Morning Market Internals

NYSE Composite Index:

• Volume Running +40.6% Above 100-Day Average
• 10 Sectors Rising, 0 Sectors Declining
• 61.8% of Issues Advancing, 34.3% Declining
• 7 New 52-Week Highs, 139 New Lows
• 47.8% of Issues Above 200-day Moving Average
• Average 14-Day RSI 34.6%
• Vix 30.7 -8.3%
• Total Put/Call 1.40 +21.7%
• TRIN/Arms .77 -36.0%

Friday Watch

Evening Headlines

Bloomberg:

• Sizing Up China’s Debt Bubble: Bloomberg Economics. Over the past decade, China’s credit boom has been the largest factor driving global growth. That may be about to change. President Xi Jinping’s administration is encouraging banks and businesses to start deleveraging. Meanwhile, the government is committed to doubling the economy from 2010 to 2020, and getting there will almost certainly require more loans. Here, and at BI China, Bloomberg Economics looks at China’s debt problem and where it might go from here.

• China’s Factory Inflation Eases as Consumer Price Index Softens. (video) The producer price index rose 4.3 percent in January from a year earlier. That matches projected 4.3 percent rise in a Bloomberg survey and 4.9 percent in December. The consumer price index climbed 1.5 percent, the statistics bureau said Friday.

• BOE's U.K. Upgrades All Come Down to a Stronger Global Economy. The U.K. can be thankful that world growth is building up steam. Raising its forecasts for the next three years, the Bank of England’s biggest upward revision was to exports. It sees them increasing 3.25 percent this year, better than the 2 percent predicted just three months ago.

• Hong Kong Benchmark Heads for Correction as China Shares Tumble. Nearly all members of the Hang Seng Index fell, led by the best performer over the past 12 months, Country Garden Holdings Co., which has tumbled 22 percent this week. Hong Kong’s benchmark index was down 3.1 percent at 29,508.89 as of 9:58 a.m., heading for a weekly loss of 9.5 percent, its worst since 2008. The Hang Seng China Enterprises Index fell for a fifth day, losing 3.9 percent as its weekly loss extended to 12 percent.

• Asian Stocks Slide After U.S. Tumble; Yen Steadies. (video) Asian stocks fell Friday following a plunge in their U.S. counterparts as the dread that gripped equity markets earlier in the week re-emerged, amid concern rising interest rates will drag down economic growth. Japan, Hong Kong and China were among the markets seeing benchmark stock indexes now down 10 percent or more from the highs reached in late January -- joining the U.S. in meeting the definition of a "correction." U.S. Treasury yields, which helped trigger the violent downturn, remained near four-year highs. West Texas Intermediate oil fell toward $60 a barrel. China set the yuan lower Friday after it fell the most since 2015 yesterday. The MSCI Asia Pacific Index fell 2.4 percent as of 11:28 a.m. Tokyo time. Topix index fell 2.9 percent. Kospi index fell 2.1 percent. Australia’s S&P/ASX 200 Index fell 1.3 percent. Futures on the S&P 500 Index were little changed after fluctuating higher and lower.

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

• What Just Happened? Six Views on How the Correction Finally Came. (video)

• Far From Unprecedented: Nine Selloffs Like This, and Nine Rebounds. The selloff that’s been battering investors for nine days feels like the worst thing ever -- it’s far from that. Nine times since the bull market began in 2009 have equities experienced stretches as gruesome as this one; each time the end of the world was averted. Here’s a quick walk down bad memory lane.

• U.S. Veers Toward Temporary Shutdown as Spending Bill Delayed. (video)

Wall Street Journal: 

• Muddy Waters Authored Report Exposing Chinese Billionaire’s Ties to Giant Aluminum Stockpiles. Short seller used an alias, Dupre Analytics, to allege in a July 2015 report that the founder of China Zhongwang, Liu Zhongtian, was committing fraud.

• Brace Yourself for Higher Cellphone Bills This Year. Sprint, T-Mobile say they will scale back discounting after failed merger attempt.

MarketWatch.com: 

• Vanguard’s chief economist: ‘Decent probability’ that bitcoin goes to zero.

Fox News: 

• Sen. Rand Paul holds up Senate vote on budget package as shutdown looms. (video)

• Democratic Sen. Mark Warner texted with Russian oligarch lobbyist in effort to contact dossier author Christopher Steele. (video)

CNBC:

• Dow plummets 1032 points, now down 10% from record; S&P 500 drops 3.7% to new low for week. (video)

• Nvidia(NVDA) pops after hours, giving some life to a beaten-down market.

• Activision(ATVI) Blizzard earnings: 94 cents per share, vs expected EPS of 93 cents. (video)

• Qualcomm(QCOM) board of directors rejects revised Broadcom proposal.

• Market analyst who called the pullback now sees an opportunity to buy. (video)

• As Dow plunges, some investors get their buy lists ready. (video)

• Expedia(EXPE) stock plunges 19 percent on fourth quarter profit misses.

• Stocks making the biggest moves after hours: Expedia, FireEye, NVIDIA, Zillow & more.

• Why the freakout? History shows rising rates have been good for stocks.

Zero Hedge:

• Trump Approval Rating 4% Higher Than Obama This Far Into Presidency. (graph)

• "Worst Case Scenario" Emerging: Morgan Stanley Warns "Selling Has Shifted".

• FBI Informant Testifies: Moscow Routed Millions To Clinton Foundation In "Russian Uranium Dominance Strategy".

• "Worst Case" Confirmed: Biggest Weekly Fund Outflow In History. (graph)

• Infrastructure Emergency: 50,000 American Bridges Are "Structurally Deficient".

• China Is Developing AI-Enabled Nuclear Submarines That Can Think For Themselves.

• Top DOJ Official Involved In Clinton And Russia Probes Steps Down.

• What's Behind The Chaos In The Last Minutes Of Trading: Goldman Explains.

• "Bloodbath" - Dow Crashes Over 1000 Points, Enters Correction. (graph)

Business Insider:

• A highly-contagious virus that has turned cruise ships into sick wards is sweeping the Olympics, with 128 confirmed cases — here's what norovirus is.

Night Trading 

• Asian equity indices are -3.75% to -1.5% on average.

• Asia Ex-Japan Investment Grade CDS Index 75.75 +5.5 basis point. 

• Asia Pacific Sovereign CDS Index 12.75 +.75 basis point.

• Bloomberg Emerging Markets Currency Index 74.82 unch.

• FTSE 100 futures -.69%.

• S&P 500 futures -.10%.

• NASDAQ 100 futures -.14%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (CAE)/.27

• (CCJ)/.34

• (CBOE)/.88

• (MCO)/1.45

• (PCG)/.68

• (TEN)/1.64

Economic Releases

10:00 am EST

• Wholesale Trade Sales MoM for December are estimated to rise +.4% versus a +1.5% gain in November.

Upcoming Splits

• None of note

Other Potential Market Movers

• The China PPI report and UK Trade Balance report could also impact trading today.

BOTTOM LINE:  Asian indices are sharply lower, weighed down by financial and industrial shares in the region. I expect US stocks to open lower and to rally into the afternoon, finishing mixed.  The Portfolio is 50% net long heading into the day.

Stocks Falling Sharply into Final Hour on Rising US/European/Emerging Markets Debt Angst, Oil Decline, Yen Strength, Tech/Energy Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Lower
  

• Sector Performance: Every Sector Declining
  

• Volume: Heavy

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 32.3 +16.7%

• Euro/Yen Carry Return Index 139.09 -.44%

• Emerging Markets Currency Volatility(VXY) 9.40 +6.1%

• S&P 500 Implied Correlation 49.58 +9.2%

• ISE Sentiment Index 86.0 -29.5%
  

• Total Put/Call 1.05 +15.4%

• NYSE Arms .95 -35.1%

Credit Investor Angst:

• North American Investment Grade CDS Index 58.77 +8.81%
  

• America Energy Sector High-Yield CDS Index 372.0 +4.97%

• European Financial Sector CDS Index 49.86 +8.60%

• Italian/German 10Y Yld Spread 123.25 +2.75 basis points
  

• Asia Pacific Sovereign Debt CDS Index 12.75 +5.26%

• Emerging Market CDS Index 128.79 +7.0%
  

• iBoxx Offshore RMB China Corporate High Yield Index 147.36 -.09%

• 2-Year Swap Spread 23.75 +1.25 basis points

• TED Spread 25.25 -1.5 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -32.75 -3.0 basis points

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 74.86 -.54%
• 3-Month T-Bill Yield 1.54% unch.
  

• Yield Curve 72.0 +.25 basis point

• China Iron Ore Spot 75.72 USD/Metric Tonne +.89%

• Citi US Economic Surprise Index 48.30 +.8 point

• Citi Eurozone Economic Surprise Index 39.70 -2.0 basis points

• Citi Emerging Markets Economic Surprise Index .2 +1.2 basis points

• 10-Year TIPS Spread 2.09 -3.0 basis points
  
• 100.0% chance of Fed rate hike at May 2 meeting, 100.0% chance at June 13 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -575 open in Japan 
• China A50 Futures: Indicating -260 open in China

• DAX Futures: Indicating -63 open in Germany

Portfolio: 

• Slightly Higher: On gains in my index hedges and emerging markets shorts

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

• Market Exposure: Moved to 25% Net Long

Bear Radar

Style Underperformer:

• Large-Cap Growth -2.0%

Sector Underperformers:

• 1) Papers -3.4% 2) Robotics -3.2% 3) Software -2.7%

Stocks Falling on Unusual Volume: 

• IRBT, GOOS, YELP, COHR, IPHI, UBNT, NS, ENTA, HBI, NSH, TEP, UFS, IAC, GRA, FORM, GT, BZH, TTWO, PTEN and NS

Stocks With Unusual Put Option Activity:

• 1) NLY 2) SKX 3) TJX 4) HIG 5) LQD

Stocks With Most Negative News Mentions:

• 1) QTM 2) SCHW 3) X 4) COHR 5) ENTA

Charts:

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

Bull Radar

Style Outperformer:

• Small-Cap Value -1.6%

Sector Outperformers:

• 1) Tobacco +.1% 2) Utilities +.1% 3) Gold & Silver unch.

Stocks Rising on Unusual Volume:

• WWD, VIRT, GRUB, CHA, TEGP, TWTR, NYT, MMYT, SYNA, HLG, FISV, AIR, CENTA, TOT, RYN, DIOD, IO, CENT, IVC, CDW, VRTU, BLBD, ENS, SBH, FLO and GPI

Stocks With Unusual Call Option Activity:

• 1) GES 2) KNX 3) Z 4) CIEN 5) AET

Stocks With Most Positive News Mentions:

• 1) INFN 2) VIRT 3) TWTR 4) COTY 5) GRUB

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running +54.2% Above 100-Day Average
• 4 Sectors Rising, 6 Sectors Declining
• 33.9% of Issues Advancing, 61.5% Declining
• 13 New 52-Week Highs, 50 New Lows
• 47.1% of Issues Above 200-day Moving Average
• Average 14-Day RSI 38.3%
• Vix 25.5 -8.1%
• Total Put/Call 1.17 +28.6%
• TRIN/Arms .88 -40.2%