93%

• S&P 500 Implied Correlation 63.25 -.28%

• ISE Sentiment Index 52.0 +4.0%

• Total Put/Call .97 -16.38%

• NYSE Arms .76 -26.50% 

Credit Investor Angst:

• North American Investment Grade CDS Index 120.97 +.72%

• America Energy Sector High-Yield CDS Index 2,245.0 +9.17%

• European Financial Sector CDS Index 133.57 -2.38%

• Western Europe Sovereign Debt CDS Index 30.95 +8.86%

• Asia Pacific Sovereign Debt CDS Index 85.69 +2.02%

• Emerging Market CDS Index 394.93 +1.42%
  

• iBoxx Offshore RMB China Corporate High Yield Index 122.93 +.02%

• 2-Year Swap Spread 7.0 unch.
  

• TED Spread 31.50 -4.0 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -25.75 -2.0 basis points
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 68.29 -.08%
• 3-Month T-Bill Yield .29% +2.0 basis points

• Yield Curve 104.0 -4.0 basis points

• China Import Iron Ore Spot $45.73/Metric Tonne n/a

• Citi US Economic Surprise Index -52.6 +.9 point

• Citi Eurozone Economic Surprise Index -27.0 -6.3 points

• Citi Emerging Markets Economic Surprise Index -5.30 unch.

• 10-Year TIPS Spread 1.2% -5.0 basis points
• 2.0% chance of Fed rate hike at April 27 meeting, 11.8% chance at June 15 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +75 open in Japan 
• China A50 Futures: Indicating n/a open in China

• DAX Futures: Indicating -64 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:

• Small-Cap Value -1.3%

Sector Underperformers:

• 1) Oil Service -7.8% 2) Disk Drives -3.3% 3) Gaming -3.0%

Stocks Falling on Unusual Volume:

• EUFN, ITC, QLYS, GBAB, TDG, BRS, VIA, VTTI, LABL, DXB, PUK, DKT, BKD, HTR, DTK, OHI, BS, HCP, NEWR, DB, WDAY, LNKD, AGII, DOOR, FOXA, EGHT, AXDX, DWRE, PCTY, FRC, WGO, EQIX, DISH, NEWR, YELP, STRZA, REGN, BECN, AEL, TCP, ELLI, PAYC, VTR, WMGI, RBC, HCN, CCP, WPZ, TDG, W, VIAB and BKD

Stocks With Unusual Put Option Activity:

• 1) XLI 2) CI 3) KBE 4) GM 5) HOG

Stocks With Most Negative News Mentions:

• 1) WLL 2) QLYS 3) BG 4) CWEI 5) PBR

Charts:

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

Bull Radar

Style Outperformer: 

• Mid-Cap Growth -.9% 

Sector Outperformers:

• 1) HMOs +1.6% 2) Airlines +1.4% 3) Utilities +.4% 

Stocks Rising on Unusual Volume: 

• BDC, OMI, MXL, CBM, MLM, TEN, OI, MLM, PINC, GPK, MAS and GRA

Stocks With Unusual Call Option Activity: 

• 1) ZIOP 2) EPI 3) CERS 4) VIAB 5) NSAM

Stocks With Most Positive News Mentions: 

• 1) CRM 2) TSN 3) OI 4) KO 5) FE

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running +28.3% Above 100-Day Average
• 2 Sectors Rising, 8 Sectors Declining
• 25.9% of Issues Advancing, 72.1% Declining
• 34 New 52-Week Highs, 373 New Lows
• 17.8% of Issues Above 200-day Moving Average
• Average 14-Day RSI 36.6%
• Vix 27.4 +5.4%
• Total Put/Call .93 -19.8%
• TRIN/Arms .90 -13.6%

Tuesday Watch

Evening Headlines
Bloomberg:

• Global Stock Rout Extends in Japan; Credit Risk Climbs With Yen. Anxiety over the global economy intensified, with equities in Tokyo sliding the most since August and index futures indicating U.S. stocks will add to declines that sent the Standard & Poor’s 500 Index to a 22-month low. The yen reached its strongest since 2014 and corporate bond risk climbed. Stock gauges in Japan and Australia slumped and U.S. index futures slid at least 0.9 percent. Markets from China to South Korea remained closed for Lunar New Year holidays. Evidence of mounting distress in global credit markets boosted government debt, with yields on New Zealand notes sliding to a record, while 10-year Japanese bond rates shed as much as four basis points to zero. Gold was on track for its longest rally since 2011 as the yen extended gains to surpass 115 per dollar for the first time since 2014, strengthening with the euro. U.S. oil traded above $30 a barrel. “We had a bubble in people’s expectations of the power of central banks,” said Soichiro Monji, chief strategist at Tokyo-based Daiwa SB Investments Ltd. “And now we’re seeing that bubble burst.” Japan’s Topix index tumbled 5 percent in Tokyo, falling the most since Aug. 24 as banks and financial shares led losses. The Nikkei 225 Stock Average dropped 4.9 percent, on course for its biggest decline since June 2013. The yen strengthened past 115 per dollar for the first time in more than a year and climbed against all its major peers. Global currency volatility rose to 11.77 percent, according to a JPMorgan Chase & Co. gauge. 
• Global Bond Rally Near `Panic' Levels With Japan Yield at Zero. The yield on benchmark 10-year Japanese government bonds dropped to zero for the first time as a flight to haven assets drove a measure of global yields to the lowest in more than a decade. Treasury yields dropped to a one-year low as investors sought refuge from a continued slump in stock markets worldwide. Traders pared the odds that the Federal Reserve will raise interest rates this year to 30 percent, before Chair Janet Yellen begins her two-day semiannual testimony to Congress on Wednesday. The yield on the Bank of America Merrill Lynch World Sovereign Bond Index slid to 1.29 percent, the least in data to 2005. “It’s almost like a panic,” said Hideo Shimomura, the chief fund investor in Tokyo at Mitsubishi UFJ Kokusai Asset Management. “The flight to quality is exaggerated.”The yield on Japan’s 10-year notes was at 0.005 percent at 11:35 a.m. in Tokyo after earlier dipping to zero, a first for a Group-of-Seven economy.

Night Trading 

• Asian equity indices are -3.0% to -1.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 157.25 -1.75 basis points.

• Asia Pacific Sovereign CDS Index 84.0 +3.75 basis points.

• Bloomberg Emerging Markets Currency Index 68.24 -.15%.

• S&P 500 futures -.90%.

• NASDAQ 100 futures -1.05%.

Morning Preview Links 

Earnings of Note 

Company/Estimate

• (AGU)/1.37
• (KO)/.37
• (CVS)/1.53
• (GT)/.75
• (HCP)/.78
• (IR)/.93
• (REGN)/3.31
• (SAVE)/.97
• (VIAB)/1.17
• (VSH)/.12
• (WCG)/.61
• (WEN)/.11
• (WYN)/.98
• (AKAM)/.62
• (CSC)/.69
• (FWRD)/.65
• (NCR)/.86
• (PNRA)/1.78
• (SCTY)/-2.59
• (DIS)/1.46
• (WYNN)/.78 

Economic Releases

6:00 am EST

• The NFIB Small Business Optimism Index for January is estimated to fall to 94.5 versus 95.2 in December.   

10:00 am EST

• JOLTS Job Openings for December are estimated to fall to 5413 versus 5431 in November.
• Wholesale Inventories MoM for December are estimated to fall -.2% versus a -.3% decline in November.
• Wholesale Trade Sales MoM for December are estimated to fall -.4% versus a -1.0% decline in November.
  

Upcoming Splits

• (HRL) 2-for-1

Other Potential Market Movers

• The UK Trade Balance report, $24B 3Y T-Note auction, weekly US retail sales reports, Stifel Transport/Logistics conference, Goldman Tech/Internet conference, USDA WASDE report, (OLN) investor day, (WEN) investor day and the (CBI) investor day could also impact trading today.

BOTTOM LINE: Asian indices are sharply lower, weighed down by industrial and financial shares in the region. I expect US stocks to open lower and to maintain losses into the afternoon. The Portfolio is 25% net long heading into the day.

Stocks Falling Substantially into Afternoon on Soaring European/Emerging Markets/US High-Yield Debt Angst, Healthcare Price Control Worries, Oil Decline, Healthcare/Construction Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Lower
  

• Sector Performance: Almost Every Sector Declining
  

• Volume: Above Average

• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• Volatility(VIX) 26.95 +15.27%

• Euro/Yen Carry Return Index 134.85 -1.01%

• Emerging Markets Currency Volatility(VXY) 12.86 +2.14%

• S&P 500 Implied Correlation 64.98 +3.49%

• ISE Sentiment Index 45.0 -19.64%

• Total Put/Call 1.12 +15.46%

• NYSE Arms 1.10 +10.0% 

Credit Investor Angst:

• North American Investment Grade CDS Index 122.19 +6.47%

• America Energy Sector High-Yield CDS Index 2,058.0 +1.26%

• European Financial Sector CDS Index 136.82 +13.3%

• Western Europe Sovereign Debt CDS Index 28.42 +5.8%

• Asia Pacific Sovereign Debt CDS Index 84.10 +4.75%

• Emerging Market CDS Index 393.74 +3.64%
  

• iBoxx Offshore RMB China Corporate High Yield Index 122.90 +.06%

• 2-Year Swap Spread 11.25 +2.75 basis points

• TED Spread 33.50 +.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -23.75 -2.5 basis points
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 68.23 -.50%
• 3-Month T-Bill Yield .27% -1.0 basis point

• Yield Curve 108.0 -5.0 basis points

• China Import Iron Ore Spot $45.73/Metric Tonne n/a

• Citi US Economic Surprise Index -55.7 +2.2 points

• Citi Eurozone Economic Surprise Index -20.70 -1.3 points

• Citi Emerging Markets Economic Surprise Index -5.30 +.9 point

• 10-Year TIPS Spread 1.25% -10.0 basis points
• 5.9% chance of Fed rate hike at April 27 meeting, 15.3% chance at June 15 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -739 open in Japan 
• China A50 Futures: Indicating n/a open in China

• DAX Futures: Indicating -41 open in Germany

Portfolio: 

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

• Disclosed Trades: None

• Market Exposure: 25% Net Long