Morning Market Internals

NYSE Composite Index:

• Volume Running -11.1% Below 100-Day Average
• 0 Sectors Rising, 10 Sectors Declining
• 31.4% of Issues Advancing, 64.5% Declining
• 38 New 52-Week Highs, 8 New Lows
• 62.5% of Issues Above 200-day Moving Average
• Average 14-Day RSI 41.6%
• Vix 13.3 +5.1%
• Total Put/Call 1.14 +10.7%
• TRIN/Arms 1.65 +80.0%

Wednesday Watch

Evening Headlines

Bloomberg:

• BOJ Firepower Falls Short as Currency Market Dares Japan to Act. (video) Foreign-exchange traders are becoming increasingly confident that the Bank of Japan won’t stand in the way of further yen strength after the currency surpassed 100 per dollar for the second time this year. Strategists at Bank of Tokyo-Mitsubishi UFJ Ltd. and Morgan Stanley see the yen extending this year’s 20 percent gain versus the dollar, further confounding policy makers who are seeking to spur growth and inflation in the world’s third-largest economy. As the currency surged Tuesday, Japanese Vice Finance Minister Masatsugu Asakawa said he’s watching with concern to see if there are speculative moves in the foreign-exchange market.
• Merkel Courts German Voters in Test Run for Next Year’s Election. Angela Merkel is returning to the campaign trail for German state elections after a shortened summer break with her public support eroded by terror attacks and Europe’s unresolved crises. Less than three weeks before the Sept. 4 ballot in the eastern region of Mecklenburg-Western Pomerania, the German chancellor plans to address a rally of her Christian Democratic Union on Wednesday as polls suggest the anti-immigration Alternative for Germany, or AfD, may reap a fifth of the vote in the Baltic coast state, which is home to her electoral district. Abroad, Russian President Vladimir Putin’s threats against Ukraine and uncertainty about a refugee accord with Turkey are testing Merkel’s standing as a crisis manager that’s been a key to her decade in power.
• European Grocery Sales Grow at Slowest Ever Pace as U.K. Slumps. European grocery sales rose the least on record in the second quarter amid a U.K. price war and sluggish consumption in Germany and France, a study showed. The amount spent on household goods increased by 0.8 percent from a year earlier, researcher Nielsen said in a report Wednesday. That’s about half the growth achieved in the first quarter, said Nielsen, which began recording the data in 2008.
• Asian Stocks Climb as Yen Steadies Amid U.S. Fed Rate Comments. Asian stocks rose as the yen steadied after breaking through 100 against the dollar and investors weighed the prospects for higher rates this year. The MSCI Asia Pacific Index rose 0.1 percent to 139.69 as of 9:10 a.m. in Tokyo. Japan’s Topix index climbed 0.3 percent as the yen retreated against the dollar after briefly touching 99.54 on Tuesday. New York Fed President William Dudley said the central bank could potentially raise interest rates as soon as next month, warning investors that they are underestimating the likelihood of increases in borrowing costs.
• Hedge Funds Relinquishing Shorts as S&P 500 Hovers Around Record. The steady drumbeat of gains that has lifted the S&P 500 Index in six of the last seven weeks is making life difficult for bears. Hedge funds that aim to profit from long and short bets have raised net equity holdings in the past three months, with bullish positions now exceeding bearish ones by 22.7 percentage points. That’s higher than 97 percent of the time since Credit Suisse Group AG began tracking the data in 2009. Perhaps not coincidentally, marketwide readings of short interest just posted the biggest decline in four years, while shares of the most-hated companies led in the rally that just lifted the S&P 500 to another record Monday, its 10th since early July.
• Insurer Exits From Obamacare Turn Few Choices Into None. Later this year, residents of Pinal County, Arizona, who go shopping for health insurance under Obamacare will face a peculiar dilemma -- they’ll have to buy a product that may not exist. The 400,000-population county southeast of Phoenix currently doesn’t have a single health insurer offering coverage next year on the Affordable Care Act’s exchanges, where Americans can shop for the insurance they’re required to have under the law. With the impending pullout of major health insurers -- including Aetna Inc., UnitedHealth Group Inc., and Humana Inc. -- Pinal County is just one place around the country where Americans will be left with few, if any, choices for coverage. 

Wall Street Journal:

• Hedge-Fund Firms Brevan Howard, Tudor Battle Losses. Brevan Howard fund suffers first-half outflow of more than $3 billion; Tudor’s head count falls by 15%.
• Ford(F) Developing Fully Driverless Car. Auto maker acquired Israeli firm SAIPS and invested $75 million in Velodyne.
• Too Big to Frack? Oil Giants Try Again to Master Technology That Revolutionized Drilling. BP and others are hoping that hydraulic fracturing will allow them to coax enough oil out of U.S. wells to replace output from declining mega projects.
• Writing Off Student Loans Is Only a Matter of Time. Thanks in large part to Obama policies, only 37% of borrowers are paying down their student loans.

Fox News:

• Lawmakers slam 'reckless' Gitmo release as Obama speeds up transfers. (video) The Obama administration is facing renewed accusations from Republican lawmakers of putting national security at risk following the release of 15 more Guantanamo Bay detainees -- including former Usama bin Laden bodyguards and Al Qaeda bomb experts -- as the Pentagon works to fulfill the president’s vow to shutter the camp by the end of his term. “It is reckless for the administration to continue to release terrorists like these to fulfill a misguided campaign promise to empty and close Guantanamo," Sen. Kelly Ayotte, R-N.H., said in a statement on Tuesday.

CNBC:

• Corporate insider selling surges as market hits record. Based on data that examines the ratio between buying and selling among corporate executives, the rate of net insider selling reached the highest level since June 2015. That surge preceded a previous market high when the Dow was pushing over 18,000 for the first time ever, according to Richard Cuneo, senior vice president of operations at Argus Research.
• Paul Tudor Jones' firm is making major layoffs. (video)

Zero Hedge: 

• Soros Hack Reveals Plot Behind Europe's Refugee Crisis; Media Manipulation; Cash For "Social Justice".
• Lord Rothschild: "This Is The Greatest Experiment In Monetary Policy In The History Of The World".
• Kunstler Rages "Racketeering Is Ruining Us".
• A Bull Market In Complacency. (graph)
• Peak Season Shipping Slumps: Containers Crash, Traffic Tumbles Most In 6 Years. (graph)
• Self-Segregation? LGBTQQIAA Students In Atlanta To Get Their Own Private School.
• Liberal Left-Leaning States Are "Least Free" In Home Of The Brave.
• Crude Tumbles After Surprise Gasoline Inventory Build (Biggest In 6 Months). (graph)
• Crude Cruises To 1-Month Highs But Dudley Damages Stocks & Bonds. (graph)

Business Insider:

• Gawker is being sold to Univision for $135 million.
• Here's why the supposed NSA 'hack' is unlike anything we've ever seen before.
• Subprime credit card lending is making a big comeback.

CRN:

• Sources: Massive Layoffs Coming At Cisco. Cisco Systems is laying off upward of 14,000 employees, representing nearly 20 percent of the networking giant’s global workforce, according to multiple sources close to the company. San Jose, Calif.-based Cisco is expected to announce the cuts within the next few weeks, as many early retirement package plans have already been offered to employees, said sources. Cisco is set to announce its fourth fiscal quarter results after the market closes tomorrow. The heavy cuts, which sources said will range between 9,000 and 14,000 employees worldwide, stem from Cisco’s transition from its hardware roots into a software-centric organization.

Financial Times:

• Easy money is a dangerous cure for a debt hangover. Central banks should be held responsible for prudent lending not stable prices, writes Amar Bhidé.

Night Trading 

• Asian equity indices are -.25% to +.5% on average.
• Asia Ex-Japan Investment Grade CDS Index 114.75 +.5 basis point.
• Asia Pacific Sovereign CDS Index 44.25 +.5 basis point.
• Bloomberg Emerging Markets Currency Index 73.87 -.02%. 
• S&P 500 futures +.11%. 
• NASDAQ 100 futures +.14%.

Morning Preview Links

Earnings of Note
Company/Estimate 

• (AEO)/.17
• (ADI)/.76
• (CTRN)/-.06
• (EV)/.55
• (JASO)/.69
• (LOW)/1.42
• (SPLS)/.12
• (TGT)/1.13
• (PLCE)/-.23
• (A)/.47
• (BGG)/.54
• (CACI)/1.58
• (CSCO)/.60
• (CTRP)/-.02
• (LB)/.60
• (NTAP)/.36
• (NTES)/2.82
• (SNPS)/.74    

Economic Releases 
10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory build of +410,000 barrels versus a +1,055,000 barrel gain the prior week. Gasoline supplies are estimated to fall -1,550,000 barrels versus a -2,807,000 decline the prior week. Distillate inventories are estimated to fall by -595,000 barrels versus a -1,959,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to fall by -.56% versus a -1.1% decline prior. 

2:00 pm EST

• The FOMC Meeting Minutes. 

Upcoming Splits 

• None of note

Other Potential Market Movers

• The Fed's Bullard speaking, Australia Unemployment report, Japan Trade Balance report, weekly MBA Mortgage Applications report, (TYC) shareholder meeting, (JCP) analyst meeting and the (IDXX) investor day could also impact trading today.

BOTTOM LINE:  Asian indices are mostly higher, boosted by technology and industrial 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 Lower into Final Hour on Profit-Taking, Technical Selling, Yen Strength, Defense/Biotech Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Lower
  

• Sector Performance: Most Sectors Declining
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 12.73 +7.79%

• Euro/Yen Carry Return Index 118.04 -.18%

• Emerging Markets Currency Volatility(VXY) 9.85 -1.5%

• S&P 500 Implied Correlation 47.07 +5.4%

• ISE Sentiment Index 90.0 -13.46%
  

• Total Put/Call .93 +20.78%

• NYSE Arms .70 +6.99% 

Credit Investor Angst:

• North American Investment Grade CDS Index 70.81 +.47%
  

• America Energy Sector High-Yield CDS Index 705.0 -2.12%

• European Financial Sector CDS Index 85.55 -1.67%

• Western Europe Sovereign Debt CDS Index 23.90 +4.73%

• Asia Pacific Sovereign Debt CDS Index 44.43 +1.83%

• Emerging Market CDS Index 239.09 -.30%
  

• iBoxx Offshore RMB China Corporate High Yield Index 131.80 +.02%

• 2-Year Swap Spread 23.50 unch.
  

• TED Spread 55.0 +.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -39.0 +1.0 basis point
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 73.96 +.32%
• 3-Month T-Bill Yield .27% -1.0 basis point

• Yield Curve 83.0 unch.
  

• China Import Iron Ore Spot $62.03/Metric Tonne +3.01%

• Citi US Economic Surprise Index 6.0 -1.7 points

• Citi Eurozone Economic Surprise Index 27.6 -.8 point

• Citi Emerging Markets Economic Surprise Index -.6 -.2 point

• 10-Year TIPS Spread 1.45% -1.0 basis point
• 25.3% chance of Fed rate hike at Nov. 2 meeting, 50.5% chance at Dec. 14 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -31 open in Japan 
• China A50 Futures: Indicating +60 open in China

• DAX Futures: Indicating -5 open in Germany

Portfolio: 

• Slightly Lower: On losses in my medical/biotech/tech sector longs
  

• Disclosed Trades: None

• Market Exposure: 50% Net Long

Bear Radar

Style Underperformer:

• Small-Cap Growth -.8%

Sector Underperformers:

• 1) Oil Tankers -1.9% 2) Alt Energy -1.4% 3) Biotech -1.3%

Stocks Falling on Unusual Volume: 

• HAIN, UNVR, HPT, FN, ALRM, YRD, CXO, PPS, ACM, MAA, ATHM, VRSN, TJX, WATT, HTHT, PE, YY, LMT, AAP, RDUS, COTY, ATVI, BC, ONCE, AVXS, SFS and BC

Stocks With Unusual Put Option Activity:

• 1) OIL 2) EMB 3) DE 4) CY 5) XLV

Stocks With Most Negative News Mentions:

• 1) HAIN 2) POWI 3) SFS 4) LDR 5) CLF

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Value -.4%

Sector Outperformers:

• 1) Energy +.4% 2) Steel +.3% 3) Tobacco +.1%

Stocks Rising on Unusual Volume:

• GK, DKS, CST, CTAS, SHEN, QLYS, ACGL and NERV

Stocks With Unusual Call Option Activity:

• 1) PAGP 2) HAIN 3) DKS 4) HRB 5) TJX

Stocks With Most Positive News Mentions:

• 1) MRO 2) CHK 3) SHEN 4) TJX 5) DKS

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running -10.1% Below 100-Day Average
• 2 Sectors Rising, 8 Sectors Declining
• 30.4% of Issues Advancing, 66.3% Declining
• 61 New 52-Week Highs, 2 New Lows
• 63.9% of Issues Above 200-day Moving Average
• Average 14-Day RSI 43.8%
• Vix 12.3 +4.5%
• Total Put/Call .92 +19.5%
• TRIN/Arms .72 +10.1%