Stocks Reversing Higher into Afternoon on Perception of Dimished Election Uncertainty, Oil Bounce, Short-Covering, Metals & Mining/Healthcare Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Higher
  

• Sector Performance: Most Sectors Rising
  

• Volume: Slightly Above Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 17.88 -4.44%

• Euro/Yen Carry Return Index 120.95 +.35%

• Emerging Markets Currency Volatility(VXY) 9.98 -1.67%

• S&P 500 Implied Correlation 58.41 -3.79%

• ISE Sentiment Index 101.0 +27.9%
  

• Total Put/Call 1.71 +42.5%

• NYSE Arms .94 +117.15% 

Credit Investor Angst:

• North American Investment Grade CDS Index 75.88 -1.68%
  

• America Energy Sector High-Yield CDS Index 657.0 -1.29%

• European Financial Sector CDS Index 95.95 -1.14%

• Western Europe Sovereign Debt CDS Index 19.19 -.83%

• Asia Pacific Sovereign Debt CDS Index 35.52 +.69%

• Emerging Market CDS Index 233.0 -.63%
  

• iBoxx Offshore RMB China Corporate High Yield Index 132.73 +.06%

• 2-Year Swap Spread 23.75 +1.5 basis points

• TED Spread 47.75 -1.25 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -46.5 -1.25 basis points
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 72.53 +.44%
• 3-Month T-Bill Yield .42% +2.0 basis points

• Yield Curve 100.0 unch.
  

• China Import Iron Ore Spot $68.30/Metric Tonne +1.29%

• Citi US Economic Surprise Index -9.80 +2.1 points

• Citi Eurozone Economic Surprise Index 33.3 -3.7 points

• Citi Emerging Markets Economic Surprise Index -6.60 -5.1 points

• 10-Year TIPS Spread 1.74% +1.0 basis point
• 86.6% chance of Fed rate hike at Feb. 1 meeting, 88.2% chance at March 15 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +179 open in Japan 
• China A50 Futures: Indicating +38 open in China

• DAX Futures: Indicating +47 open in Germany

Portfolio: 

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

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

• Market Exposure: 50% Net Long

Bear Radar

Style Underperformer:

• Mid-Cap Value +4%

Sector Underperformers:

• 1) Homebuilding -1.4% 2) Defense -.3% 3) Computer Services -.2%

Stocks Falling on Unusual Volume: 

• HTZ, OMF, CVS, MATX, DEPO, W, TAST, ATRO, PRAA, NVRO, FICO, USAC, SCSC, VRX, IFF, CAR, NEWR, SITE, ECPG, MOMO, ULTI, ZBH, SYNA, DHI, PKI, CBPX, ENV, EXPD, KMX, SC, ECPG and NWSA

Stocks With Unusual Put Option Activity:

• 1) CVS 2) MGM 3) PCLN 4) ALXN 5) ITW

Stocks With Most Negative News Mentions:

• 1) RMTI 2) VRX 3) HTZ 4) CEMP 5) OMF

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Growth +.6%

Sector Outperformers:

• 1) Steel +2.3% 2) HMOs +1.9% 3) Foods +1.7%

Stocks Rising on Unusual Volume:

• SNCR, WBAI, ACAD, PINC, PCLN, HSNI, INVA, SSP, TREX, MXL, FCX, PRIM, CSU and SEAS

Stocks With Unusual Call Option Activity:

• 1) HTZ 2) DEPO 3) INFN 4) K 5) GIS

Stocks With Most Positive News Mentions:

• 1) MDCO 2) BAC 3) CNP 4) HTZ 5) W

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running +9.1% Above 100-Day Average
• 1 Sector Rising, 9 Sectors Declining
• 51.0% of Issues Advancing, 45.2% Declining
• 46 New 52-Week Highs, 49 New Lows
• 44.5% of Issues Above 200-day Moving Average
• Average 14-Day RSI 33.3%
• Vix 19.2 +2.7%
• Total Put/Call 1.60 +33.3%
• TRIN/Arms 1.01 +135.6%

Tuesday Watch

Evening Headlines

Bloomberg:

• China's Investors Get Creative About Capital Controls. China’s policy makers are playing catch-up as investors get more creative in evading capital controls. The authorities are taking a series of steps to plug loopholes, such as a potential plan to curb transactions that use the bitcoin digital currency to take funds out of the country, as well as a statement from UnionPay Co. limiting mainlanders from using its cards to buy insurance in Hong Kong. These add to more traditional measures, including an order seen as asking mainland banks to reduce foreign-exchange sales.
• China Reserves Drop the Most Since January. (video) As anyone who has visited Japan knows, cash is still king. Even though many places now take credit cards, Apple Pay and other forms of cashless technology, the actual amount of notes and coins circulating in the country has doubled in 20 years. And that’s while the economy and population has shrunk.
• Hong Kong Banks' Double Trouble.
• Anxiety in Manila as Duterte Blasts U.S., Embraces China.
• Cash Is Still King in Japan, and That Could Be a Problem for the BOJ. Preference for yen could limit scope for negative rate cuts.
• Whoever Wins the Election, the Yen Looks Set for Gains. The yen is looking like a long-term winner after the Nov. 8 U.S. presidential vote, following a protectionism-heavy election campaign that’s roiled markets worldwide and spurred the currency toward its best year since the 2008 global financial crisis. Options traders have become more bullish on the yen as the election nears, while hedge funds wagered since early January that the currency will gain. JPMorgan Chase & Co. and HSBC Holdings Plc say that neither Democrat Hillary Clinton or Republican Donald Trump will favor a stronger dollar, so any short-term fluctuations in the yen as the vote nears are likely to give way to gains for the Japanese currency over the longer term. An expected Federal Reserve rate increase also may already be priced in.  
• Asian Stocks Gain With Mexican Peso as U.S. Election Day Dawns. The MSCI Asia Pacific Index added 0.3 percent as of 9:21 a.m. Tokyo time, led by gains in raw-materials producers. Benchmarks in Australia, Japan and South Korea rose 0.3 percent, while New Zealand’s S&P/NZX 50 Index gained 0.8 percent.

Wall Street Journal:

• Iran to Sign $6 Billion Gas-Field Deal With Total, CNPC. Preliminary deal under Iran’s new contract framework would mark a vital step in the return of Western companies.
• Control of the Senate Goes Down to the Wire. Democrats are favored to barely control the chamber, but several races are close.
• Trump, Clinton and the Culture of Deference. Political correctness functions like a despotic regime. We resent it but we tolerate it.

Fox News:

• Closing Arguments: Trump pledges jobs, security; Clinton sounds unity message in final push. (video)

MarketWatch:

• Clinton relief rally for the stock market may be short-lived, analysts warn.

CNBC:

• California's very expensive drug price battle: Prop 61 fight gets even nastier. (video)
• Priceline(PCLN) pops 5.5% after hours as it scales back OpenTable. (video)
• News Corp(NWSA) results: 1 cent loss per share, vs Wall Street-expected breakeven. (video)

Zero Hedge:

• Newsweek Calls It: "Madam President Clinton" Hits The Shelves Due To A "Business Decision".
• "I Just Lost All Faith In Our Deeply Corrupt Legal System And In The Rule Of Law In The US".
• 4 Year Proposition? - Next President Has To Contend With Obama's Massive Debt Burden At "Epic Turning Point".
• The Final Batch? Wikileaks Releases Part 34 Of Podesta Files, Bringing Total To 56,582 Emails.
• In "Seismic Shift" To Mid-East Regional Power, Saudis Halt Egypt Oil Supplies As Cairo Turns To Iran.
• NATO Places 300,000 Troops On "High Alert" In Readiness For Confrontation With Russia.
• In Surprising Move China Replaces Finance Minister, Ending Hope For Reform.
• Student, Auto Loans Hit New All Time High Of $2.5 Trillion As Consumer Credit Jumps By $19 Billion. (graph)
• Bookies Rake In The Cash As Bets On U.S. Presidential Election Surges To New Record.
• Comey Saves The World - Stocks Soar Most In 8 Months. (graph)

Night Trading 

• Asian equity indices are unch. to +.5% on average.
• Asia Ex-Japan Investment Grade CDS Index 116.25 -1.25 basis points. 
• Asia Pacific Sovereign CDS Index 35.25 -1.0 basis point.
• Bloomberg Emerging Markets Currency Index 72.22 unch. 
• S&P 500 futures -.21%. 
• NASDAQ 100 futures -.24%.

Morning Preview Links

Earnings of Note
Company/Estimate 

• (CVS)/1.57
• (DHI)/.77
• (EXPD)/.65
• (JCI)/.95
• (VRX)/1.76
• (JAZZ)/2.61

Economic Releases
6:00 am EST

• The NFIB Small Business Optimism Index for October is estimated at 94.1 versus 94.1 in September.    

10:00 am EST

• JOLTS Job Openings for September are estimated to rise to 5488 versus 5443 in August.
  

Upcoming Splits 

• (MNST) 3-for-1

Other Potential Market Movers

• The US Presidential Election, Fed's Evans speaking, German Trade Balance report, China CPI report, China Trade Balance report, weekly US retail sales reports, $24B 3Y Note auction and the Stephens Investor Conference could also impact trading today.

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

Stocks Surging into Final Hour on Perception of Less Election Uncertainty, Oil Bounce, Yen Weakness, Biotech/Healthcare Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Higher
  

• Sector Performance: Almost Every Sector Rising
  

• Volume: Around Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 18.56 -17.46%

• Euro/Yen Carry Return Index 120.55 +.48%

• Emerging Markets Currency Volatility(VXY) 10.19 -4.77%

• S&P 500 Implied Correlation 60.72 -16.31%

• ISE Sentiment Index 82.0 +1.23%
  

• Total Put/Call 1.15 -15.44%

• NYSE Arms .48 -54.09% 

Credit Investor Angst:

• North American Investment Grade CDS Index 77.44 -4.15%
  

• America Energy Sector High-Yield CDS Index 664.0 +1.72%

• European Financial Sector CDS Index 97.06 -3.08%

• Western Europe Sovereign Debt CDS Index 19.44 unch.

• Asia Pacific Sovereign Debt CDS Index 35.20 -3.24%

• Emerging Market CDS Index 235.33 -6.07%
  

• iBoxx Offshore RMB China Corporate High Yield Index 132.65 +.05%

• 2-Year Swap Spread 25.25 +1.0 basis point

• TED Spread 49.0 -2.5 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -45.25 +.75 basis point
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 72.22 +.21%
• 3-Month T-Bill Yield .40% +3.0 basis points

• Yield Curve 100.0 unch.
  

• China Import Iron Ore Spot $67.43/Metric Tonne +3.74%

• Citi US Economic Surprise Index -11.90 +1.0 point

• Citi Eurozone Economic Surprise Index 37.0 +.8 point

• Citi Emerging Markets Economic Surprise Index -1.50 +1.5 points

• 10-Year TIPS Spread 1.73% +4.0 basis points
• 82.7% chance of Fed rate hike at Feb. 1 meeting, 84.4% chance at March 15 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +97 open in Japan 
• China A50 Futures: Indicating +38 open in China

• DAX Futures: Indicating -10 open in Germany

Portfolio: 

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

• Disclosed Trades: None

• Market Exposure: 50% Net Long