Stocks Reversing Lower into Final Hour on Fed Rate-Hike Fears, Global Growth Worries, Oil Plunge, Energy/Biotech Sector Weakness

 Broad Equity Market Tone:

• Advance/Decline Line: Slightly Higher
  

• Sector Performance: Most Sectors Rising
  

• Volume: Above Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 25.0 +2.2%

• Euro/Yen Carry Return Index 133.03 -.05%

• Emerging Markets Currency Volatility(VXY) 9.67 -.72%

• S&P 500 Implied Correlation 50.98 +3.62%

• ISE Sentiment Index 79.0 +27.4%
  

• Total Put/Call 1.11 -17.8%

• NYSE Arms .87 -24.8%

Credit Investor Angst:

• North American Investment Grade CDS Index 81.51 -.09%
  

• America Energy Sector High-Yield CDS Index 700.0 +2.70%

• European Financial Sector CDS Index 104.77 +.65%

• Italian/German 10Y Yld Spread 269.25 -1.25 basis points
  

• Asia Pacific Sovereign Debt CDS Index 9.22 +2.82%

• Emerging Market CDS Index 198.14 -.31%
  

• iBoxx Offshore RMB China Corporate High Yield Index 150.88 +1.37%

• 2-Year Swap Spread 13.0 -1.25 basis points

• TED Spread 40.25 +.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -7.25 -.75 basis point

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 66.90 +.13%

• 3-Month T-Bill Yield 2.37% -2.0 basis points

• Yield Curve 17.0 +1.0 basis point

• China Iron Ore Spot 68.50 USD/Metric Tonne +.78%

• Citi US Economic Surprise Index -9.4 +3.9 points

• Citi Eurozone Economic Surprise Index -76.20 -2.0 points

• Citi Emerging Markets Economic Surprise Index -4.4 unch.

• 10-Year TIPS Spread 1.82 +1.0 basis point

• 69.4% chance of Fed rate hike at Jan. 30th meeting, 75.3% chance at March 20th meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -5 open in Japan 

• China A50 Futures: Indicating +47 open in China

• DAX Futures: Indicating +27 open in Germany

Portfolio: 

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

• Disclosed Trades: Added to my (IWM)/(QQQ) hedges and to my emerging market shorts

• Market Exposure: Moved to 25% Net Long

Bear Radar

Style Underperformer:

• Large-Cap Value +.3%

Sector Underperformers:

• 1) Oil Service -1.4% 2) Shipping -1.3% 3) Biotech -1.3%

Stocks Falling on Unusual Volume: 

• PPL, WOR, BANC, HIIQ, RCII, BPT, AXGN, LXFR, NGG and OSTK

Stocks With Unusual Put Option Activity:

• 1) RCII 2) NYCB 3) HES 4) CMCSA 5) NEM

Stocks With Most Negative News Mentions:

• 1) PM 2) HLTH 3) BIIB 4) FLS 5) NAVI

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Growth +1.4%

Sector Outperformers:

• 1) Homebuilders +3.2% 2) Semis +2.5% 3) Internet +2.3%

Stocks Rising on Unusual Volume:

• MTLS, NAV, IUSG, ABCB, FANH, LOVE, XPO, LION, CLXT, IGV, HEI, DRI, JNJ, RYTM, IJT, VTWO, CVTI, BHP, ENVA, USAP, ARGO, AAXJ, VIGI, TLK, SHOP and EPRT

Stocks With Unusual Call Option Activity:

• 1) KWEB 2) PAYX 3) SIG 4) ITB 5) BIIB

Stocks With Most Positive News Mentions:

• 1) MEET 2) NAV 3) DRI 4) PBYI 5) JNJ

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running +16.5% Above 100-Day Average
• 9 Sectors Rising, 2 Sectors Declining
• 55.2% of Issues Advancing, 42.7% Declining
• 3 New 52-Week Highs, 504 New Lows
• 15.4% of Issues Above 200-day Moving Average
• Average 14-Day RSI 35.1%
• Vix 24.9 +1.4%
• Total Put/Call 1.20 -11.1%
• TRIN/Arms .91 -22.2%

Tuesday Watch

Evening Headlines

Bloomberg:   

• China Inc. to Suffer More Debt Defaults in 2019 as Profits Stall.  

• China Mutual Fund Closures Hit Record on Shadow Banking Purge.   

• Where the World’s Smart Money Made and Lost It in 2018.

• Asia Braces for Slide as S&P 500 Hits 14-Month Low. A sell-off in U.S. stocks that sent the S&P 500 Index to its lowest close in 14 months looks set to spread to Asia as investors awaited the Federal Reserve’s rate decision and assessed the outlook for global growth. Futures fell in Japan, Australia and China after the S&P 500 finished Monday at the lowest since October 2017 and the Russell 2000 Index of smaller companies entered a bear market. The dollar dropped, while Treasuries gained. West Texas crude settled below $50 for the first time since October 2017 as glut fears grew. Chinese assets will be closely watched as President Xi Jinping gives a speech on the nation’s reform path. Futures on the Nikkei 225 fell 2.4 percent in Singapore. Australia’s S&P/ASX 200 Index futures were down 1.5 percent. FTSE China A50 futures dropped 0.5 percent. Hong Kong’s Hang Seng Index futures were little changed.  

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

• BOJ's Stale Stimulus, Xi Speech, Trump Slams Fed Again: Eco Day.

• Stock Sell-Off Defies Everything the Bulls Hoped Would Stop It.

• Oil Closes Below $50 for First Time in a Year.  

• Trump Opposes Short-Term Funding to Avoid Shutdown.  

• NYC Subway Chief Warns of ‘Death Spiral’ Without $40 Billion Fix.  

• IDW's Ilana Weinstein Says Hedge Fund Shakeout ‘Far From Over’.

• Fed Rate Hikes Are Extremely Rare When Stocks Are This Beat Up.

Wall St. Journal:

• Goldman(GS) Ignored Worrisome Signals In Malaysian Fund.

• Rubio’s Buyback Tax.

• The Yellow Jackets Are Right About Green Policies. 

• From Silk to Smartphones: China’s Emergence as a Trade Leviathan.

• Stocks Fall Sharply as Investors Fret Over Growth Outlook.

• The Most Striking Images From 2018.

• New Hedge Funds Lure Record Cash, but Results Fall Flat. 

• U.S. Prepares More Payments to Trade-Hit Farmers.

Fox News: 

• Defiant Comey lashes out at House GOP over ‘frustrating’ hearing.

CNBC:         

• China’s Xi is about to deliver a speech that could have major consequences for the trade war.

• Small-cap stocks enter bear market, with Russell 2000 benchmark down 20% from highs.

• Boeing(BA) raises its dividend 20%, boosts buyback plan to $20 billion, reaffirming its bullish outlook.

• Johnson & Johnson(JNJ) CEO: 'We unequivocally believe' our baby powder does not contain asbestos.

• Twitter(TWTR) tanks after disclosing that its support form exposed data to IPs in China and Saudi Arabia.

• Jeffrey Gundlach says passive investing has reached a ‘mania’ – investors should avoid index funds.

• Four things need to happen for the stock market to bottom, Jim Cramer says. 

• Goldman Sachs says it was lied to in 1MDB scandal that has plagued its stock.

• Stocks making the biggest moves after hours: Oracle, Boeing and more.

• Google(GOOGL) has reportedly ended China search project.

Zero Hedge:

• Comey Lashes Out At Trump, GOP Lawmakers; Refuses To Deny He Leaked Classified Info.

• Mueller Finally Releases Heavily Redacted Key Flynn Memo On Eve Of Sentencing.

• Christopher Steele Admits He Was Hired To Help Hillary Challenge 2016 Election.

• BBC Claim Putin Is Weaponizing Humor (Don't Laugh, That's Exactly What He Wants).

• CBS Denies Les Moonves $120MM Severance, Will Terminate "For Cause".

• "Yellow Vests" & The Downward Mobility Of The Middle Class.

• The US Government Will (Likely) Shut Down On Dec. 21: What To Expect.

• Foreigners Dump US Treasuries As They Liquidate A Record Amount Of US Stocks.

• Stocks Slammed As Liquidations Accelerate; Bitcoin, Bonds, & Bullion Bid. 

Night Trading 

• Asian equity indices are -1.25% to -.5% on average.

• Asia Ex-Japan Investment Grade CDS Index 91.5 -1.5 basis points. 

• Asia Pacific Sovereign CDS Index 9.25 -.5 basis point.

• Bloomberg Emerging Markets Currency Index 66.83 +.02%.

• FTSE 100 futures -.60%.

• S&P 500 futures +.26%.

• NASDAQ 100 futures +.34%.

Morning Preview Links

Earnings of Note
Company/Estimate
Before the Open:

• (DRI)/.91

• (FDS)/2.29

• (NAV)/1.75

• (WOR)/.73

After the Close:

• (AIR)/.57

• (ABM)/.56

• (FDX)/3.94

• (JBL)/.88

• (MU)/2.96

• (SCS)/.30

Economic Releases

8:30 am EST

• Housing Starts for November are estimated to fall to 1225K versus 1228K in October.

• Building Permits for November are estimated to fall to 1260K versus 1263K in October.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Japan Trade Balance report, weekly US retail sales reports, (ELAN) financial guidance, (AGCO) analyst meeting and the (THS) analyst meeting could also impact trading today.

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