Morning Market Internals

NYSE Composite Index:

• Volume Running +.8% Above 100-Day Average
• 6 Sectors Rising, 4 Sectors Declining
• 46.4% of Issues Advancing, 49.7% Declining
• 120 New 52-Week Highs, 12 New Lows
• 46.4% of Issues Above 200-day Moving Average
• Average 14-Day RSI 40.0%
• Vix 10.1 -1.2%
• Total Put/Call .71 -25.3%
• TRIN/Arms .98 -19.9%

Wednesday Watch

Evening Headlines

Bloomberg:

• Trump's Tax Overhaul Will Slash Rates for Companies, Individuals. President Donald Trump and Republican leaders will announce their long-awaited tax overhaul plan Wednesday, cutting rates for corporations and pass-through business. They’ll also propose a top individual rate of 35 percent but leave to Congress the decision of whether to create a higher bracket for top earners. The rate on corporations would be set at 20 percent, down from the current 35 percent rate, and businesses would be allowed to immediately write off their capital expenditures for at least five years, three people familiar with the plan told Bloomberg News.

• Chinese Economy Has 'Darker Story' Ahead, China Beige Book Says. The world’s second-largest economy may be faring well this year but 2018 is shaping up to be less positive, with progress on reducing debt and industrial capacity proving elusive, according to the China Beige Book. Although this year still looks “far better” than the past two years, faltering demand signaled by a reversal of the five-quarter commodity rally may be in store for 2018, according to the private survey released Wednesday by CBB International, which collects anecdotal accounts from more than 3,000 firms in a format similar to the Federal Reserve Beige Book.

• Stocks Slip in Asia as Consolidation Continues. The Bloomberg dollar index headed for a third day of advances after Yellen said raising borrowing costs gradually is the appropriate policy stance amid uncertainty surrounding inflation. The greenback was also supported by Donald Trump’s much-anticipated framework to cut taxes. That pushed down the yen, though didn’t stop Tokyo equities sinking, with the MSCI Asia Pacific Index lower for a fifth day. Japan’s Topix Index slid 0.7 percent as of 9:19 a.m. in Tokyo. Australia’s S&P/ASX 200 Index was little changed, as was South Korea’s Kospi index. Futures on Hong Kong’s Hang Seng Index slipped 0.2 percent.

• Five Things You Need to Know to Start Your Day. (video)

• Nike(NKE) Declines After Athletic Giant Gives Bleak Outlook for U.S. (video)

Wall Street Journal:

• Roy Moore Wins Alabama’s GOP Senate Primary. Firebrand outsider defeats rival who was backed by Trump and Republican establishment.

• Senate Scraps Vote on GOP Measure to Repeal Health Law. Move follows Republican defections on party’s latest bill to topple the Affordable Care Act.

• The $15 Minimum Wage Crowd Tries a Bait and Switch. A study of Seattle used boosters’ favorite approach—yet still showed negative effects for workers.

• U.S. Officials Aim to Ease North Korea Tensions Amid Heated Rhetoric. Tillerson to seek China’s help to stem threat from Pyongyang as Trump, Kim trade barbs.

• GOP Tax Plan to Allow for Top Individual Rate Above 35%. Framework would give Congress discretion; current top rate is 39.6%.

Fox News:

• House Republicans renew call for 2nd special counsel, amid fresh Comey concerns. (video)

CNBC:

• China still stocking up on metals and credit, private survey says.

• Trump stands behind Big Six tax framework, sources say. (video)

• Meet the hottest thing in hedge funds right now: the 'crypto-fund'.

• Puerto Rico bonds plunge again as investors face lower recovery than expected.

• Pinpointing the early changes to gut bacteria that can lead to health problems later.

• Micron(MU) shares rise after earnings beat.

• Yellen says the Fed may have been wrong on employment and inflation, which would mean easier policy ahead. (video)

Zero Hedge:

• Trump Says U.S. Prepared To Use "Devastating, Military Option" On North Korea.

• DirecTV Will Allow Angry Customers To Request NFL Refunds.

• IRS Sharing Tax Information Of Trump Campaign Officials With Robert Mueller.

• Twitter(TWTR) To Expand Character Limit From 140 To 280.

• Connecticut Capital Hartford Downgraded To Deep Junk, S&P Says "Default Virtual Certainty".

• WTI Pops Back Above $52 On Unexpected Crude Draw. (graph)

• FBI Arrests NCAA Coaches, Adidas Executive In Crackdown On College Basketball Corruption.

• "This Is Not A Time To Buy Anything" - Sam Zell Warns Retail Real Estate Market Is A "Falling Knife".

• Senator Bob Corker Retiring In 2018.

• Equifax(EFX) CEO's Parting Gift: An $18 Million Bonus.

• Dow Drops Again Despite Lack Of Global Armageddon Threats. (graph)

Night Trading 

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

• Asia Ex-Japan Investment Grade CDS Index 82.0 -.25 basis point. 

• Asia Pacific Sovereign CDS Index 16.50 unch.

• Bloomberg Emerging Markets Currency Index 73.91 -.03%.

• S&P 500 futures -.01%.

• NASDAQ 100 futures -.02%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (ATU)/.22

• (WOR)/.82

• (CMTL)/.29

• (FUL)/.67

• (JBL)/.62

• (PIR)/-.06

• (PRGS)/.48

• (THO)/1.95

Economic Releases 
8:30 am EST

• Preliminary Durable Goods Orders for August are estimated to rise +1.0% versus a -6.8% decline in July.

• Preliminary Cap Goods Orders Non-Defense Ex-Air for August is estimated to rise +.3% versus a +1.0% gain in July.
  

10:00 am EST

• Pending Home Sales MoM for August are estimated to fall -.5% versus a -.8% decline in July.
  

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory gain of +2,522,750 barrels versus a +4,591,00 barrel gain the prior week. Gasoline supplies are estimated to fall by -1,093,380 barrels versus a -2,125,000 barrel decline the prior week. Distillate inventories are estimated to fall by -2,299,380 barrels versus a -5,693,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise by +2.89% versus a +5.5% gain prior.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Rosengren speaking, Fed's Bullard speaking, Fed's Kashkari speaking, $34B 5Y T-Note auction, weekly MBA Mortgage Applications report, Deutsche Bank Energy Summit, Leerlink Rare Disease/Immuno-Oncology Conference, (FLO) investor briefing, (DLPH) investor update, (PANW) investor day and the (AMAT) analyst day could also impact trading today.

BOTTOM LINE:  Asian indices are mostly higher, boosted by consumer and technology shares in the region. I expect US stocks to open mixed and to rally into the afternoon, finishing modestly higher.  The Portfolio is 75% net long heading into the day.

Stocks Higher into Final Hour on Tax Reform Hopes, Yen Weakness, Bargain-Hunting, Gaming/Healthcare Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Higher
  

• Sector Performance: Most Sectors Rising
  

• Volume: Below Average

• Market Leading Stocks: Outperforming
  

Equity Investor Angst:

• Volatility(VIX) 10.14 -.69%

• Euro/Yen Carry Return Index 137.98 -.05%

• Emerging Markets Currency Volatility(VXY) 8.09 +3.3%

• S&P 500 Implied Correlation 23.05 +4.25%

• ISE Sentiment Index 108.0 +20.0%
  

• Total Put/Call .98 +40.0%

• NYSE Arms 1.19 +23.65%

Credit Investor Angst:

• North American Investment Grade CDS Index 58.97 -.97%
  

• America Energy Sector High-Yield CDS Index 425.0 -1.44%

• European Financial Sector CDS Index 60.44 +.75%

• Western Europe Sovereign Debt CDS Index 5.11 unch.

• Asia Pacific Sovereign Debt CDS Index 16.50 +.21%

• Emerging Market CDS Index 190.10 -.40%
  

• iBoxx Offshore RMB China Corporate High Yield Index 141.95 n/a

• 2-Year Swap Spread 26.75 +1.0 basis point

• TED Spread 29.0 -2.0 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -32.25 +.5 basis point

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 73.92 -.34%
• 3-Month T-Bill Yield 1.05% +3.0 basis points
  

• Yield Curve 80.0 +1.0 basis point

• China Import Iron Ore Spot $64.95/Metric Tonne +3.0%

• Citi US Economic Surprise Index -13.10 -4.4 points

• Citi Eurozone Economic Surprise Index 37.70 -3.1 points

• Citi Emerging Markets Economic Surprise Index 14.60 -.6 basis point

• 10-Year TIPS Spread 1.85 unch.
  
• 71.6% chance of Fed rate hike at Dec. 13 meeting, 72.7% chance at Jan. 31 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -55 open in Japan 
• China A50 Futures: Indicating -4 open in China

• DAX Futures: Indicating -4 open in Germany

Portfolio: 

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

• Disclosed Trades: None

• Market Exposure: 75% Net Long

Bear Radar

Style Underperformer:

• Large-Cap Value +.1%

Sector Underperformers:

• 1) Gold & Silver -1.0% 2) Restaurants -.9% 3) Airlines -.5%

Stocks Falling on Unusual Volume: 

• PTCT, SECO, RGEN, SBRA, UNIT, DRI, INFO, SHAK, CATM and HIIQ

Stocks With Unusual Put Option Activity:

• 1) PTCT 2) CYH 3) NKE 4) AMAT 5) SAGE

Stocks With Most Negative News Mentions:

• 1) GNCA 2) INT 3) AXON 4) CATM 5) TOPS

Charts:

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

Bull Radar

Style Outperformer:

• Small-Cap Value +.7%

Sector Outperformers:

• 1) Homebuilding +1.4% 2) Gaming +1.4% 3) Steel +1.3%

Stocks Rising on Unusual Volume:

• ACTA, GHL, AAAP, CHL, RHT, FDS, SNX, VERI, AJRD, LNDC, CUK, MYOV, BEDU, AMPH, SAFM, PCOM, LB, CCL, REV, YY, YPF, IGT, TVTY, HCSG, GPI and REV

Stocks With Unusual Call Option Activity:

• 1) MAR 2) NXST 3) XLV 4) XHB 5) DAL

Stocks With Most Positive News Mentions:

• 1) CDNA 2) RHT 3) DOVA 4) SAM 5) NVEE

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running -4.9% Below 100-Day Average
• 8 Sectors Rising, 2 Sectors Declining
• 55.2% of Issues Advancing, 40.6% Declining
• 108 New 52-Week Highs, 7 New Lows
• 46.0% of Issues Above 200-day Moving Average
• Average 14-Day RSI 39.5%
• Vix 10.6 +3.5%
• Total Put/Call .91 +30
• TRIN/Arms 1.29 +37.1%