Stocks Reversing Modestly Lower into Final Hour on Profit-Taking, Rising Long-Term Rates, Technical Selling, REIT/Utility Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Lower
  

• Sector Performance: Mixed
  

• Volume: Around Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 9.97 +4.6%

• Euro/Yen Carry Return Index 139.46 +.91%

• Emerging Markets Currency Volatility(VXY) 7.52 +1.21%

• S&P 500 Implied Correlation 36.78 +1.21%

• ISE Sentiment Index 114.0 -16.18%
  

• Total Put/Call .85 +25.0%

• NYSE Arms .72 +1.42%

Credit Investor Angst:

• North American Investment Grade CDS Index 49.62 -.28%
  

• America Energy Sector High-Yield CDS Index 378.0 -.49%

• European Financial Sector CDS Index 45.66 -1.15%

• Western Europe Sovereign Debt CDS Index 3.96 +13.9%

• Asia Pacific Sovereign Debt CDS Index 13.50 -1.52%

• Emerging Market CDS Index 121.49 -.25%
  

• iBoxx Offshore RMB China Corporate High Yield Index 145.95 +.1%

• 2-Year Swap Spread 21.25 +1.25 basis points

• TED Spread 24.75 -3.75 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -59.75 +27.5 basis points

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 73.69 +.11%

• 3-Month T-Bill Yield 1.36% +2.0 basis points
  

• Yield Curve 61.25 +4.75 basis points

• China Iron Ore Spot 510.0 CNY/100 Metric Tonnes -1.35%

• Citi US Economic Surprise Index 78.0 +4.1 points

• Citi Eurozone Economic Surprise Index 59.10 -4.3 basis points

• Citi Emerging Markets Economic Surprise Index -.3 unch.

• 10-Year TIPS Spread 1.93 +2.0 basis points
  

• 72.5% chance of Fed rate hike at March 21 meeting, 74.2% chance at May 2 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -28 open in Japan 

• China A50 Futures: Indicating -6 open in China

• DAX Futures: Indicating +11 open in Germany

Portfolio: 

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

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

• Market Exposure: Moved to 75% Net Long

Bear Radar

Style Underperformer:

• Small-Cap Value -.6%

Sector Underperformers:

• 1) REITs -1.7% 2) Utilities -1.0% 3) Alt Energy -.8%

Stocks Falling on Unusual Volume: 

• CBI, FDS, AGCO, COUP and PPL

Stocks With Unusual Put Option Activity:

• 1) RIOT 2) HLF 3) HIG 4) ALLY 5) MCK

Stocks With Most Negative News Mentions:

• 1) NVAX 2) FNKO 3) AGCO 4) PPL 5) HRI

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Value unch.

Sector Outperformers:

• 1) Oil Service +1.0% 2) Road & Rail +.6% 3) Gaming +.5%

Stocks Rising on Unusual Volume:

• NAV, RIOT, CHCT, MDGL, IO, CVGW, MARK, CARS, APPN, ZBH, OSTK, PTLA, EEFT, SHPG, MGPI, CNCE, HTLF, EDN, HZN, DRI, HEI, JACK, JD, RYAAY, KANG, NAV and CBT

Stocks With Unusual Call Option Activity:

• 1) WEN 2) HLF 3) ANF 4) CARS 5) BBT

Stocks With Most Positive News Mentions:

• 1) MU 2) WMT 3) AKAM 4) ULTA 5) CCL

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running +2.7% Above 100-Day Average
• 7 Sectors Rising, 3 Sector Declining
• 43.3% of Issues Advancing, 52.1% Declining
• 127 New 52-Week Highs, 15 New Lows
• 62.4% of Issues Above 200-day Moving Average
• Average 14-Day RSI 52.5%
• Vix 9.6 +.9%
• Total Put/Call .85 +25.0%
• TRIN/Arms .84 +17.9%

Tuesday Watch

Evening Headlines

Bloomberg:

• How Central Banks Are Using Big Data to Help Shape Policy. Central bankers around the world have set up or are creating departments to embrace big data in the quest for deeper insight into the economies they manage."Isaac Asimov once said, ‘I do not fear computers. I fear the lack of them,’" David Hardoon, chief data officer at the Monetary Authority of Singapore, said in a recent speech."We are now starting to put in place the necessary tools, infrastructure and skillsets to harness the power of data science to unlock insights, sharpen surveillance of risks, enhance regulatory compliance and transform the way we do work."

• Asian Stocks Hold Gains, Bond Yields Head Higher. Japanese shares were little changed, while those in Sydney and Seoul advanced after U.S. gauges climbed to fresh records. The yen gave back gains late in the U.S. session Monday, even as the dollar slid against most of its G-10 peers. South Africa’s rand reached its strongest since March as Cyril Ramaphosa won the ruling African National Congress party’s leadership contest. Ten-year U.S. yields are trading in the upper end of their range over the past seven weeks, and their Australian counterparts also rose Tuesday. Japan’s Topix Index was little changed as of 9:12 a.m. in Tokyo, while the Nikkei 225 Stock Average edged up 0.2 percent. Australia’s S&P/ASX 200 Index was up 0.4 percent. Futures on Hong Kong’s Hang Seng Index rallied 0.5 percent.

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

• The Major Tax Changes in the Republican Bill.

• A Small Fintech Stock Surged 2,600% in a Week After Announcing It’s a Crypto Company. That’s how much the value of LongFin Corp. surged to after the microcap’s stock rocketed by as much as 2,600 percent since debuting Wednesday. Most of the gains came since Friday, when the company issued a press release saying it bough Ziddu.com, “a blockchain-empowered global micro-lending solutions provider” that transacts only in cryptocurrencies.

• Hedge Fund Managers Expect a 39% Bonus Bump.

Wall Street Journal:

• Tax Plan Strikes at Tech Giants’ Foreign Profits. Firms such as Microsoft pay low taxes overseas, but their rates might go up.

• Trump Lays Out World View in Which Economic Strength Bolsters Security. President criticizes predecessors’ nation-building efforts in speech; carrots and sticks for China and Russia.

• Fatalities Reported as Amtrak Train Derails in Washington State. Some of its cars have spilled down onto Interstate 5. (video)

• U.S. Government-Bond Prices Fall on Signs of Progress on Tax-Cut Plan. Investors are selling bonds to buy stocks after lawmakers released fresh details of their tax-cut plan.

• It’s Official: North Korea Is Behind WannaCry. The massive cyberattack cost billions and put lives at risk. Pyongyang will be held accountable.

MarketWatch.com:

• Stock-market volatility isn’t going to come roaring back: Morgan Stanley.

Fox News:

• Jumping the gun? Holder, liberal activists gear up for Mueller firing with elaborate protest plans. (video)

CNBC:

• Tax reform not fully priced in, rally still has ‘a lot of room to run:’ Analyst.

• You'll soon be able to sell your genetic info for a new cryptocurrency called Luna Coin.

• It's official: Spammy phone calls have almost doubled in the past two years, and New Jersey and Delaware got hit worst.

• Big deals from Hershey and Campbell show the stakes are higher for Big Food.

• Global defense spending to reach levels not seen since end of Cold War, says report.

• Bull market could have the S&P up another 11% next year, Federated Investors says. (video)

• US shale oil drillers set to kick off the new year with big production gains. (video)

Zero Hedge:

• "Miss Germany" Mistress Sues Married Hedge-Funder: "Promised An Ostrich Farm, Gave Me An STD".

• Dershowitz: "Mueller Playing Into Trump's Hands, No Need To Fire".

• China's Growth Story... Don't Look For A Happy Ending!

• Overstock Belatedly Launches $250 Million ICO After Unspecified Technical Issues.

• Susan Collins Says She's A 'Yes' On Tax Reform, Assuring Vote Passage.

• Deadly Train Derailment Likely Caused By Object "Placed On The Tracks": AP.

• The 10 "Grey Swans" Events For 2018.

• Taxphoria Sparks Stock-Buying Panic - Dow Does Something It Has Never Ever Done Before. (graph)

Business Insider: 

• Photos show the moment an Amtrak train in Washington derailed and fell onto a highway.

• Senate Democrats: Al Franken could have waited out an ethics investigation if he wanted.

• Trump reportedly believes Mueller will write a letter publicly exonerating him soon.

Night Trading 

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

• Asia Ex-Japan Investment Grade CDS Index 69.25 -1.75 basis points. 

• Asia Pacific Sovereign CDS Index 13.5 -.25 basis point.

• Bloomberg Emerging Markets Currency Index 73.59 -.02%.

• S&P 500 futures +.01%.

• NASDAQ 100 futures +.02%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (CCL)/.51

• (DRI)/.70

• (FDS)/1.97

• (NAV)/.63

• (WOR)/.67

• (FDX)/2.88

• (MU)/2.19

• (RHT)/.70

• (SCS)/.23

Economic Releases

8:30 am EST

• Housing starts for November are estimated to fall to 1249K versus 1290K in October.

• Building Permits for November are estimated to fall to 1273K versus 1297K in October.

• The 3Q Current Account Balance is estimated at -$116.0B versus -$123.1B in 2Q.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Kashkari speaking, German IFO report, weekly US retail sales reports, (AGCO) analyst meeting and the (LOGM) investor day could also impact trading today.

BOTTOM LINE:  Asian indices are mostly higher, boosted by commodity 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 Surging into Final Hour on Tax Reform Hopes, Economic Optimism, Short-Covering, Retail/Commodity Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Higher
  

• Sector Performance: Almost Every Sector Rising
  

• Volume: Heavy

• Market Leading Stocks: Outperforming
  

Equity Investor Angst:

• Volatility(VIX) 9.33 -.96%

• Euro/Yen Carry Return Index 138.19 +.21%

• Emerging Markets Currency Volatility(VXY) 7.50 -1.19%

• S&P 500 Implied Correlation 36.88 +.49%

• ISE Sentiment Index 168.0 +97.7%
  

• Total Put/Call .67 -31.6%

• NYSE Arms .53 -16.7%

Credit Investor Angst:

• North American Investment Grade CDS Index 49.64 -1.6%
  

• America Energy Sector High-Yield CDS Index 379.0 -.04%

• European Financial Sector CDS Index 46.03 -2.13%

• Western Europe Sovereign Debt CDS Index 3.48 +4.35%

• Asia Pacific Sovereign Debt CDS Index 13.50 -.52%

• Emerging Market CDS Index 122.15 -2.84%
  

• iBoxx Offshore RMB China Corporate High Yield Index 145.80 +.14%

• 2-Year Swap Spread 20.25 +2.0 basis points

• TED Spread 28.0 -.75 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -87.25 +11.75 basis points

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 73.59 +.51%
• 3-Month T-Bill Yield 1.34% +3.0 basis points
  

• Yield Curve 56.50 +4.5 basis points

• China Iron Ore Spot 516.0 CNY/100 Metric Tonnes +1.67%

• Citi US Economic Surprise Index 73.90 +1.7 points

• Citi Eurozone Economic Surprise Index 63.40 -6.9 basis points

• Citi Emerging Markets Economic Surprise Index -.3 -.8 point

• 10-Year TIPS Spread 1.91 +2.0 basis points
  
• 70.8% chance of Fed rate hike at March 21 meeting, 72.6% chance at May 2 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +114 open in Japan 
• China A50 Futures: Indicating +19 open in China

• DAX Futures: Indicating +5 open in Germany

Portfolio: 

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

• Disclosed Trades: None

• Market Exposure: 100% Net Long