Stocks Reversing Lower into Final Hour on Fed Rate-Hike Fears, Emerging Markets Currency Weakness/Debt Angst, Technical Selling, Metals & Mining/Utilities Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Lower
  

• Sector Performance: Most Sectors Declining
  

• Volume: Slightly Above Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 14.24 +4.94%

• Euro/Yen Carry Return Index 120.31 +1.06%

• Emerging Markets Currency Volatility(VXY) 10.24 -.39%

• S&P 500 Implied Correlation 46.41 +4.93%

• ISE Sentiment Index 135.0 -9.4%
  

• Total Put/Call .96 -7.69%

• NYSE Arms .87 -19.95% 

Credit Investor Angst:

• North American Investment Grade CDS Index 75.80 +.88%
  

• America Energy Sector High-Yield CDS Index 651.0 +.24%

• European Financial Sector CDS Index 103.0 -1.38%

• Western Europe Sovereign Debt CDS Index 21.97 +1.6%

• Asia Pacific Sovereign Debt CDS Index 33.01 +.12%

• Emerging Market CDS Index 238.34 +2.33%
  

• iBoxx Offshore RMB China Corporate High Yield Index 132.23 -.05%

• 2-Year Swap Spread 22.75 -.75 basis point

• TED Spread 54.75 -4.25 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -48.25 +10.5 basis points
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 72.63 -.61%
• 3-Month T-Bill Yield .32% +2.0 basis points

• Yield Curve 86.0 +3.0 basis points
  

• China Import Iron Ore Spot $55.86/Metric Tonne unch.

• Citi US Economic Surprise Index -6.90 -1.3 points

• Citi Eurozone Economic Surprise Index 5.20 +.9 point

• Citi Emerging Markets Economic Surprise Index -11.50 -1.0 point

• 10-Year TIPS Spread 1.63% unch.
• 61.8% chance of Fed rate hike at Dec. 14 meeting, 64.2% chance at Feb. 1 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +15 open in Japan 
• China A50 Futures: Indicating +3 open in China

• DAX Futures: Indicating -92 open in Germany

Portfolio: 

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

• Disclosed Trades: Added to my (IWM)/(QQQ) hedges and to my (EEM) short

• Market Exposure: Moved to 25% Net Long

Bear Radar

Style Underperformer:

• Mid-Cap Value -1.0%

Sector Underperformers:

• 1) Gold & Silver -8.3% 2) Steel -3.0% 3) REITs -1.9%

Stocks Falling on Unusual Volume: 

• IRMD, SYNT, JNS, BMO, DPS, CEF, PH, CPA, ACAD, DVAX, NVO, VET, NTGR, DXCM, GOLD, GXP, ZOES, CIM, KMPR, UIHC, MITT, LSI, FRT, UVE, DTE, PPL, DLTR, AGR and ACAD

Stocks With Unusual Put Option Activity:

• 1) MMM 2) Z 3) MU 4) HPQ 5) C

Stocks With Most Negative News Mentions:

• 1) AES 2) CMRE 3) MGT 4) DPS 5) KMI

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Growth -.6%

Sector Outperformers:

• 1) Banks +1.0% 2) Disk Drives +.7% 3) I-Banks +.1%

Stocks Rising on Unusual Volume:

• SHLD, AWH, ATHM, MOMO, WB, PSTG, GPRE and EDIT

Stocks With Unusual Call Option Activity:

• 1) CIEN 2) NBR 3) BRCD 4) ACAD 5) DUST

Stocks With Most Positive News Mentions:

• 1) CHK 2) AA 3) CAB 4) CHK 5) TDC

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running +9.2% Above 100-Day Average
• 1 Sector Rising, 9 Sectors Declining
• 36.0% of Issues Advancing, 62.0% Declining
• 64 New 52-Week Highs, 19 New Lows
• 61.2% of Issues Above 200-day Moving Average
• Average 14-Day RSI 40.0%
• Vix 13.58 +.07%
• Total Put/Call .95 -8.65%
• TRIN/Arms .93 -14.7%

Tuesday Watch

Evening Headlines

Bloomberg:

• Japan Coalition Leader Says BOJ’s Negative Rates Stir Confusion. The Bank of Japan’s negative interest rate policy has stirred confusion among financial institutions and the public, the party leader of Prime Minister Shinzo Abe’s junior coalition partner said in an interview in Tokyo. The Komeito party’s Natsuo Yamaguchi said the central bank’s surprise introduction of negative rates in January had achieved an initial impact, but he wanted the BOJ to take advantage of a broader range of policy options. "There was confusion, especially among private-sector financial institutions, and even more so among ordinary people" when the rates were adopted, Yamaguchi, 64, said on Monday in his Tokyo offices. "It was a blow to people who rely on savings, and financial institutions have had difficulty, especially in managing bonds."
• Japan Inc. Inflation Expectations Drop, Adding to BOJ’s Struggle. Japanese companies cut their forecasts for inflation for coming years, underscoring the difficulty Bank of Japan Governor Haruhiko Kuroda faces as he struggles to hit the central bank’s price target of 2 percent. The BOJ’s survey of companies’ average inflation outlook shows:
• Asian Stocks Advance as Japanese Shares Climb Amid Weaker Yen. The MSCI Asia Pacific Index added 0.1 percent to 140.74 as of 9:16 a.m. in Tokyo. Japan’s Topix index rose 0.6 percent as the yen dropped for a sixth day against the dollar, declining 0.4 percent to 102.03. The odds the Fed will raise rates in December climbed to 61 percent on Monday, from 51 percent a week earlier, as new orders and production expanded last month, indicating gradual improvement across America’s manufacturing landscape.
• Iran, OPEC’s Big Winner, Signs Landmark Oil Investment Contract. Iran, fresh from an OPEC meeting where it won significant concessions from regional rival Saudi Arabia, will start the process of rejuvenating its sanctions-ravaged energy industry on Tuesday when the state oil company signs a new-model oil investment contract. National Iranian Oil Co. will complete a $2.5 billion deal with a group of local companies, according to an oil ministry official. The new type of contract, designed to better reward investment in oil and natural gas production, is seen by Oil Minister Bijan Namdar Zanganeh as crucial in increasing the country’s long-term export potential.
• Iron Ore Miners Face Test of Discipline as China Challenge Looms. The world’s largest iron ore producers will need to exert tight control over supplies to keep prices at about $45 a metric ton as China’s drive to weed out unwanted steel capacity poses risks to demand, according to Singapore-based DBS Group Holdings Ltd. The commodity’s rally in 2016 may come under pressure as consumption in China is poised to weaken in the coming years, Chief Investment Officer Lim Say Boon said in a report. Iron ore was steady at $55.86 a dry ton on Monday, and hasn’t traded below $45 since February, according to Metal Bulletin Ltd.

Fox News:

• FBI agreed to destroy laptops of Clinton aides with immunity deal, lawmaker says.
  (video) Immunity deals for two top Hillary Clinton aides included a side arrangement obliging the FBI to destroy their laptops after reviewing the devices, House Judiciary Committee sources told Fox News on Monday. Sources said the arrangement with former Clinton chief of staff Cheryl Mills and ex-campaign staffer Heather Samuelson also limited the search to no later than Jan. 31, 2015. This meant investigators could not review documents for the period after the email server became public -- in turn preventing the bureau from discovering if there was any evidence of obstruction of justice, sources said.

CNBC:

• Europe could fine Google(GOOG) up to 10% of annual global revenue, report says.

Zero Hedge: 

• US Ends Fiscal 2016 With $1.4 Trillion Debt Increase: Third Largest In History. (graph)
• Greatest. Fools. Ever! (graph) 
• Italy Prepares For "Impact From Hypothetical Worsening" Of Deutsche Bank "Crisis". (graph)
• Six Impossible Things Before Breakfast.
• FL, NC Declare State Of Emergency As "Life-Threatening" Hurricane Matthew Set For Landfall In Haiti.
• Kuroda Ruined His Chance Of A Second Term By Doing "Stupid Things", Abe Advisor Says.
• Italian Bond Yields Jump After Rome Confirms It Will Issue 50 Year Bonds.
• Is Deutsche Bank Insolvent?
• Deutsche Disappointment Slams Stocks Despite Oil Spike. (graph)

Business Insider:

• People are already selling drugs, animals, and adult services on Facebook's(FB) new Craigslist competitor.
• New poll shows Clinton down in a crucial swing state.
• There's a major flaw with central bank assumptions.

Night Trading 

• Asian equity indices are -.25% to +.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 117.0 -.5 basis point. 
• Asia Pacific Sovereign CDS Index 33.0 +.25 basis point.
• Bloomberg Emerging Markets Currency Index 73.04 -.04%. 
• S&P 500 futures +.10%. 
• NASDAQ 100 futures +.11%.

Morning Preview Links

Earnings of Note
Company/Estimate 

• (DRI)/.82
• (MU)/-.11

Economic Releases
9:45 am EST

• ISM New York for September. 

Upcoming Splits 

• None of note

Other Potential Market Movers

• The Fed's Evans speaking, Fed's Lacker speaking, Eurozone PPI report, RBA meeting, weekly US retail sales reports, (CRM) investor day and the (GOOG) hardware event 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 mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the day.

Stocks Lower into Close on Fed Rate-Hike Fears, Rising European Debt Angst, Technical Selling, Healthcare/REIT 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) 13.79 +3.76%

• Euro/Yen Carry Return Index 118.98 unch.

• Emerging Markets Currency Volatility(VXY) 10.30 -1.5%

• S&P 500 Implied Correlation 44.38 -.52%

• ISE Sentiment Index 149.0 +56.84%
  

• Total Put/Call 1.04 +6.12%

• NYSE Arms 1.03 +25.1% 

Credit Investor Angst:

• North American Investment Grade CDS Index 75.06 -.99%
  

• America Energy Sector High-Yield CDS Index 646.0 +.92%

• European Financial Sector CDS Index 104.44 +3.41%

• Western Europe Sovereign Debt CDS Index 24.83 -12.91%

• Asia Pacific Sovereign Debt CDS Index 32.97 +.63%

• Emerging Market CDS Index 233.62 -.96%
  

• iBoxx Offshore RMB China Corporate High Yield Index 132.30 +.08%

• 2-Year Swap Spread 23.5 -1.5 basis points

• TED Spread 59.0 +.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -58.75 -3.25 basis points
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 73.08 +.15%
• 3-Month T-Bill Yield .30% +3.0 basis points

• Yield Curve 83.0 -1.0 basis point
  

• China Import Iron Ore Spot $55.86/Metric Tonne unch.

• Citi US Economic Surprise Index -5.60 -.5 point

• Citi Eurozone Economic Surprise Index 4.30 +1.7 points

• Citi Emerging Markets Economic Surprise Index -10.50 +.5 point

• 10-Year TIPS Spread 1.63% +3.0 basis points
• 60.9% chance of Fed rate hike at Dec. 14 meeting, 63.4% chance at Feb. 1 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +41 open in Japan 
• China A50 Futures: Indicating +16 open in China

• DAX Futures: Indicating +1 open in Germany

Portfolio: 

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

• Disclosed Trades: None

• Market Exposure: 50% Net Long