Bull Radar

Style Outperformer:

• Mid-Cap Growth unch.

Sector Outperformers:

• 1) Semis +.9% 2) Agriculture +.5% 3) Retail +.4%

Stocks Rising on Unusual Volume:

• GEO, CXW, DE, SGY, FL, AMAT, MENT, RH, DV and AGCO

Stocks With Unusual Call Option Activity:

• 1) HST 2) ROST 3) ON 4) CYH 5) CHTR

Stocks With Most Positive News Mentions:

• 1) HRL 2) ROST 3) RH 4) FL 5) ANGI

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running -10.7% Below 100-Day Average
• 3 Sectors Rising, 6 Sectors Declining
• 32.7% of Issues Advancing, 64.3% Declining
• 69 New 52-Week Highs, 8 New Lows
• 63.8% of Issues Above 200-day Moving Average
• Average 14-Day RSI 43.7%
• Vix 11.7 +2.5%
• Total Put/Call .77 -11.5%
• TRIN/Arms 1.15 +3.3%

Friday Watch

Evening Headlines

Bloomberg:

• China's 'Zombie' Lists Leave Banks in the Dark. (video)
• Here’s Why Turkey Could Walk Away From Its EU Deal. Turkey became a crucial partner for the European Union over the past year as they fought to control the continent’s biggest refugee influx since World War II. But European leaders have become increasingly uncomfortable with what they see as authoritarian tactics of the Turkish government, particularly since last month’s bungled military coup. There’s a crunch point looming in October, when the EU has to decide whether to allow Turkish citizens visa-free travel under the refugee deal they reached in March. Without visa liberalization, Turkey has said it will walk away from its promise to halt the flood of migrants crossing the Aegean Sea to Greece. Here are some of the issues clouding the picture:
• Italy Wants the EU to Change Tack on Growth and Security. Italy is seeking an expansionary push for growth in the European Union as the bloc forges a new course after the U.K. voted to leave, Prime Minister Matteo Renzi’s junior minister for European affairs said. Undersecretary Sandro Gozi, speaking ahead of an Aug. 22 informal meeting of Renzi, German Chancellor Angela Merkel and French President Francois Hollande, called for a wide-ranging agreement to boost cooperation on security and defense as well as an expansionary economic policy to boost European growth.
• Asian Stocks Rise as Energy Shares Gain, Japan’s Topix Advances. Asian stocks climbed as energy producers advanced after oil entered a bull market and Japanese shares advanced as the yen stabilized after breaching 100 against the dollar. The MSCI Asia Pacific Index rose 0.2 percent to 139.59 as of 9:04 a.m. in Tokyo, paring its decline for the week to 0.3 percent. Japan’s Topix index increased 0.4 percent as the yen traded at 100.14 against the dollar. Asian stocks have rallied 24 percent from a February low as lackluster data from the world’s biggest economies fueled speculation central banks will continue to support them with stimulus and loose monetary policy. The Fed minutes released Wednesday showed officials saw little risk of a sharp uptick in inflation, helping drive the odds of a rate increase this year back below 50 percent.
• New OPEC Freeze Wouldn’t Be So Potent as Gulf Rivals Pump More. Even if OPEC strikes a deal with Russia next month in Algiers to freeze oil production, success will mean a lot less than when they tried and failed four months ago. Oil has rallied more than 10 percent since the Organization of Petroleum Exporting Countries said that it will hold informal meeting in the Algerian capital, fanning speculation the group could complete a supply agreement with rival producers that sputtered in April. Iran may now drop its refusal to join a freeze after restoring most of the crude output curbed by sanctions, a development analysts say makes a deal more likely, but also less worthwhile. “A freeze at 34 million barrels a day is not the same as one at 33 million barrels a day,” said David Hufton, chief executive officer of PVM Group in London, referring to the broker’s own estimate for total OPEC output. “It pushes the re-balancing process back at least a year.” 

Wall Street Journal:

• Syrian Airstrikes Hit Kurdish-Arab Forces Fighting Islamic State. Use of warplanes by the regime marks an escalation of violence against Kurdish fighters. Syrian regime warplanes launched airstrikes against Kurdish forces in northeastern Syria on Thursday in a major escalation of violence between the two camps, according to officials and residents.
• U.S. Acknowledges Cash Payment to Iran Was ‘Leverage’ in Prisoner Release. State Department confirms U.S. refused to allow Iran to take $400 million cash payment until plane carrying freed Americans left Tehran.
• Russia Builds Up Army Near Ukraine Border. Heightened military presence on frontier comes amid new tensions over contested Crimea. Russia is bolstering its military presence on its western border, sending tens of thousands of soldiers to newly built installations within easy striking distance of Ukraine.

Fox News:

• Rio police indict Lochte, teammate for falsely reporting robbery. (video) Police in Rio de Janeiro Thursday indicted U.S. Olympic swimmers Ryan Lochte and James Feigen for falsely reporting a crime, the latest twist in a bizarre case that has overshadowed the final week of the Summer Games. Lochte originally claimed that he, Feigen and teammates Jack Conger and Gunnar Bentz were robbed at gunpoint early Sunday morning. Police began to question the story after being unable to find corroborating witnesses. Under Brazilian law, a judge still must decide whether to accept the police indictment, which is punishable by a fine or up to six months in prison. If the judge does not accept the indictment, the case will be dropped.

CNBC:

• Fed trapped by market view that it's 'easing to infinity'. (video)

Zero Hedge: 

• State Department Admits Obama Lied - $400 Million Payment To Iran Was Contingent On Prisoner Release.
• Vancouver Housing Market Implodes: Average Home Price Plunges 20% In 1 Month - "The Market Is Devastated".
• Uber Determines Pittsburgh Lives Most Expendable; Plans To Unleash Autonomous Vehicles There Within Weeks.
• Dear Hillbama, $15 Federal Minimum Wage Equals 7 Million Job Losses.
• Liquidity Trapped! The Fed's Policy Nightmare.
• Paul Singer Says "Everyone Is In The Dark"; Warns Of "Sudden, Intense Market Breakdown".
• Brazilian Police Recommends Charging US Swimmers With Vandalism, False Testimony.
• Bill Gross Warns "Central Bankers Are Destroying The Engine Of The Real Economy".
• Why The Average American Is Angry (In 6 Simple Charts).
• Crude 'Crashes' Up To Bull Market, Dollar Dumps To Brexit Lows. (graph)

Business Insider:

• What it's like on the ground in Louisiana, where a historic flood hit 40,000 homes and left a trail of destruction. (pic)
• SAM ZELL: There's an office glut in New York City.

Night Trading 

• Asian equity indices are unch. to +.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 112.5 -1.75 basis points.
• Asia Pacific Sovereign CDS Index 43.0 -1.75 basis points.
• Bloomberg Emerging Markets Currency Index 73.85 -.05%. 
• S&P 500 futures -.01%. 
• NASDAQ 100 futures -.02%.

Morning Preview Links

Earnings of Note
Company/Estimate 

• (BKE)/.35
• (DE)/.94
• (EL)/.40
• (FL)/.90
• (HIBB)/.28
• (SMRT)/.07
• (TUES)/-.13 

Economic Releases 

• None of note

Upcoming Splits 

• None of note

Other Potential Market Movers

• The Canadian inflation report could also impact trading today.

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

Stocks Slightly HIgher into Final Hour on Central Bank Hopes, Less European/Emerging Markets/US High-Yield Debt Angst, Oil Bounce, Energy/Road & Rail Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Higher
  

• Sector Performance: Most Sectors Rising
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 11.71 -3.94%

• Euro/Yen Carry Return Index 118.43 +.15%

• Emerging Markets Currency Volatility(VXY) 9.91 -.5%

• S&P 500 Implied Correlation 44.8 -1.3%

• ISE Sentiment Index 70.0 +12.9%
  

• Total Put/Call .89 unch.

• NYSE Arms 1.26 +8.4% 

Credit Investor Angst:

• North American Investment Grade CDS Index 69.62 -1.54%
  

• America Energy Sector High-Yield CDS Index 700.0 +.82%

• European Financial Sector CDS Index 89.08 -.86%

• Western Europe Sovereign Debt CDS Index 24.30 +.12%

• Asia Pacific Sovereign Debt CDS Index 43.63 -2.26%

• Emerging Market CDS Index 239.38 -.58%
  

• iBoxx Offshore RMB China Corporate High Yield Index 131.44 +.01%

• 2-Year Swap Spread 25.5 +.25 basis point
  

• TED Spread 50.75 -2.25 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -37.75 +1.25 basis points
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 73.91 +.28%
• 3-Month T-Bill Yield .29% unch. 

• Yield Curve 83.0 +1.0 basis point
  

• China Import Iron Ore Spot $60.71/Metric Tonne -.26%

• Citi US Economic Surprise Index 5.3 -.1 point

• Citi Eurozone Economic Surprise Index 27.6 +.1 point

• Citi Emerging Markets Economic Surprise Index -1.8 -.7 point

• 10-Year TIPS Spread 1.49% +1.0 basis point
• 25.1% chance of Fed rate hike at Nov. 2 meeting, 45.8% chance at Dec. 14 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +18 open in Japan 
• China A50 Futures: Indicating +3 open in China

• DAX Futures: Indicating -23 open in Germany

Portfolio: 

• Slightly Higher: On gains in my retail/biotech/medical sector longs
  

• Disclosed Trades: None

• Market Exposure: 50% Net Long

Today's Headlines

Bloomberg:

• China’s Secret Lists of Zombie Borrowers Leave Banks in the Dark. There’s a list Ni Baixiang, head of Industrial & Commercial Bank of China Ltd.’s Jiangxi branch, would love to get his hands on. Commonly referred to as the “zombie list,” it’s compiled by Jiangxi regional authorities and holds the names of the most deadbeat of borrowers: state-owned companies deemed too weak to survive and destined to be wound down. In short, the kind of enterprises banks already weighed down by rising bad loans want to steer well clear of. Only, neither Ni nor his competitors in Jiangxi are allowed to know who they are. “They won’t tell us because if we know, we’ll lose confidence,” Ni, whose bank is China’s largest, told reporters after a press briefing in Beijing earlier this month.
• The Land of Genghis Khan Is Having an Epic Economic Meltdown. Back in 2008, Mongolia honored its revered national hero Genghis Khan with an enormous, stainless steel statue on the bank of the Tuul River about a half-hour’s drive outside of the capital of Ulaanbaatar. The 13th century conqueror’s name graces the capital’s international airport and his image is also plastered on the tugrik, the local currency. Right now, Khans aren’t getting much respect. Mongolia, a mineral-rich and landlocked $12 billion economy bordering Russia and China, is staring at a full-blown balance of payments crisis. It’s caused barely a ripple in global financial markets, but the nation’s economic meltdown offers instructive lessons to far bigger resource-reliant economies like Brazil, Venezuela, Russia and Saudi Arabia.
• China Bailout Fund Said to Sell Bank Stocks as Rally Extends. Chinese state-backed funds sold bank shares as the nation’s benchmark equity index jumped to a seven-month high earlier this week, according to people with knowledge of the matter. A gauge of financial shares declined. China Securities Finance Corp. and other government-linked funds sold shares including Bank of Ningbo Co. on Tuesday, according to the people, who asked not to be identified because the information isn’t public. Bank of Ningbo, which had rallied 29 percent over the previous 12 months, dropped 6.8 percent that day. While the people said state funds were net sellers of stocks on Tuesday, it’s unclear how unusual the selling was or whether it continued.
• Dollar Slides to Near 3-Month Low as Fed Rate Move Seen on Hold.
• European Stocks Rise First Time in Five Days on Policy Optimism. (video) European stocks climbed for the first time in five days, rebounding from a two-week low, on confidence that accommodative central-bank policies will help support the economy. Miners led the increase in the Stoxx Europe 600 Index as commodities advanced amid a weaker dollar. Minutes from the Federal Reserve’s last meeting showed on Wednesday policy makers were divided over the timing of rate increases, but they agreed to wait for more economic data before a move. In the European Central Bank’s account of its last policy gathering, released on Thursday, officials acknowledged risks related to the U.K.’s secession from the European Union, while they remained reasonably positive about the economic outlook.
• Oil Futures for 2017 Sink as Mexico Hedges Output: Chart. Oil for delivery in December 2017 fell by more than $7 a barrel in June and July just as Mexico was implementing most of its annual oil hedge, which in the past has roiled markets. In previous years, Mexico has bought put options worth about 200 million barrels from banks, which in turn often sell futures for the following year, in this case 2017, to cover themselves. Mexico’s Finance Minister Luis Videgaray said Tuesday the country started hedging in mid-June, confirming an earlier Bloomberg story.
• Three-decade iron ore veteran says 2017 to bring challenges. Iron ore strayed well off-script in 2016 as a rally surprised bears. Michael Zhu, former global sales director at Vale, says the commodity will probably face a tough year in 2017 as supply keeps on expanding while China’s steelmakers struggle to sustain output at current levels. “I’m not optimistic that the iron ore price will keep going up,” Zhu, president of Hong Kong-based trader Millennia Resources, said in an interview, predicting that prices will probably trade between $50 and $60 a metric ton for the rest of 2016. Next year will be challenging even if Chinese  steel production holds at current levels because iron ore supply will increase, he said.
• Brokers Smell Trouble Ahead of Attempt to Spur Smallcap Volume. Several Wall Street executives expect some turbulence when U.S. markets flip the switch on a program aimed at spurring more volume in small stocks. Starting Oct. 3, about 1,200 small-cap stocks will have a wider “tick size” -- in other words, their prices will be quoted in five-cent increments instead of one cent. The hope is that this two-year test will boost profits for market makers, stimulating volume by luring more middlemen who facilitate trades. There are signs the industry isn’t ready to comply. Although exchanges have spent years getting ready, tweaking their trading software to accommodate the shift, some investors have been caught off guard, according to an executive from Instinet LLC. That’s a problem because if a money manager’s orders don’t comply with the new rules, they will be immediately rejected.
• It’s Revenge of Weak Balance Sheets in S&P 500 as Stocks Hover. Add companies with shoddier finances to the list of U.S. stocks that have led the advance since February -- a potentially bullish sign for investors waiting for the S&P 500 Index to snap out of its paralysis. Shares of firms with weaker balance sheets are up 24 percent since markets bottomed in Feb. 11, outpacing their sturdier brethren by 7 percentage points, according to data compiled by Goldman Sachs Group Inc. and Bloomberg. That’s the widest spread in two years for a period of that length.

Wall Street Journal:

• Russia Builds Up Army Near Ukraine Border. Heightened military presence on frontier comes amid new tensions over contested Crimea. Russia is bolstering its military presence on its western border, sending tens of thousands of soldiers to newly built installations within easy striking distance of Ukraine.

Fox News:

• Ryan Lochte lied about robbery, Brazilian police official says. (video) American Olympic swimmer Ryan Lochte fabricated a story about being robbed at gunpoint in Rio de Janeiro, a Brazilian police official told The Associated Press on Thursday. The official, who has direct knowledge of the investigation, spoke on the condition of anonymity because he was not authorized to speak about an ongoing probe.

CNBC:

• Paul Singer fund: Market 'breakdown' to be 'sudden, intense, and large'. (video)
• Here's proof that the economic recovery is over.

Zero Hedge:

• Another Market Descends Into Chaos: "It’s Madness. The Market Makes Major Moves For No Reason".
• Options Traders Have Never Been More Bullish. (graph)
• What Janet Yellen Will Say At Next Week's Jackson Hole Meeting: BofA's Preview.
• Venezuela Confiscates Guns As Murder Rates Soar.
• Private Prison Stocks Crash On News DOJ To Phase Out Their Use.
• Following "Deadliest Month" In A Year, Ukraine President Warns Of "Full-Scale Russian Invasion".
• (HOG) Slaughtered: Harley Davidson Tumbles After US Accuses It Of Evading Emissions Requirements.
• The Biggest Hack Yet: Why A Leak Of Clinton Foundation Documents Is Imminent.
• Caterpillar(CAT) Retail Orders Suffer Second Biggest Plunge Since Financial Crisis.
• British Olympic Athlete 'Robbed At Gunpoint'; Officials Warn Of Curfew, Say "Rio Is Not A Safe Environment".
• Philly Fed 'Hope' Jumps As New Orders Plunge, Employment Crashes To 7 Year Lows.

Business Insider:

• Syria 'is being swallowed whole by its clients': Assad may be losing control over his own militias.
• The small-car market in the US is officially a disaster.
• Thousands of ships are being destroyed — and it's terrifying news for the global economy.
• This is what would happen if Trump quit the presidential race.

@Lizzy363:

• Total U.S. corporate debt excluding financial firms stands at $4.2 trillion this year, (Societe Generale), up from $1.9 trillion in 2009.
• BIS, emerging markets’ total debt to GDP ratio is nearly 170%, up from 100% just before Lehman’s failure (infrastructure spend will cure).
• Interest costs on U.S. debt, added together w/ gov entitlement spending, is nearing 71% of Federal spending, compared to 26% in early 1960's.

Nikkei:

• Steel Glut Could Take 'A Generation' to Fix, Eder Says. World Steel Association Chairman Wolfgang Eder says up to 35% of global capacity is superfluous, citing an interview. Says politics will hamper resolution, opposes state intervention. Says need to examine whether consolidation is spurring real change.

21st Century Business Herald:

• China Mulls Curbs on Asset-Management Product Investments. China may ban structured asset-management products from investing in non-standard products, citing people familiar with the matter. Structured asset-management products investing in non-standardized products may accumulate credit risks, citing industry participants.

Bear Radar

Style Underperformer:

• Large-Cap Growth -.1%

Sector Underperformers:

• 1) Gaming -.7% 2) REITs -.5% 3) Communications -.5%

Stocks Falling on Unusual Volume: 

• GEO, CXW, OMED, CFNL, WUBA, BGG, HOG, MHG, PERY, IEP, KEYS, NTES, ALRM, VRX, MAA, PPS, EDIT, A, PLCE, TGT, TWTR, PAM, HMSY, EPAY and PTLA

Stocks With Unusual Put Option Activity:

• 1) OIL 2) AMAT 3) NOV 4) LB 5) XRT

Stocks With Most Negative News Mentions:

• 1) IEP 2) JCS 3) TWTR 4) CTAS 5) HLI

Charts:

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