Stocks Substantially Lower into Final Hour on Fed Rate-Hike Fears, Oil Decline, Technical Selling, Energy/Telecom Sector Weakness

 Broad Equity Market Tone:

• Advance/Decline Line: Lower
  

• Sector Performance: Almost Every Sector Declining
  

• Volume: Heavy

• Market Leading Stocks: Outperforming

Equity Investor Angst:

• Volatility(VIX) 23.6 +2.8%

• Euro/Yen Carry Return Index 135.08 +.43%

• Emerging Markets Currency Volatility(VXY) 10.75 +.75%

• S&P 500 Implied Correlation 41.71 -.71%

• ISE Sentiment Index 54.0 -26.0%
  

• Total Put/Call 1.17 unch.

• NYSE Arms 1.04 -25.7%

Credit Investor Angst:

• North American Investment Grade CDS Index 65.99 +1.55%
  

• America Energy Sector High-Yield CDS Index 404.0 +2.28%

• European Financial Sector CDS Index 92.86 +4.6%

• Italian/German 10Y Yld Spread 304.5 +9.25 basis points
  

• Asia Pacific Sovereign Debt CDS Index 10.13 +1.35%

• Emerging Market CDS Index 208.50 -2.93%
  

• iBoxx Offshore RMB China Corporate High Yield Index 150.54 +.05%

• 2-Year Swap Spread 19.5 +1.5 basis points

• TED Spread 15.75 +.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -43.25 -2.25 basis points

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 66.49 +.59%
• 3-Month T-Bill Yield 2.26% -1.0 basis point

• Yield Curve 29.75 -5.0 basis points

• China Iron Ore Spot 69.35 USD/Metric Tonne -.03%

• Citi US Economic Surprise Index -.7 -7.8 points

• Citi Eurozone Economic Surprise Index -27.8 +.4 point

• Citi Emerging Markets Economic Surprise Index -8.1 +2.5 points

• 10-Year TIPS Spread 2.12 -4.0 basis points
• 72.7% chance of Fed rate hike at Dec. 19th meeting, 74.1% chance at Jan. 30th meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -200 open in Japan 
• China A50 Futures: Indicating +12 open in China

• DAX Futures: Indicating -90 open in Germany

Portfolio: 

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

• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges and some of my emerging market shorts

• Market Exposure: Moved to 50% Net Long

Bear Radar

Style Underperformer:

• Large-Cap Value -1.2%

Sector Underperformers:

• 1) Shipping -2.6% 2) Insurance -2.2% 3) Construction -2.1%

Stocks Falling on Unusual Volume: 

• SPNE, BOLD, NEWT, SQ, FLR, MB, FAF, YGYI, CNSL, USCR, TDG, JEF, REN, AYX and FNF

Stocks With Unusual Put Option Activity:

• 1) DF 2) JNK 3) XLF 4) WBA 5) MTCH

Stocks With Most Negative News Mentions:

• 1) FLR 2) SQ 3) FLR 4) HII 5) AIG

Charts:

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

Bull Radar

Style Outperformer:

• Small-Cap Growth +.2%

Sector Outperformers:

• 1) Gold & Silver +6.4% 2) Tobacco +2.1% 3) Steel +1.2%

Stocks Rising on Unusual Volume:

• PYX, MUR, CLS, GPRE, CRSP, ARGX, PKG, HEAR, ETH, GRFS, GG, RING, LB, ABX, CBLK, SA, COL, CA, CPS, WBA, PYPL, MA, ASML, MSFT, RH, STMP, DAL, ELLI and UBNT

Stocks With Unusual Call Option Activity:

• 1) BG 2) ALLY 3) CVNA 4) KEY 5) LVS

Stocks With Most Positive News Mentions:

• 1) LB 2) MUR 3) RH 4) ETH 5) DAL

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running +56.0% Above 100-Day Average
• 3 Sectors Rising, 8 Sectors Declining
• 42.4% of Issues Advancing, 54.5% Declining
• 4 New 52-Week Highs, 344 New Lows
• 33.1% of Issues Above 200-day Moving Average
• Average 14-Day RSI 35.8%
• Vix 22.3 -2.7%
• Total Put/Call 1.16 -.9%
• TRIN/Arms .85 -36.9%

Thursday Watch

Evening Headlines

Bloomberg:       

• Wall Street Faces More Tumult If China Is Labeled an FX Manipulator.

• Live Now: Stocks Rout Extends to Asia After U.S. Equities Plunge Most Since February.

• Rout Extends to Asia After U.S. Stocks Plunge. Stocks in Asia tumbled after a rout in U.S. equities that deepened late in the day amid concerns the trade war is heating up as financial conditions tighten, dampening the outlook for profits. The yen advanced and Treasuries held gains. Japan’s Topix index plunged more than 3 percent, set for the biggest drop since March, with Hong Kong stocks also seen lower. Shares in Australia and South Korea slid. The S&P 500 Index fell the most since February and the Nasdaq 100 Index tumbled more than 4 percent for its worst day in seven years as equity volatility spiked. Industrial and construction supplies distributor Fastenal Co. added to angst that the trade conflict with China is raising materials costs that will crimp profit margins, while French luxury goods maker LVMH confirmed China is enforcing customs rules more strictly. The dollar dropped as 10-year Treasury yields traded at 3.16 percent. Japan’s Topix index tumbled 3.3 percent as of 9:09 a.m. in Tokyo. Contracts on the FTSE China A50 lost 2.7 percent. Futures on Hong Kong’s Hang Seng slid 1.4 percent. South Korea’s Kospi index plunged 2.3 percent. Australia’s S&P/ASX 200 Index declined 1.8 percent. S&P 500 futures dropped 0.1 percent.  

• Five Things You Need to Know to Start Your Day.

• Stock Selloff Is Taking a Toll on Some of the Hottest Names in Tech.

• Traders Say Bad Day Was Overdue in Stocks, Not a Reason to Panic.

Wall St. Journal:   

• Tech Retreat, Rising Bond Yields Sink Stocks.

• Watch Your Kids, Not Your Phone.

• ‘You Cannot Be Civil’. 

• Alleged Chinese Spy Accused of Stealing GE Trade Secrets.

• BlackRock Makes Private-Equity Bet in Alternative-Asset Push.

• Too Much Money Is a Worry for Direct Lenders.

• The $210 Billion Risk in Your 401(k).

• For Next Census, Satellites Replace Workers.

• China Acknowledges Re-Education Centers for Uighurs.

MarketWatch.com:

• Dr. Doom says bitcoin represents the ‘mother of all bubbles’.

• Why the stock-market selloff could be an opening for bulls, in one chart.

• Don’t panic! An ex-hedge fund manager on today’s stock market drop.

• Micron(MU) CEO: Memory-chip market is ‘structurally different’ in post-PC world.

Fox News: 

• Hurricane Michael claims first victim in Florida, official says.

CNBC:        

• 80% of technology stocks are already in a correction, down 10% from their highs.

• There's been an unlikely winning group of stocks during this rate-driven market rout.

• Trump says the Federal Reserve has 'gone crazy' by continuing to raise interest rates.  

• Square(SQ) CFO Sarah Friar to step down, stock falls.  

• Hurricane Michael to wallop cotton, peanut crops as Category 4 storm hits Florida Panhandle.

• After-hours buzz: SQ, FLR & more.

• Fluor(FLR) tumbles nearly 13% after company projects disappointing revenue.

Zero Hedge: 

• Trump Blames Powell: "I Think The Fed Has Gone Crazy" After Selloff.

• Here's What Democrats Plan To Do If They Take Back The House.

• China Has Already Lost This War...

• FBI Chief Insists Kavanaugh Background Probe Was "Consistent" With Other Investigations.

• WTI Slumps To 2-Week Lows After Biggest Crude Build In 20 Months.

• United Nations: A $240 Per Gallon Gas Tax Is Needed To Fight Climate Change.

• Eric Holder Whips Up Democrats: When They Go Low, We Kick Them.

• Do Mexico's Cartels Have WMDs?

• Carnage Continues After-Hours - Dow Down 1000 Pts, Nasdaq Collapses 5%.

• "Markets In Turmoil": FANG Freefall Sparks Longest Losing Streak Of Trump Era.

Business Insider:

• Hurricane Michael just made landfall as the strongest storm to hit the US since 1969 — more intense than Hurricanes Andrew and Katrina.

Telegraph:         

• The Italian 'doom loop': what is it and could it cause Italexit?

Night Trading 

• Asian equity indices are -3.25% to -2.0% on average.

• Asia Ex-Japan Investment Grade CDS Index 86.75 +2.0 basis points. 

• Asia Pacific Sovereign CDS Index 10.0 unch.

• Bloomberg Emerging Markets Currency Index 66.07 -.06%.

• FTSE 100 futures -1.07%.

• S&P 500 futures -.22%.

• NASDAQ 100 futures -.33%.

Morning Preview Links

Earnings of Note
Company/Estimate
Before the Open:

• (CBSH)/.96

• (DAL)/1.75

• (WBA)/1.45

After the Close:

• None of note

Economic Releases

8:30 am EST

• The CPI MoM for Sept. is estimated to rise +.2% versus a +.2% gain in August.

• The CPI Ex Food and Energy MoM for Sept. is estimated to rise +.2% versus a +.1% gain in August.

• Real Avg. Weekly Earnings YoY for Sept.

• Initial Jobless Claims for last week are estimated at 207K versus 207K the prior week. 

• Continuing Claims are estimated to rise to 1660K versus 1650K prior.
  

Upcoming Splits

• (SHOO) 3-for-2

Other Potential Market Movers

• The Australia Consumer Inflation Expectations report, monthly OPEC Oil Market report, Bloomberg Oct. US Economic Survey, weekly Bloomberg Consumer Comfort Index, weekly EIA natural gas inventory report, the WasDe crop report and the (LB) Sept. sales report could also impact trading today.

BOTTOM LINE:  Asian indices are sharply lower, weighed down by technology and industrial shares in the region. I expect US stocks to open lower and to maintain losses into the afternoon.  The Portfolio is 25% net long heading into the day.