Bull Radar

Style Outperformer:

• Large-Cap Growth -1.2%

Sector Outperformers:

• 1) Gaming -.6% 2) Computer Hardware -.7% 3) Insurance -1.0%

Stocks Rising on Unusual Volume:

• ISIL, LMCA and ERII

Stocks With Unusual Call Option Activity:

• 1) AA 2) WTW 3) UCO 4) FOXA 5) ISIL

Stocks With Most Positive News Mentions:

• 1) JBLU 2) KATE 3) FLXS 4) HPQ 5) APC

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running +7.9% Above 100-Day Average
• 0 Sectors Rising, 10 Sectors Declining
• 13.2% of Issues Advancing, 85.7% Declining
• 12 New 52-Week Highs, 17 New Lows
• 62.0% of Issues Above 200-day Moving Average
• Average 14-Day RSI 38.9%
• Vix 17.7 +16.6%
• Total Put/Call 1.07%
• TRIN/Arms 3.6 +763.7%

Tuesday Watch

Evening Headlines

Bloomberg:

• Yuan Liquidity Choke Bad for Stocks. (video) 
• Yield Hunters Become the Hunted as Japan Long Debt Loses 9%. In Japan, the yield hunters have become the hunted. Investors who refused to swallow negative yields to hold Japan’s shorter-dated bonds are suffering, as an index of sovereign debt maturing in 20 years or more has lost 9 percent this quarter. The yield on 2036 bonds climbed to the highest since March 16 as BOJ Governor Haruhiko Kuroda noted last week that low long-term yields hurt returns on pension and insurance investments, even as he signaled there would be no reduction in easing with a policy review due Sept. 21. Bonds of the maturity are due for auction Tuesday.
• Dollar Holds Loss as Traders Scale Back Fed Hike Odds; Won Gains. The greenback remained weaker against most of its 16 major counterparts as the futures-based probability of a U.S. rate hike on Sept. 21 dropped to 22 percent Monday from 30 percent at the end of last week. Brainard’s comments Monday in Chicago were the last before the Fed enters its quiet period, during which officials abstain from publicly speaking about monetary policy in the run-up to their Sept. 20-21 policy meeting. 
• Asian Stocks Join U.S. Rebound as Fed Outlook Weighs on Dollar. The MSCI Asia Pacific Index rose 0.6 percent as of 9:15 a.m. Tokyo time, after a 1.9 percent slide in the last session that marked its steepest loss since June. Japan’s Topix index added 0.6 percent, while Australia’s S&P/ASX 200 Index added 1.1 percent and South Korea’s Kospi index rallied 0.9 percent.
• Safety Trade Leaves S&P 500 on Knife’s Edge as Valuations Soar. (video) The U.S. equity market’s biggest winners from the first half of 2016 are back in the spotlight, for all the wrong reasons. Utilities, consumer staples makers and phone companies -- sectors that usually do well when the economy isn’t -- plunged at least 2.8 percent Friday, worse than the broader market. It’s an abrupt change for companies that were among the few winners at the start of the year and are often labeled by Wall Street as safety sectors. The S&P 500 Index rebounded Monday, adding 1.5 percent to 2,159.04 as of 4 p.m. in New York, helping the groups recoup some of their losses. But the valuation of defensive equities remain one of the market’s bigger pressure points. Shares of consumer staples stocks trade at 22 times annual earnings, 25 percent higher than the average multiple over the last decade, more than any other group. Utilities companies are 19 percent higher than their 10-year average.

Wall Street Journal:

• Divided Federal Reserve Is Inclined to Stand Pat. Low inflation leaves central bankers with little sense of urgency to boost interest rates.
• ‘Safest’ Shares Prove Anything But. Investors in dividend-paying stocks could be in for a rude awakening.

Fox News:

• Trump denounces Clinton for 'deplorables' comment, calls on her to 'retract' remarks. (video)

Zero Hedge:

• Supervisor Of "Massive Fraud" At Wells Fargo Leaves Bank With $125 Million Bonus.
• Angry Secret Service Denies It "Broke Protocol" With Sloppy Handling Of Hillary's Rushed Exit.
• Recovery Rates In E&P Bankruptcies Hit "Catastrophic" Levels: Moody's.
• Wells Fargo Scandal Is Just The Beginning; Here's What Else They're Hiding...
• 8 Reasons Why One Hedge Fund Is Keeping A Long VIX Position On.
• What Happens If Hillary Clinton Has To Drop Out?
• Diversify At Your Own Risk.
• Stocks Soar Most In 2 Months After Brainard Warns "Not Compelling" To Raise Rates. (graph)

Business Insider:

• Watch out Wall Streeters: Your jobs are moving to Mumbai.
• There are signs of a contagious bubble in the US.
• Negative interest rates are crushing growth.

The Verge:

• Twitter's(TWTR) new, longer tweets are coming September 19th.

Night Trading 

• Asian equity indices are -.25% to +.5% on average.
• Asia Ex-Japan Investment Grade CDS Index 106.5 -. basis point.
• Asia Pacific Sovereign CDS Index 38.25 unch.
• Bloomberg Emerging Markets Currency Index 72.61 +.07%. 
• S&P 500 futures -.22%. 
• NASDAQ 100 futures -.20%.

Morning Preview Links

Earnings of Note
Company/Estimate 

• None of note

Economic Releases
6:00 am EST

• The NFIB Small Business Optimism Index for August is estimated to rise to 94.8 versus 94.6 in July.
  

2:00 pm EST

• The Monthly Budget Statement for August is estimated to widen to -$107.0B versus -$64.4B in July.

Upcoming Splits 

• (BIP) 3-for-2
• (BMI) 2-for-1

Other Potential Market Movers

• The German ZEW Index, UK CPI report, $12B 30Y bond auction, weekly US retail sales reports, CSFB Basic Materials conference, BofA Real Estate conference, Deutsche Bank Tech conference, BofA Media/Communications/Entertainment conference and the (SFLY) analyst meeting could also impact trading today.

BOTTOM LINE:  Asian indices are mostly 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 Surging into Final Hour on Diminished Fed Rate-Hike Fears, Short-Covering, Oil Bounce, Metals & Mining/Biotech Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Higher
  

• Sector Performance: Almost Every Sector Rising
  

• Volume: Around Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 15.30 -12.46%

• Euro/Yen Carry Return Index 119.56 -.76%

• Emerging Markets Currency Volatility(VXY) 10.44 +3.67%

• S&P 500 Implied Correlation 49.36-12.83%

• ISE Sentiment Index 75.0 +5.63%
  

• Total Put/Call 1.01 -13.56%

• NYSE Arms .34 -79.09% 

Credit Investor Angst:

• North American Investment Grade CDS Index 73.14 -3.56%
  

• America Energy Sector High-Yield CDS Index 671.0 +1.14%

• European Financial Sector CDS Index 90.43 +1.93%

• Western Europe Sovereign Debt CDS Index 24.96 +1.30%

• Asia Pacific Sovereign Debt CDS Index 38.07 -.56%

• Emerging Market CDS Index 249.56 +4.72%
  

• iBoxx Offshore RMB China Corporate High Yield Index 131.72 +.06%

• 2-Year Swap Spread 25.25 -1.0 basis point

• TED Spread 51.75 +2.5 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -26.50 +2.0 basis points
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 72.57 -.09%
• 3-Month T-Bill Yield .36% +2.0 basis points

• Yield Curve 89.0 unch.
  

• China Import Iron Ore Spot $57.78/Metric Tonne n/a

• Citi US Economic Surprise Index -4.9 unch.

• Citi Eurozone Economic Surprise Index -19.9 -1.2 points

• Citi Emerging Markets Economic Surprise Index -16.8 -5.2 points

• 10-Year TIPS Spread 1.51% unch.
• 26.9% chance of Fed rate hike at Nov. 2 meeting, 57.2% chance at Dec. 14 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +4 open in Japan 
• China A50 Futures: Indicating +7 open in China

• DAX Futures: Indicating +87 open in Germany

Portfolio: 

• Higher: On gains in my biotech/medical/tech/retail

• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges, then added some back

• Market Exposure: Moved to 50% Net Long

Today's Headlines

Bloomberg:

• Yuan Traders Most Bearish in Almost Four Months as Costs Surge. Traders are the most bearish on the yuan in almost four months as rising odds of a U.S. interest-rate increase boost the dollar and the cost of borrowing the Chinese currency in Hong Kong jumps. Twelve-month non-deliverable forward contracts traded at a 2.87 percent discount to the spot rate, compared with Friday’s 2.9 percent that was the biggest gap since May 18, data compiled by Bloomberg show. The offshore yuan erased the day’s losses amid intervention speculation. The three-month Hong Kong Interbank Offered Rate climbed 95 basis points, the most since February, to 4.21 percent, according to Treasury Markets Association data.
• Russia Stock Rally May Be Over, Technical Indicator Shows: Chart. 
• Morgan Stanley: The Expansion in Developed Markets Might Be Over. As traders are settling back into their routine after the slow summer months, things have started taking a turn for the worse in global markets. Now one indicator is even pointing to the end of the expansion in developed markets. According to new research from Morgan Stanley, so many developed countries are showing enough signs of slowing, that its cycle indicators — which take macro, credit and corporate factors into account — are leading analysts led by Chief Cross-Asset Strategist Andrew Sheets to conclude that a downturn could be coming sooner than some may think.
  
• Losses Deepen in Europe’s Worst Bond Market as Draghi Stands Pat. In rally or rout, Portuguese bonds are stuck as Europe’s worst performers. Yields jumped to their highest since July after European Central Bank President Mario Draghi downplayed the need for more economic stimulus, which has included purchases of billions of euros of government securities through its quantitative easing program. Portugal was already the worst-performing market in the euro region and as European bonds tumbled at the end of last week it once again suffered the most.
• OPEC Flips Forecast to Predict Rebound in Rival Supply Next Year. (video) OPEC flipped its forecasts for rival supplies in 2017, predicting an increase in output from outside the group instead of a decline, the latest sign that the global surplus is persisting. Production from outside the Organization of Petroleum Exporting Countries will grow by 200,000 barrels a day next year, according to the group, which a month ago had projected a drop of 150,000 a day. The gain is driven by the startup of the Kashagan oil field in Kazakhstan. That means the organization’s total output of 33.24 million barrels a day in August was 757,000 a day higher than the average amount the world will need from OPEC in 2017. 
• E&P Debt Recoveries Hit ‘Catastrophic’ Level, Moody’s Says. Creditors of energy exploration and production companies that went bankrupt last year recouped less than half the usual amount for their claims, and 2016 is shaping up just as bad, according to Moody’s Investors Service. Recovery rates for 15 U.S. E&P bankruptcies averaged a “catastrophic” 21 percent last year, well below the historical average of 59 percent, Moody’s said in a report released Monday. Senior unsecured bondholders were hammered even more, averaging just 6 cents on the dollar. Collectively, the debacle could be worse than the telecom industry’s collapse in the early 2000s, measured by both the number of companies that go bust and the recoveries, Moody’s said.
• Bubble Bursting in Less Than a Week for Payment-in-Kind Bonds. (video) Bonds that allow issuers to defer interest payments are nosediving less than a week after they were sold amid a sell-off of fixed-income assets. Ardagh Group SA’s 845 million euros ($948 million) payment-in-kind toggle notes due September 2023 are indicated at 95.5 cents on the euro, down 4.5 cents from when the Luxembourg-headquartered packaging company sold them on Wednesday, according to data compiled by Bloomberg. German auto components maker Schaeffler AG’s 750 million euros of notes due September 2026 are quoted 97.2 cents down from a sale price of 100 cents on Thursday, the data show.
• Clinton Health Another Land Mine for Suddenly Vulnerable Markets. (video) Investors nursing wounds after the worst selloff in three months for equity and debt markets got another stress to ponder after concerns over Hillary Clinton’s health flared anew. The 68-year-old Democratic presidential nominee, whose polling edge over Donald Trump has soothed traders who fear ruptures to U.S. policy and see virtue in political gridlock, is suffering from pneumonia and became overheated and dehydrated during a Sept. 11 commemoration Sunday, forcing her to leave abruptly, her doctor said. Clinton was prescribed antibiotics and advised to modify her schedule so she can rest. Volatility is already resurfacing in markets that had purred along for two months inured to everything from politics to weakening global growth, with the S&P 500 Index getting jarred Friday out of its tightest trading range ever in a selloff that erased about $500 billion of share value. While investors and analysts were reluctant to speculate on Clinton’s health, they said expectations she will prevail in November have been a factor in the calm and predicted the scrutiny will intensify.
• Seven College Endowments Report Annual Losses in Choppy Markets. Seven public U.S. university endowments with assets of more than $1 billion including the University of California reported fiscal 2016 investment losses as lackluster economic growth and volatility drubbed markets. College endowments are poised to take the worst slide in performance since the 2009 recession. Funds with more than $500 million lost a median 0.73 percent in the year through June 30, according to the Wilshire Trust Universe Comparison Service. The Wilshire data, from fund custodians, excludes fees while most schools report returns net of fees.
• Some of the Biggest Hedge Funds Are Bleeding Cash. Some of the biggest and best-known hedge funds can’t hang on to client capital. Richard Perry, who started his hedge fund 28 years ago, has seen assets in his Perry Capital shrink to $4 billion, from $10 billion last September. That 60 percent drop comes as the firm’s main fund fell 18 percent from the end of 2013 through July. Perry isn’t the only manager struggling. John Paulson’s assets, on the decline since 2011, are down an additional 15 percent this year. And Dan Och, who like Perry cut his teeth at Goldman Sachs Group Inc., is now managing $39.2 billion at his Och-Ziff Capital Management Group, compared with $44.6 billion at the start of the 2016.
• It’s the End of an Era as S&P 500 Breaks Out of Range: Chart.

CNBC:

• The 'herd of dumb money' is plowing into this trade. (video)
• CEOs downbeat on growth outlook, new survey shows.
• JPMorgan Chase CEO Jamie Dimon says it's time to raise rates. (video) The CEO of JPMorgan Chase thinks the Fed should raise interest rates 'sooner rather than later.'

Zero Hedge:

• Brainard Says Case To Tighten "Less Compelling", Burying Sept Rate Hike Odds: Live Feed.
• Trump Slams Fed's "False Stock Market", Says Yellen Should Be "Ashamed".
• Harvard PhD Explains How Google Search Bias Could "Shift 3 Million Votes" In Upcoming Election.
• Tent Cities Full Of Homeless People Are Booming In Cities All Over America As Poverty Spikes.
• George Soros Warns Europe: Accept Refugees Or Face Extinction.
• Fed's Lockhart Non-Committal On Rate Hike In September; Sees No Bubbles In Any Asset Markets. (graph)
• "More To Come" - Trader Warns VIX Seasonality Suggests "It's Not Over Yet". (graph)
• "Friday 'Shock' Larger Than Brexit For Quants": BofA Expects $52 Billion In Near-Term Selling Pressure.

Business Insider:

• KKR: 'The last couple of days certainly looks like just the beginning of the tide rolling out'.
• Ted Cruz rips 'rich spoiled athletes' after latest round of NFL protests. Sen. Ted Cruz of Texas reacted with fury after players across the NFL on Sunday followed San Francisco 49ers quarterback Colin Kaepernick's lead and staged silent protests during the national anthem. The Texas Republican quoted a tweet from ex-NBA star and current ESPN analyst Jalen Rose: "Salute to all @NFL players & teams that peacefully did protests for change. #standfornothingfallforanything." "Here's a peaceful protest: never buy another shoe, shirt, or jersey of rich spoiled athletes who dishonor our flag," Cruz fired back. 
• The yen is surging.

Bear Radar

Style Underperformer:

• Small-Cap Value unch.

Sector Underperformers:

• 1) Coal -2.7% 2) Agriculture -.7% 3) Disk Drives -.5%

Stocks Falling on Unusual Volume: 

• FPI, PII, AGU, EBIX, TGP, THO, USCR, SALE, SOJA, ENZL, BIS, ECHO, ETP, MBLY, BPMC, TARO, DW, KR, RYAAY, FNBC, CTZ, WIRE and ECHO

Stocks With Unusual Put Option Activity:

• 1) EWW 2) XLK 3) XLV 4) IYR 5) GGP

Stocks With Most Negative News Mentions:

• 1) PII 2) QHC 3) RUBI 4) SALE 5) TARO

Charts:

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