Morning Market Internals

NYSE Composite Index:

• Volume Running +4.2% Above 100-Day Average
• 4 Sectors Rising, 6 Sectors Declining
• 35.8% of Issues Advancing, 60.1% Declining
• 58 New 52-Week Highs, 7 New Lows
• 61.4% of Issues Above 200-day Moving Average
• Average 14-Day RSI 43.2%
• Vix 12.0 +2.3%
• Total Put/Call 1.01 +13.5%
• TRIN/Arms 1.05 -18.9%

Friday Watch

Evening Headlines

Bloomberg:  

• Japan Is Quietly Reflating, Buying Time for Reckoning With Debt. Hidden beneath the headlines about Japan’s continual failure to reach its inflation target is a quiet reflation of its economy. It took almost two decades, but Japan finally notched a record for the size of its economy in 2016, one of the most significant signs yet that Prime Minister Shinzo Abe’s reflation policies have had an impact on underlying fundamentals. Despite population declines on the order of more than a quarter million people a year, and in face of muted productivity gains, Japan’s nominal gross domestic product totaled 537 trillion yen ($6.1 trillion) last year, government data showed Monday. Last year was the first time that nominal GDP, which is unadjusted for price changes, hit a record since 1997.

• Goldman's Yu Sees Risk of Overheating Chinese Economy. (video)

• Asian Stocks Drop After Reflation Trade Pullback. Shares in Tokyo were weighed down by Thursday’s gains in the yen. A decline in the S&P 500 Index put a dampener on equities from Sydney to Seoul. Treasuries rose for the first time in six days on Thursday. Gold headed for its seventh weekly gain in eight weeks. Investors have pulled back after a weeklong rekindling of reflation trades that had been fueled by optimism that the U.S. economy can withstand higher interest rates. The yen slipped 0.1 percent to 113.39 per dollar as of 9:28 a.m. in Tokyo, after rising 0.8 percent on Thursday. The MSCI Asia Pacific Index lost 0.4 percent, after closing Thursday at the highest level since July 2015. Japan’s Topix declined 0.7 percent, poised for a weekly loss. Australia’s S&P/ASX 200 Index lost 0.3 percent, and New Zealand’s S&P/NZX 50 Index fell 0.1 percent. South Korea’s Kospi was down 0.4 percent.

Wall Street Journal:

• Trump Administration Backs Away From Russian Reset. ‘No collaboration on a military level,’ Defense Secretary Jim Mattis tells NATO counterparts.

• Don’t Wimp Out on Climate. If Trump doesn’t dump the Paris accord, his economic agenda is in jeopardy.

• Islamic State Claims Southern Pakistan Bombing That Killed at Least 70. Hundreds wounded in suicide blast at Sufi Muslim shrine.

• House Republicans Lay Out Health-Care Plan. Proposal offers policy specifics but shows party has yet to bridge divisions over many of its components.

Fox News:

• Conservative activists to mobilize amid anti-Trump protests. (video)

CNBC:

• Goldman Sachs(GS) says stock picking is back and this is how to play it.

Zero Hedge:

• Robert Harward Rejects Trump's Offer To Become Next National Security Advisor.

• Catalyst Capital CEO Speaks Out, Claims "Our Exposure Was Greatly Exaggerated".

• Mark Zuckerberg Rejects "America First", Calls For Global Community.

• Mike Flynn Faces "Legal Jeopardy" For Reportedly Lying To FBI.

• Auto Bubble Burst Begins As Subprime Delinquencies Soar To 2009 Levels. (graph)

• Fed President Admits US Banks Have Only "Half The Equity They Need".

• Stock Dip Kills Longest Win Streak In 4 Years As Catalyst-Crusher Comes To An End. (graph)

Night Trading 

• Asian equity indices are -.50% to +.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 101.50 +.5 basis point.

• Asia Pacific Sovereign CDS Index 27.0 unch.

• Bloomberg Emerging Markets Currency Index 71.55 -.01%. 

• S&P 500 futures +.04%. 

• NASDAQ 100 futures +.03%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (B)/.64

• (CPB)/.89

• (DE)/.51

• (FLR)/.79

• (SJM)/2.02

• (MCO)/1.13

• (RUTH)/.29

• (VFC)/.99

Economic Releases
10:00 am EST

• The Leading Index for January is estimated to rise +.5% versus a +.5% gain in December. 
  

Upcoming Splits

• (CMCSA) 2-for-1

Other Potential Market Movers

• The UK Retail Sales report, (HAS) investor update and the (MAT) annual investor update could also impact trading today.

BOTTOM LINE:  Asian indices are mostly lower, weighed down by financial and industrial shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 100% net long heading into the day.

Stocks Slightly Lower into Final Hour on Border Tax Speculation, Profit-Taking, Yen Strength, Energy/Retail Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Lower
  

• Sector Performance: Most Sectors Declining
  

• Volume: Around Average

• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• Volatility(VIX) 12.09 +1.0%

• Euro/Yen Carry Return Index 126.08 -.23%

• Emerging Markets Currency Volatility(VXY) 9.73 -.82%

• S&P 500 Implied Correlation 45.19 +4.97%

• ISE Sentiment Index 100.0 +17.7%
  

• Total Put/Call .86 +3.61%

• NYSE Arms 1.33 +53.31%

Credit Investor Angst:

• North American Investment Grade CDS Index 63.86 +1.33%
  

• America Energy Sector High-Yield CDS Index 373.0 -.25%

• European Financial Sector CDS Index 91.55 +1.76%

• Western Europe Sovereign Debt CDS Index 22.65 -5.66%

• Asia Pacific Sovereign Debt CDS Index 27.04 -.04%

• Emerging Market CDS Index 220.16 +2.23%
  

• iBoxx Offshore RMB China Corporate High Yield Index 134.50 +.05%

• 2-Year Swap Spread 35.75 +2.5 basis points

• TED Spread 51.50 +1.5 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -25.0 +2.0 basis points
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 71.59 -.03%
• 3-Month T-Bill Yield .52% -1.0 basis point

• Yield Curve 124.0 -1.0 basis point
  

• China Import Iron Ore Spot $90.06/Metric Tonne -1.09%

• Citi US Economic Surprise Index 53.60 +9.0 points

• Citi Eurozone Economic Surprise Index 42.40 -.8 point

• Citi Emerging Markets Economic Surprise Index 40.60 +.8 point

• 10-Year TIPS Spread 2.03 -2.0 basis points
• 57.3% chance of Fed rate hike at May 3 meeting, 77.1% chance at June 14 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -122 open in Japan 
• China A50 Futures: Indicating +34 open in China

• DAX Futures: Indicating +3 open in Germany

Portfolio: 

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

• Disclosed Trades: None

• Market Exposure: 100% Net Long

Today's Headlines

Bloomberg:

• Tillerson Condemns North Korea Test as U.S. Policies Take Shape. U.S. Secretary of State Rex Tillerson vowed that North Korea’s violations of United Nations Security Council resolutions will bring an “even stronger international response,” using a Group of 20 meeting in Germany to reiterate the U.S. stance on the North’s nuclear program and other top foreign-policy challenges. The statement, issued jointly with the foreign ministers of Japan and South Korea after Tillerson met with his counterparts on the sidelines of the G-20 meeting in Bonn, condemned “in the strongest terms” a Feb. 12 ballistic missile test and noting the North’s “flagrant disregard” for UN Security Council resolutions.
• European Stocks Decline to End Seven-Day Rally. (video)
• Frenzied Betting, Sleeping Market: Something Must Give in Oil. (video) As hedge funds and money managers place record trades on a rally in oil, the price itself has fallen asleep. Logic dictates that something should give. Here are five charts examining the unprecedented speculative build-up and what the market’s next turn might be.
• Goldman(GS) Sees Metal Rally in Sight on Rerun of '08 China Stimulus. A rerun of China’s massive stimulus during the financial crisis is set to offer another boost to global metals prices, according to Goldman Sachs Group Inc. Strong credit expansion has “remarkably bullish” implications for the nation’s metals-intensive industries as fixed-asset investment and manufacturing are poised to accelerate, the bank said in a report. New lending to the so-called old economy in December and January jumped by 1.1 trillion yuan ($160 billion) from a year earlier, equivalent to more than one and a half years of U.S. President Donald Trump’s mooted infrastructure package, it said.
• These Are the Stocks That Have Lagged Under Trump. For clues on the strength of the current rally in developed-market equities, take a look at stocks that have trailed since Donald Trump was elected. They’re in sectors such as real estate, utilities, consumer staples and telecommunications which underperformed cyclical stocks in the aftermath of the presidential vote. Although they lagged behind as investors preferred shares tied to the economic growth, they are now joining the party.
• Tesla(TSLA) Workers' Union Push Gets UAW Support at California Plant.

Wall Street Journal:

• Falling Correlations Spell Opportunity for Investors. With stocks, bonds, and commodities no longer rising together, asset allocation suddenly matters again.
• Trump Picks Alexander Acosta to Serve as Labor Secretary. Acosta has served under George W. Bush, nomination comes after Andrew Puzder withdrew. 
• Bombings Kill Dozens in the Iraqi Capital. At least 45 people are killed and nearly 50 wounded in largest blast.

CNBC:

• Here's what Snap will tell investors ahead of setting its IPO price on March 1.
• McDonald's(MCD) chains shutter across US in support of 'A Day Without Immigrants' protest. 
• China's economy doesn't look so wonderful when you look at the really big numbers. (video)
• NY Fed: US household debt at highest level since 2008. (video)
• House Financial Services chair: CFPB is an unelected 'dictator' that must be stopped. (video)
• Snapchat parent Snap sees up to $22.2 billion valuation after pricing IPO at $14 and $16 per share. (video)

Zero Hedge:

• "Wake Up America" Dennis Kucinich Defends Trump, Issues Dire Warning About "Deep State".
• Putin Orders Russian Media To "Cut Back" On Positive Trump Coverage.
• "Market Players No Longer Trust The BOJ": Why Kuroda Is Suddenly Facing Market Mutiny.
• Greek Bank Run Re-accelerates: Massive Deposit Withdrawals Despite Capital Controls.
• Pentagon Chief Rejects Military Cooperation With Russia.
• In Angry Tweetstorm, Trump Accuses Fabricated "Sources", Democrats Of "Making Up Russia Story".
• Top Spy Agency Denies Withholding Secrets From Trump.
• Philly Fed Explodes To 33-Year Highs - A 10-Standard-Deviation Beat. (graph)
• Housing Starts Disappoint As Building Permits Surge, Driven By Rentals. (graph)
• Initial Jobless Claims Divergence Of The Week. (graph)
• Spanish, French Bonds Jump After ECB Sees "Room For Trade Off On Capital Key". (graph)

Bear Radar

Style Underperformer:

• Small-Cap Growth -.6%

Sector Underperformers:

• 1) Gaming -3.8% 2) Foods -1.5% 3) Oil Service -1.5%

Stocks Falling on Unusual Volume: 

• MOH, ASPS, SYNT, HAWK, CRY, MGM, CAR, PHH, TRIP, LTRPA, DF, COWN, GEL, NGL, WST, VDSI, GDDY, BYD, NMIH, WMS, HTZ, CAB and OIS

Stocks With Unusual Put Option Activity:

• 1) AVP 2) CY 3) MGM 4) TRIP 5) GIS

Stocks With Most Negative News Mentions:

• 1) CFMS 2) MOH 3) HAWK 4) OIS 5) REGN

Charts:

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

Bull Radar

Style Outperformer:

• Mid-Cap Value -.2%

Sector Outperformers:

• 1) Social Media +1.3% 2) Gold & Silver +1.2% 3) REITs +.6%

Stocks Rising on Unusual Volume:

• SSNC, EDIT, DENN, LILA, SFLY, PGNX, SRCL, KATE, TAST, CIR, NTES, CRSP, LILAK, RAVN, QTWO, ESPR, FOSL, NTAP, BRG, TIVO, TPX, SRCLP, PBA, YNDX, CVI, SNPS, CHH, PTCT, EPAM, IFF and TEP

Stocks With Unusual Call Option Activity:

• 1) XLV 2) DG 3) MGM 4) NTAP 5) CSCO

Stocks With Most Positive News Mentions:

• 1) NTES 2) NTAP 3) CMTL 4) SKIS 5) KO

Charts:

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