Stocks Surging into Final Hour on Tax Reform Hopes, Economic Optimism, Technical Buying, Financial/Energy Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Higher
  

• Sector Performance: Mixed
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 9.44 -1.97%

• Euro/Yen Carry Return Index 137.75 -.38%

• Emerging Markets Currency Volatility(VXY) 7.69 -1.66%

• S&P 500 Implied Correlation 18.49 -1.49%

• ISE Sentiment Index 111.0 +20.7%
  

• Total Put/Call .81 -2.31%

• NYSE Arms .93 -9.3%

Credit Investor Angst:

• North American Investment Grade CDS Index 53.32 -2.02%
  

• America Energy Sector High-Yield CDS Index 398.0 -.66%

• European Financial Sector CDS Index 58.99 -2.5%

• Western Europe Sovereign Debt CDS Index 5.44 +.28%

• Asia Pacific Sovereign Debt CDS Index 18.0 -1.23%

• Emerging Market CDS Index 176.79 -.52%
  

• iBoxx Offshore RMB China Corporate High Yield Index 142.24 +.02%

• 2-Year Swap Spread 27.25 unch.

• TED Spread 28.0 +.25 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -32.0 +4.25 basis points

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 73.57 -.25%
• 3-Month T-Bill Yield 1.06% unch.
  

• Yield Curve 86.0 unch.

• China Import Iron Ore Spot $61.48/Metric Tonne -.92%

• Citi US Economic Surprise Index 13.20 +3.5 points

• Citi Eurozone Economic Surprise Index 41.50 -.2 point

• Citi Emerging Markets Economic Surprise Index 17.10 +.6 basis point

• 10-Year TIPS Spread 1.87 +1.0 basis point
  
• 78.6% chance of Fed rate hike at Dec. 13 meeting, 79.0% chance at Jan. 31 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +103 open in Japan 
• China A50 Futures: Indicating +453 open in China

• DAX Futures: Indicating +5 open in Germany

Portfolio: 

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

• Disclosed Trades: None

• Market Exposure: 100% Net Long

Bear Radar

Style Underperformer:

• Small-Cap Growth +.2%

Sector Underperformers:

• 1) Airlines -.3% 2) Gold & Silver -.2% 3) Utilities -.2%

Stocks Falling on Unusual Volume: 

• NAVI, CELG, NLNK and MNTA

Stocks With Unusual Put Option Activity:

• 1) OCN 2) MNKD 3) STZ 4) MBI 5) AMTD

Stocks With Most Negative News Mentions:

• 1) NAVI 2) CELG 3) MNTA 4) GRUB 5) UFS

Charts:

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

Bull Radar

Style Outperformer:

• Small-Cap Value +.8%

Sector Outperformers:

• 1) Banks +1.4% 2) Oil Service +1.3% 3) Restaurants +1.1%

Stocks Rising on Unusual Volume:

• TROX, COLL, BKI, PPBI, FOXF, VOYA, RECN, MTLS, STZ, HSKA, PODD, NCLH, KBWB, NFLX, FANH, IRWD, HMNY, LGIH, OMER, GBX, SCCO, AAAP, SQM, ALDR, BIIB and ICPT

Stocks With Unusual Call Option Activity:

• 1) DYN 2) STI 3) LC 4) STZ 5) TXT

Stocks With Most Positive News Mentions:

• 1) BIIB 2) ATW 3) STZ 4) SHW 5) ABC

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running -7.2% Below 100-Day Average
• 8 Sectors Rising, 2 Sectors Declining
• 63.5% of Issues Advancing, 31.0% Declining
• 168 New 52-Week Highs, 4 New Lows
• 48.2% of Issues Above 200-day Moving Average
• Average 14-Day RSI 41.0%
• Vix 9.4 -2.9%
• Total Put/Call .80 -3.6%
• TRIN/Arms .90 -12.1%

Thursday Watch

Evening Headlines

Bloomberg:

• Catalan Leader Keeps Spain Guessing on Independence Declaration. Catalan President Carles Puigdemont kept the rest of Spain guessing on if and when he will declare independence, prolonging the uncertainty over the breakaway region’s ultimate card in its confrontation with the government in Madrid. Speaking in a televised statement on Wednesday night, Puigdemont reiterated an offer for mediated talks while attacking King Felipe VI’s condemnation 24 hours earlier of Catalonia’s illegal referendum on Sunday. The regional government in Barcelona will soon apply the results of its makeshift vote, Puigdemont said, though he stopped short of saying how or when he would trigger the process to leave Spain.

• Puerto Rico Is Running Out of Money.

• Dollar, Bonds Are Listless as Oil Drops Below $50. Asian equities began the session with a muted start, with markets in Hong Kong, China, and South Korea all closed for holidays. The S&P 500 Index got a slight boost overnight from data showing American services industries climbed at the fastest pace in 12 years, while private jobs numbers met expectations. The dollar was little changed, below the recent 11-week high. Ten-year Treasury yields held at 2.33 percent as markets assessed the Trump administration’s shortlist of candidates to helm the Federal Reserve. Japan’s Topix index was little changed. Australia’s S&P/ASX 200 Index added 0.1 percent.

Wall Street Journal:

• The Gun Control Mirage. More gun laws won’t stop mass shootings by determined killers.

• GOP Lawmakers Consider Gun-Control Measure. Trump travels to Las Vegas amid calls on Capitol Hill for new regulations in the wake of mass shooting.

MarketWatch.com:

• Some investors see signs stock market ‘on verge’ of a melt-up.

Fox News:

• Las Vegas shooter's girlfriend denies prior knowledge of attack. (video)

• Trump praises ‘bravery’ of first responders in Las Vegas, consoles shooting survivors. (video)

CNBC:

• House vote should keep the Trump trade on the front burner for markets.

• 3 Equifax(EFX) executives should be investigated for insider trading.

• Cigna(CI) won't cover OxyContin prescriptions for 2018, as health insurer targets opioid abuse.

• Auto companies scrambling to catch up with Tesla and tech firms, Morgan Stanley analyst says.

• Google(GOOGL) shows off wireless headphones that it says can translate languages on the fly. (video)

Zero Hedge:

• De-Dollarization & Disintermediation - Russian Mobile Phone Operator Issues First Blockchain-Backed Bond.

• Mueller Takes Over "Trump Dossier" Probe After Intel Committee "Hits A Wall".

• 3 Green Berets Killed In Al Qaeda Ambush Near Mali-Niger Border.

• Soros, Kellogg, Ford: Donor List Of Anti-Trump 'Resistance' Group Revealed.

• 5 Heroes That Risked Everything To Save Lives During The Las Vegas Shooting.

• This Isn't A Joke! The IRS Just Hired Equifax(EFX) To Safeguard Taxpayer Data.

• Credit Spreads Collapse To Post-Crisis Lows As Stock Market 'Greed' Nears 1998 Highs. (graph)

Night Trading 

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

• Asia Ex-Japan Investment Grade CDS Index 78.25 -.25 basis point. 

• Asia Pacific Sovereign CDS Index 18.25 +1.25 basis points.

• Bloomberg Emerging Markets Currency Index 73.72 -.04%.

• S&P 500 futures -.05%.

• NASDAQ 100 futures -.03%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (STZ)/2.17

• (ISCA)/.03

• (COST)/2.02

• (YUMC)/.56

Economic Releases 
7:30 am EST:

• Challenger Job Cuts YoY for September.

8:30 am EST:

• Initial Jobless Claims for last week are estimated to fall to 265K versus 272K the prior week.

• Continuing Claims are estimated to rise to 1950K versus 1934K prior.

• The Trade Deficit for August is estimated at -$42.7B versus -$43.7B in July.
  

10:00 am EST

• Factory Orders for August are estimated to rise +1.0% versus a -3.3% decline in July.

Upcoming Splits

• (ISRG) 3-for-1

Other Potential Market Movers

• The Fed's George speaking, Fed's Harker speaking, Fed's Williams speaking, Fed's Powell speaking, Eurozone Retail Sales report, (COST)/(FRED)/(LB)/(BKE) monthly sales reports, Bloomberg weekly Consumer Comfort Index, (CLX) investor day and the (ORCL) analyst day could also impact trading today.

BOTTOM LINE:  Asian indices are mostly higher, boosted by industrial 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 100% net long heading into the day.

Stocks Reversing Slightly Higher into Final Hour on Economic Optimism, Technical Buying, Short-Covering, Biotech/Homebuilding Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Around Even
  

• Sector Performance: Mixed
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 9.62 +1.16%

• Euro/Yen Carry Return Index 138.29 +.07%

• Emerging Markets Currency Volatility(VXY) 7.83 +.13%

• S&P 500 Implied Correlation 19.32 -2.13%

• ISE Sentiment Index 92.0 +8.24%
  

• Total Put/Call .81 +11.0%

• NYSE Arms 1.15 +68.8%

Credit Investor Angst:

• North American Investment Grade CDS Index 54.32 +.12%
  

• America Energy Sector High-Yield CDS Index 402.0 -.50%

• European Financial Sector CDS Index 60.43 +2.68%

• Western Europe Sovereign Debt CDS Index 5.43 +2.07%

• Asia Pacific Sovereign Debt CDS Index 18.22 +6.89%

• Emerging Market CDS Index 177.69 -.41%
  

• iBoxx Offshore RMB China Corporate High Yield Index 142.22 +.04%

• 2-Year Swap Spread 27.35 +.75 basis point

• TED Spread 27.75 -2.0 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -36.25 +.25 basis point

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 73.77 +.35%
• 3-Month T-Bill Yield 1.06% +1.0 basis point
  

• Yield Curve 86.0 unch.

• China Import Iron Ore Spot $62.05/Metric Tonne unch.

• Citi US Economic Surprise Index 9.70 +8.0 points

• Citi Eurozone Economic Surprise Index 41.70 -3.6 points

• Citi Emerging Markets Economic Surprise Index 16.50 -.6 basis point

• 10-Year TIPS Spread 1.86 +1.0 basis point
  
• 73.4% chance of Fed rate hike at Dec. 13 meeting, 74.4% chance at Jan. 31 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +81 open in Japan 
• China A50 Futures: Indicating +429 open in China

• DAX Futures: Indicating -27 open in Germany

Portfolio: 

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

• Disclosed Trades: None

• Market Exposure: 100% Net Long