Stocks Falling into Final Hour on China Trade Deal Worries, Earnings Concerns, Technical Selling, Tech/Gaming Sector Weakness

 Broad Equity Market Tone:

• Advance/Decline Line: Lower
  

• Sector Performance: Most Sectors Declining
  

• Volume: Above Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 15.3 +8.9%

• Euro/Yen Carry Return Index 123.10 -.62%

• Emerging Markets Currency Volatility(VXY) 8.28 +.12%

• S&P 500 Implied Correlation 39.0 +6.8%

• ISE Sentiment Index 70.0 -14.3%
  

• Total Put/Call 1.02 -10.5%

• NYSE Arms 1.0 -33.3%

Credit Investor Angst:

• North American Investment Grade CDS Index 59.12 (new series)
  

• America Energy Sector High-Yield CDS Index 378.0 -1.59%

• European Financial Sector CDS Index 63.19 (new series)

• Italian/German 10Y Yld Spread 144.5 +5.25 basis point
  

• Asia Ex-Japan Investment Grade CDS Index 72.2 (new series)
  

• Emerging Market CDS Index 204.29 +1.36%
  

• iBoxx Offshore RMB China Corporate High Yield Index 165.67 +.02%

• 2-Year Swap Spread -4.25 +.5 basis point

• TED Spread 25.75 +1.0 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -1.25 +6.0 basis points

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 65.61 -.14%
• 3-Month T-Bill Yield 1.89% -5.0 basis points

• Yield Curve .04 +1.0 basis point

• China Iron Ore Spot 89.75 USD/Metric Tonne +1.3%

• Citi US Economic Surprise Index 41.70 +.4 point

• Citi Eurozone Economic Surprise Index -26.40 +.6 point

• Citi Emerging Markets Economic Surprise Index -9.3 -.2 point

• 10-Year TIPS Spread 1.62 +2.0 basis points
• 65.3% chance of Fed rate cut at Dec. 11th meeting, 76.9% chance of cut at Jan. 29th meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -139 open in Japan 
• China A50 Futures: Indicating -127 open in China

• DAX Futures: Indicating +6 open in Germany

Portfolio:

• Slightly Higher: On gains in my medical/biotech sector longs and index hedges

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

• Market Exposure: Moved to 75% Net Long

Bear Radar

Style Underperformer:

• Large-Cap Growth unch.

Sector Underperformers:

• 1) Road & Rail -.5% 2) Gold & Silver -.4% 3) Robotics -.4%

Stocks Falling on Unusual Volume: 

• SITE, W, CECO, EHTH, XLNX, ARCH, NFLX, PCG, BTU and ROKU

Stocks With Unusual Put Option Activity:

• 1) DXC 2) AXTA 3) BRZU 4) CRC 5) MDR

Stocks With Most Negative News Mentions:

• 1) XLNX 2) LYFT 3) BE 4) FE 5) KPTI

Charts:

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

Bull Radar

Style Outperformer:

• Small-Cap Value +.7%

Sector Outperformers:

• 1) Pharma +1.3% 2) Biotech +1.1% 3) Networking +1.0%

Stocks Rising on Unusual Volume:

• CRC, SCS, HRI, ENS, AMAG, FNSR, CWST, OSTK, TDOC, GOSS, PETQ, URI, QTS, PAHC, MYOK, ORLY, REGN, HOG and ALGN

Stocks With Unusual Call Option Activity:

• 1) EMR 2) DXC 3) APC 4) XLNX 5) ZTS

Stocks With Most Positive News Mentions:

• 1) REGN 2) SCS 3) URI 4) FBIZ 5) LLY

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running +23.1% Above 100-Day Average
• 9 Sectors Rising, 2 Sectors Declining
• 61.2% of Issues Advancing, 35.0% Declining
• 81 New 52-Week Highs, 12 New Lows
• 61.1% of Issues Above 200-day Moving Average
• Average 14-Day RSI 50.8%
• Vix 13.5 -3.8%
• Total Put/Call .87 -23.7%
• TRIN/Arms .82 -45.3%

Friday Watch

Evening Headlines

Bloomberg:   

• U.S.-China Talks Resume, With Chinese Officials Set to Visit U.S. Farm Belt.  

• Japan Inflation Hits 2-Year Low as BOJ Stokes Easing Speculation.  

• Stocks in Asia Edge Higher; Bond Yields Drift. Asia stocks opened with modest gains on reduced volumes after a lackluster session for U.S. shares. Treasuries remained on course for a first week of gains since August. Japanese shares edged higher, along with those in South Korea and Australia. The S&P 500 Index closed little changed, within 1% of a record, as gains in software companies offset losses for carmakers. After getting a boost from positive comments on trade by White House economic adviser Larry Kudlow early in the day, equities took a leg down after a report about a U.S. official threatening steeper tariffs against China. In China, all eyes will be on the Loan Prime Rate - a new gauge of borrowing costs. Futures on the S&P 500 were flat as of 9:05 a.m. in Tokyo. The index was little changed on Thursday. Japan’s Topix index advanced 0.3%. South Korea’s Kospi added 0.1%. Australia’s S&P/ASX 200 Index gained 0.1%.

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

• Global Growth Slip, China Trade Dip, Fed Funding Stress: Eco Day.

• Prolonged Funding Stress Boosts Calls for Permanent Fed Fix.  

• Zuckerberg Meets Trump at White House With Facebook on the Defensive.

Wall Street Journal:

• Behind the GM-UAW Strike: Two Combatants With Something to Prove.

• Democrats and Republicans Aren’t Just Divided. They Live in Different Worlds.

• Trudeau Apologizes Again as Another Blackface Image Emerges.

• Vaping-Related Lung Ailments Rise to 530, Officials Say.

• Fintech Firm Stripe Climbs Ranks of U.S. Startup Valuations.

• Purdue Led Its Opioid Rivals in Pills More Prone to Abuse.

Fox News:

• Voters frustrated with feds as Trump approval rating ticks up, Fox News Poll finds.

CNBC:

• ‘We were wrong’: Koch network to change strategy in campaign against Trump’s trade war.

• GM workers who picketed in 2007 say that strike was political. This time it’s ‘serious’.

• Warren presidency frightens investors at conference: ‘She’s not my candidate of choice’.

• Missouri man dies from vaping-related illness, bringing US death toll to eight.

• Stocks making the biggest moves after hours: Steelcase, Etsy, Xilinx and more.

Zero Hedge:

• Smart Faucets And Toilets Use Alexa To Listen To Your Conversations.

• Will Chicago Be The Largest US City To Declare Bankruptcy?

• "They've Created A Snowflake Market" - Mark Spitznagel Warns Of "Dangerous Over-Reliance" On Central Banks.

• NBC News Ridiculed After 'Climate Confessions' Goes Horribly Awry.

• The Fed Will Restart QE In November: This Is How It Will Do It.

• Colt Announces End Of AR-15 Production For Civilian Market.

• Stocks Pump-n-Dump As Quad-Witch Looms, Liquidity Crisis Continues.

Night Trading 

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

• Asia Ex-Japan Investment Grade CDS Index 70.50 (new series).

• China Sovereign CDS 38.25 unch.

• Bloomberg Emerging Markets Currency Index  65.72 +.03%.

• FTSE 100 futures -.44%.

• S&P 500 futures +.06%.

• NASDAQ 100 futures +.12%.

Morning Preview Links 

Earnings of Note 
Company/Estimate

Before the Open:

• None of note

After the Close:

• None of note

Economic Releases
12:00 pm EST

• 2Q Household Change in Net Worth.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Eurozone PPI report could also impact trading today.

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

Stocks Modestly Higher into Afternoon on US Economic Data, Rising Fed Rate Cut Hopes, Technical Buying, Tech/Healthcare Sector Strength

 Broad Equity Market Tone:

• Advance/Decline Line: Higher
  

• Sector Performance: Mixed
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 13.9 +.2%

• Euro/Yen Carry Return Index 123.89 -.24%

• Emerging Markets Currency Volatility(VXY) 8.23 +.61%

• S&P 500 Implied Correlation 36.6 +2.2%

• ISE Sentiment Index 89.0 unch.
  

• Total Put/Call 1.28 +26.7%

• NYSE Arms 1.55 +7.64%

Credit Investor Angst:

• North American Investment Grade CDS Index 51.23 +.31%
  

• America Energy Sector High-Yield CDS Index 383.0 +4.02%

• European Financial Sector CDS Index 56.72 -1.78%

• Italian/German 10Y Yld Spread 139.25 +.75 basis point
  

• Asia Ex-Japan Investment Grade CDS Index 53.5 -.68%
  

• Emerging Market CDS Index 201.60 -.97%
  

• iBoxx Offshore RMB China Corporate High Yield Index 165.63 unch.

• 2-Year Swap Spread -4.75 -1.5 basis points

• TED Spread 24.75 +3.75 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -7.25 +3.75 basis points

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 65.79 -.11%
• 3-Month T-Bill Yield 1.94% unch.

• Yield Curve .03 -5.0 basis points

• China Iron Ore Spot 87.88 USD/Metric Tonne -3.81%

• Citi US Economic Surprise Index 41.30 +3.5 points

• Citi Eurozone Economic Surprise Index -27.0 +.7 point

• Citi Emerging Markets Economic Surprise Index -9.1 -.5 point

• 10-Year TIPS Spread 1.60 unch.
• 72.7% chance of Fed rate cut at Dec. 11th meeting, 84.2% chance of cut at Jan. 29th meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -21 open in Japan 
• China A50 Futures: Indicating +26 open in China

• DAX Futures: Indicating -6 open in Germany

Portfolio:

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

• Disclosed Trades: None

• Market Exposure: 100% Net Long