Stocks Reversing Higher into Afternoon on Less China Trade Deal Pessimism, Lower Long-Term Rates, Earnings Optimism, Transport/Biotech Sector Strength

 Broad Equity Market Tone:

• Advance/Decline Line: Modestly Lower
  

• Sector Performance: Mixed
  

• Volume: Around Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 19.25 +2.45%

• Euro/Yen Carry Return Index 133.65 -.56%

• Emerging Markets Currency Volatility(VXY) 10.16 +.59%

• S&P 500 Implied Correlation 43.79 +1.37%

• ISE Sentiment Index 184.0 +29.6%
  

• Total Put/Call .78 -13.3%

• NYSE Arms 1.16 -4.1%

Credit Investor Angst:

• North American Investment Grade CDS Index 75.95 +1.42%
  

• America Energy Sector High-Yield CDS Index 672.0 -.93%

• European Financial Sector CDS Index 104.68 +1.56%

• Italian/German 10Y Yld Spread 290.0 +1.75 basis points
  

• Asia Pacific Sovereign Debt CDS Index 9.78 -3.83%

• Emerging Market CDS Index 206.85 -.29%
  

• iBoxx Offshore RMB China Corporate High Yield Index 147.41 +.52%

• 2-Year Swap Spread 16.75 -.25 basis point

• TED Spread 36.75 +2.75 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -22.75 -10.5 basis points

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 67.21 -.48%

• 3-Month T-Bill Yield 2.36% unch.

• Yield Curve 20.0 -1.75 basis points

• China Iron Ore Spot 63.14 USD/Metric Tonne +.40%

• Citi US Economic Surprise Index -5.3 -.8 point

• Citi Eurozone Economic Surprise Index -62.90 -6.3 points

• Citi Emerging Markets Economic Surprise Index -5.4 +.6 point

• 10-Year TIPS Spread 1.99 unch.

• 79.6% chance of Fed rate hike at Jan. 30th meeting, 90.0% chance at March 20th meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +60 open in Japan 

• China A50 Futures: Indicating +79 open in China

• DAX Futures: Indicating +31 open in Germany

Portfolio: 

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

• Disclosed Trades: None

• Market Exposure: 100% Net Long

Morning Market Internals

NYSE Composite Index:

• Volume Running -.1% Below 100-Day Average
• 10 Sectors Rising, 1 Sector Declining
• 49.3% of Issues Advancing, 48.5% Declining
• 40 New 52-Week Highs, 126 New Lows
• 27.8% of Issues Above 200-day Moving Average
• Average 14-Day RSI 46.4%
• Vix 18.6 -1.0%
• Total Put/Call .75 -15.6%
• TRIN/Arms 1.26 +4.1%

Friday Watch

Evening Headlines

Bloomberg:   

• Trump-Xi Dinner Offers Chance to Avert Deeper U.S.-China Rift.    

• Japan’s Factory Output Surges in Sign of Rebound in Economy.

• Deutsche Bank Raid Pulls CEO Deeper Into Vicious Circle.

• Asia Stocks Signal Mixed Trading Before G-20 Meets. Asian stocks looked set to round out the month in mixed fashion as investors await a crucial meeting between the U.S. and Chinese presidents with the course of the trade war at stake. Treasuries rose and the dollar declined overnight, when U.S. equities dipped. Futures indicated a higher start for shares in Tokyo, Hong Kong and Shanghai, though a late-in-the-day fizzling of the S&P 500’s rally and a dip in U.S. equity futures may restrain sentiment. Australian shares slipped. Doubts remain about prospects for Presidents Donald Trump and Xi Jinping to agree to a thaw in bilateral relations. Tech stocks dropped in the U.S., as did banks, as the 10-year Treasury yield held near its lowest since September. Minutes from the Federal Reserve’s November policy meeting showed the central bank preparing for a more flexible path in 2019. Australia’s S&P/ASX 200 Index fell 0.6 percent. Futures on Japan’s Nikkei 225 rose 0.4 percent in Singapore. FTSE China A50 Index futures added 0.5 percent. Futures on Hong Kong’s Hang Seng added 0.4 percent. Futures on the S&P 500 Index dropped 0.1 percent after the underlying gauge closed down 0.2 percent on Thursday.

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

• Flexible Fed, Trump Trade Hint, GM's Lessons for Powell: Eco Day.

• Powell Positions Federal Reserve for Pause: World Economy This Week.

Wall St. Journal:

• U.S. and China Exploring Deal to Ease Trade Tensions.

• NYC’s Richest Cut Losses as Manhattan Real Estate Falters.

• Consumers Step Up Spending to Start Fourth Quarter.

• Fed Minutes Signal Likely December Rate Increase, Less Certain 2019 Path.

MarketWatch.com:

• Hunker down, crypto owners, the worst is yet to come: Fred Wilson.

• Did Fed’s Powell ‘light the fuse’ for a year-end stock-market rally?

• Simon Maierhofer: Crowd psychology supports a year-end rally in stocks.

• The alarming chart that shows what’s killing Americans more than guns or AIDS ever did.

Fox News: 

• Judge Nap: Cohen plea is 'tip of the iceberg,' rest of iceberg at Mueller office.

CNBC:          

• Fed points to December rate hike but is worried about tariffs and debt.

• Trump has 'silent' support of world leaders to strike 'hard bargain' with China: Ex-NATO ambassador.

• Workday(WDAY) shares surge on cloud software company's third-quarter earnings report.

• I come to bury bitcoin, says UBS' global chief economist. (video)

• Stocks making the biggest moves after hours: GameStop, PVH and more.

• Dick Bove: The Fed has caved to President Trump's wishes and that's a game changer.

• Cramer: Fed's Powell made a 'rookie mistake' but is now doing the 'sensible thing' on rates.

Zero Hedge:  

• California Democratic Party Chairman Resigns Over Accusations Of Sexual Harassment.

• Feds Raid Trump's Former Chicago Tax Attorney And City Alderman; Seize Documents, Computers.

• Hillary Clinton Confirms Conservatives Were Right On Mass Migration.

• Gas Prices Slide To Lowest Since March As Shale Production Soars.

• Comey Fights Subpoena From House GOP; Asks Judge To Toss.

• Amid Social Unrest, China Set To Purge $176 Billion P2P Loan Market.

• SEC Charges Floyd Mayweather, DJ Khaled With Illegally Promoting ICOs.

• Trade 'Hopes' & Fed 'Nopes' Send Stocks, Bonds, & Black Gold To Critical Levels.

Telegraph:

• Comment: Academics’ devotion to the socialist dream looks more like self-interest.

Night Trading 

• Asian equity indices are -.5% to +.5% on average.

• Asia Ex-Japan Investment Grade CDS Index 93.75 -1.0 basis point. 

• Asia Pacific Sovereign CDS Index 10.25 unch.

• Bloomberg Emerging Markets Currency Index 67.54 +.01%.

• FTSE 100 futures +.71%.

• S&P 500 futures -.17%.

• NASDAQ 100 futures -.18%.

Morning Preview Links

Earnings of Note
Company/Estimate
Before the Open:

• (CTRN)/.00

• (SFUN)/.06

After the Close:

• None of note

Economic Releases

9:45 am EST

• The Chicago Purchasing Manager for November is estimated to rise to 58.5 versus 58.4 in October.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Williams speaking, China PMI report and the (MTU) analyst day could also impact trading today.

BOTTOM LINE:  Asian indices are mostly higher, boosted by technology and healthcare shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed.  The Portfolio is 100% net long heading into the day.

Stocks Reversing Higher into Final Hour on Diminished Fed Rate-Hike Fears, Less China Trade Deal Pessimism, Oil Gain, Energy/Healthcare Sector Strength

 Broad Equity Market Tone:

• Advance/Decline Line: Modestly Higher
  

• Sector Performance: Most Sectors Rising
  

• Volume: Around Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 18.76 +1.46%

• Euro/Yen Carry Return Index 134.31 -.05%

• Emerging Markets Currency Volatility(VXY) 10.11 +.10%

• S&P 500 Implied Correlation 43.67 -2.57%

• ISE Sentiment Index 155.0 +61.5%
  

• Total Put/Call .94 +11.9%

• NYSE Arms 1.14 +164.0%

Credit Investor Angst:

• North American Investment Grade CDS Index 73.92 -1.94%
  

• America Energy Sector High-Yield CDS Index 675.0 -1.66%

• European Financial Sector CDS Index 103.08 +.04%

• Italian/German 10Y Yld Spread 288.25 -2.5 basis points
  

• Asia Pacific Sovereign Debt CDS Index 10.20 -1.07%

• Emerging Market CDS Index 206.89 -1.06%
  

• iBoxx Offshore RMB China Corporate High Yield Index 146.64 -.45%

• 2-Year Swap Spread 17.0 -.5 basis point

• TED Spread 33.25 +1.5 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -12.25 +9.25 basis points

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 67.53 +.51%
• 3-Month T-Bill Yield 2.36% -2.0 basis points

• Yield Curve 21.75 -2.75 basis points

• China Iron Ore Spot 63.35 USD/Metric Tonne +.86%

• Citi US Economic Surprise Index -4.5 +.4 point

• Citi Eurozone Economic Surprise Index -56.60 +6.3 points

• Citi Emerging Markets Economic Surprise Index -6.0 unch.

• 10-Year TIPS Spread 1.99 +4.0 basis points
• 80.0% chance of Fed rate hike at Jan. 30th meeting, 90.0% chance at March 20th meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +118 open in Japan 
• China A50 Futures: Indicating +120 open in China

• DAX Futures: Indicating +47 open in Germany

Portfolio: 

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

• Disclosed Trades: None

• Market Exposure: 100% Net Long

Morning Market Internals

NYSE Composite Index:

• Volume Running +2.4% Above 100-Day Average
• 2 Sectors Rising, 9 Sectors Declining
• 36.0% of Issues Advancing, 61.8% Declining
• 23 New 52-Week Highs, 95 New Lows
• 28.1% of Issues Above 200-day Moving Average
• Average 14-Day RSI 46.7%
• Vix 20.4 +10.4%
• Total Put/Call 1.17 +39.3%
• TRIN/Arms 1.47 +222.2%