Stocks Surging into Final Hour on China Trade Deal Hopes, More Dovish FOMC Commentary, Oil Gain, Homebuilding/Energy Sector Strength

 Broad Equity Market Tone:

• Advance/Decline Line: Higher
  

• Sector Performance: Almost Every Sector Rising
  

• Volume: Above Average

• Market Leading Stocks: Outperforming

Equity Investor Angst:

• Volatility(VIX) 20.0 -2.3%

• Euro/Yen Carry Return Index 129.92 +.47%

• Emerging Markets Currency Volatility(VXY) 9.54 +1.17%

• S&P 500 Implied Correlation 48.47 -2.1%

• ISE Sentiment Index 100.0 +69.5%
  

• Total Put/Call .94 unch.

• NYSE Arms .60 -53.1%

Credit Investor Angst:

• North American Investment Grade CDS Index 78.55 -.5%
  

• America Energy Sector High-Yield CDS Index 733.0 -3.33%

• European Financial Sector CDS Index 106.0 -3.13%

• Italian/German 10Y Yld Spread 260.0 -12.75 basis points
  

• Asia Ex-Japan Investment Grade CDS Index 90.35 -2.67%
  

• Emerging Market CDS Index 190.56 -1.62%
  

• iBoxx Offshore RMB China Corporate High Yield Index 153.53 -.03%

• 2-Year Swap Spread 14.5 +1.25 basis point

• TED Spread 36.0 -3.25 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap 4.75 +3.25 basis point

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 68.0 +.44%
• 3-Month T-Bill Yield 2.44% unch.

• Yield Curve 16.75 +3.25 basis points

• China Iron Ore Spot 72.24 USD/Metric Tonne -.56%

• Citi US Economic Surprise Index -8.50 +.5 point

• Citi Eurozone Economic Surprise Index -84.2 +.7 point

• Citi Emerging Markets Economic Surprise Index -15.3 -.3 point

• 10-Year TIPS Spread 1.83 +1.0 basis point
• 4.7% chance of Fed rate hike at March 20th meeting, 10.6% chance at May 1st meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -47 open in Japan 
• China A50 Futures: Indicating +91 open in China

• DAX Futures: Indicating +13 open in Germany

Portfolio: 

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

• Disclosed Trades: Added to my (IWM)/(QQQ) hedges, then covered some

• Market Exposure: 100% Net Long

Bear Radar

Style Underperformer:

• Large-Cap Value +.3%

Sector Underperformers:

• 1) Telecom -1.2% 2) Utilities -.5% 3) REITS -.4%

Stocks Falling on Unusual Volume: 

• SGH, HUD, AMRX, STZ, TLND, AM, GBX, AMGP, SAGE and DLR

Stocks With Unusual Put Option Activity:

• 1) AET 2) GME 3) ANF 4) STZ 5) SWN

Stocks With Most Negative News Mentions:

• 1) SGH 2) MGI 3) BKNG 4) IMMU 5) GCO

Charts:

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

Bull Radar

Style Outperformer:

• Mid-Cap Growth +1.2%

Sector Outperformers:

• 1) Homebuilders +4.3% 2) Disk Drives +4.1% 3) Computer Hardware +2.8%

Stocks Rising on Unusual Volume:

• GMED, NEO, SNN, IEFA, EFAV, LXFR, HMST, FEP, LRN, AVRO, LEN, PCG, FTSV, ALLK, CCS, PHG, MEI, HUYA, EFG, VIRT, SMAR, MGP, GT, BILI, UBIO and PLAB

Stocks With Unusual Call Option Activity:

• 1) EMB 2) S 3) EXPE 4) STZ 5) OIH

Stocks With Most Positive News Mentions:

• 1) AAL 2) ISRG 3) OMI 4) LEN 5) BA

Charts:

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

Afternoon Market Internals

NYSE Composite Index:

• Volume Running +12.1% Above 100-Day Average
• 7 Sectors Rising, 4 Sectors Declining
• 64.9% of Issues Advancing, 32.8% Declining
• 11 New 52-Week Highs, 7 New Lows
• 21.4% of Issues Above 200-day Moving Average
• Average 14-Day RSI 51.4%
• Vix 20.02 -2.2%
• Total Put/Call .94
• TRIN/Arms .64 -50.0%

Wednesday Watch

Evening Headlines

Bloomberg:      

• Trump Wants Trade Deal With China to Boost Stock Market.

• White House to Roll Out Bill to Expand Trump’s Tariff Powers, Sources Say. Asia Stocks Rise on Trade-Thaw Hopes; Dollar Slips. Asian stocks followed a rally in the U.S. to open higher amid optimism on the potential for progress in trade talks between the U.S. and China. Treasuries were steady after their recent slide and the dollar dipped. Equities advanced in Japan, Australia and South Korea after all major U.S. indexes climbed. U.S. President Donald Trump is eager to strike a deal to boost financial markets that have been roiled by the trade war, according to people familiar. Earlier, he tweeted that talks are “going very well” as the negotiations continued with China. Crude climbed above $50 a barrel for the first time this year. Japan’s Topix index climbed 1.1 percent as of 9:17 a.m. in Tokyo. Australia’s S&P/ASX 200 Index rose 0.5 percent. South Korea’s Kospi index added 0.9 percent. Hong Kong’s Hang Seng Index futures gained 0.6 percent. S&P 500 futures ticked 0.3 percent higher.

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

• Yen in Demand, U.S.-China Talks Extend, Liang Withdraws: Eco Day. 

• Oil Climbs to 3-Week High as Trade Talks Fuel Demand Optimism.

• Risk Is Back as Morgan Stanley, Goldman Signal Bullish Way Out  

• Recession Fears Premature to Bob Doll, Who Sees Stocks Rising   

• Junk Debt ETFs Add Cash as Panic Fades After High-Yield Rout.   

• Hedge Funds Lost Almost 6% Last Year as Markets Roiled Managers.

Wall St. Journal:

• What Trump Means by ‘America First’.

• Cancer Deaths Show Sharp Decline.

• Facebook, Twitter Turn to Right-Leaning Groups to Help Referee Political Speech.

• Senate Democrats Block Legislation to Pressure Republicans on Shutdown.

• Small-Cap Stocks Take On New Shine.

MarketWatch.com:

• Why bulls expect the stock market to shake off the selloff and party like it’s 2016.

Fox News:

• McENANY: Dems should support Trump's plans to solve border crisis

CNBC:

• Apple(AAPL) CEO Tim Cook: ‘I’m very optimistic’ about US-China trade talks.

• Apple(AAPL) CEO Tim Cook speaks with CNBC’s Jim Cramer: Full transcript.

• The Chinese middle class is buying up American residential real estate.

• Tim Cook teases new Apple services: Our ‘greatest contribution’ will be ‘about health’.

• Cramer: It’s not too late to buy into Facebook(FB), Apple(AAPL), Amazon(AMZN) or Alphabet(GOOGL).

• Retail stocks could rally another 10 to 15 percent from here, says technician.

• Stocks gain under the ‘first five days’ rule, setting up for a good 2019 performance. 

• Stocks making the biggest moves after hours: JCPenney, H&R Block and more.

Zero Hedge:

• US Consumer Credit Hits All Time High Amid Surge In Student And Auto Loans.

• Debt, Dope, & Casinos: Chicago Is Circling The Drain.

• Investors Ended 2018 With The Greatest Surge In Bearish Sentiment Ever.

• WTI Jumps After Bigger Than Expected Crude Draw.

• Steve Cohen's New Fund Falls Flat, Posts Paltry 1% Return During First Year Of Trading.

• Zuckerberg Distracts From Privacy Scandals With Pedantic "Personal Challenge".

• Stocks Extend Gains Even As Market Prices Out Dovish Fed.

Business Insider:

• Tim Cook made over $15 million in 2018 — that's 283 times more than the median Apple employee earned.

Night Trading 

• Asian equity indices are +.75% to +1.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 92.5 -2.5 basis points. 

• China Sovereign CDS 62.5 -2.75 basis points.

• Bloomberg Emerging Markets Currency Index 67.74 +.07%.

• FTSE 100 futures +.48%.

• S&P 500 futures +.33%.

• NASDAQ 100 futures +.45%.

Morning Preview Links

Earnings of Note
Company/Estimate
Before the Open:

• (AYI)/2.13

• (STZ)/2.08

• (LEN)/1.96

• (SCHN)/.56

After the Close:

• (BBBY)/.17

• (KBH)/.94

• (PSMT)/.73

• (WDFC)/.95

Economic Releases

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory decline of -1,743,170 barrels versus a +7,000 barrel gain the prior week. Gasoline supplies are estimated to rise by +2,629,000 barrels versus a +6,890,000 barrel gain the prior week. Distillate inventories are estimated to rise by +1,230,270 barrels versus a +9,529,000 gain the prior week. Finally, Refinery Utilization is estimated to fall by -.64% versus a +2.1% gain prior.
  

2:00 pm EST

• Dec. 19th FOMC meeting minutes.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The address to the nation by Pres. Trump, Eurozone Unemployment rate, US/EU trade talks, $24B 10Y T-Note auction, weekly MBA mortgage applications report and the CSFB China Tech/Internet conference could also impact trading today.

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