Stocks Rising into Final Hour on China Trade Deal Hopes, FOMC Commentary, Yen Weakness, Tech/Transport Sector Strength

 Broad Equity Market Tone:

• Advance/Decline Line: Higher
  

• Sector Performance: Most Sectors Rising
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 18.8 -7.4%

• Euro/Yen Carry Return Index 122.51 +.58%

• Emerging Markets Currency Volatility(VXY) 8.27 +.85%

• S&P 500 Implied Correlation 46.29 -6.3%

• ISE Sentiment Index 115.0 +53.1%
  

• Total Put/Call 1.09 +11.2%

• NYSE Arms 1.09 -44.7%

Credit Investor Angst:

• North American Investment Grade CDS Index 61.84 -1.14%
  

• America Energy Sector High-Yield CDS Index 525.0 +3.84%

• European Financial Sector CDS Index 68.21 -1.85%

• Italian/German 10Y Yld Spread 141.75 -2.0 basis points
  

• Asia Ex-Japan Investment Grade CDS Index 78.27 -.99%
  

• Emerging Market CDS Index 213.72 -1.04%
  

• iBoxx Offshore RMB China Corporate High Yield Index 166.36 +.05%

• 2-Year Swap Spread 2.5 -.5 basis point

• TED Spread 34.75 +.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -25.25 -.75 basis point

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 65.24 +.05%
• 3-Month T-Bill Yield 1.67% -1.0 basis point

• Yield Curve .11 +2.0 basis points

• China Iron Ore Spot 86.80 USD/Metric Tonne -3.7%

• Citi US Economic Surprise Index 17.70 -1.3 points

• Citi Eurozone Economic Surprise Index -76.70 -.6 point

• Citi Emerging Markets Economic Surprise Index -11.20 -.2 point

• 10-Year TIPS Spread 1.49 +1.0 basis point
• 91.6% chance of Fed rate cut at Dec. 11th meeting, 95.1% chance of cut at Jan. 29th meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +149 open in Japan 
• China A50 Futures: Indicating +30 open in China

• DAX Futures: Indicating +2 open in Germany

Portfolio:

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

• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges

• Market Exposure: Moved to 75% Net Long

Bear Radar

Style Underperformer:

• Small-Cap Value +.2%

Sector Underperformers:

• 1) Gold & Silver -.5% 2) Oil Service unch. 3) Social Media +.1%

Stocks Falling on Unusual Volume: 

• KURA, MPWR, IRBT, X, ALLO, NTLA, DIN, XLRN, ANDE, WORK, PSNL, CHRS and LEVI

Stocks With Unusual Put Option Activity:

• 1) LEVI 2) MET 3) IRBT 4) AVYA 5) NWL

Stocks With Most Negative News Mentions:

• 1) JRVR 2) IRBT 3) OSTK 4) RUHN 5) GTES

Charts:

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

Bull Radar

Style Outperformer:

• Mid-Cap Growth +1.1%

Sector Outperformers:

• 1) Disk Drives +2.0% 2) Semis +1.9% 3) Airlines +1.6%

Stocks Rising on Unusual Volume:

• GNRC, ROKU, IRDM, SNBR, CYRX, AVNS, FEYE, DOCU, LILA, ANF, SPTN and SMPL

Stocks With Unusual Call Option Activity:

• 1) ANF 2) LEVI 3) ITCI 4) UAA 5) HIIQ

Stocks With Most Positive News Mentions:

• 1) OCGN 2) ROKU 3) AOBC 4) CYRX 5)COP

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running -20.8% Below 100-Day Average
• 11 Sectors Rising, 0 Sectors Declining
• 65.8% of Issues Advancing, 31.0% Declining
• 63 New 52-Week Highs, 72 New Lows
• 47.7% of Issues Above 200-day Moving Average
• Average 14-Day RSI 41.99%
• Vix 19.4 -4.5%
• Total Put/Call 1.17 +19.4%
• TRIN/Arms 1.30 -34.0%

Wednesday Watch

Evening Headlines

Bloomberg:         

• China Says ‘Stay Tuned’ for Retaliation Over U.S. Tech Blacklist.

• The U.S.-China Relationship Is Swiftly Deteriorating by the Day.    

• Chinese AI Project Is Under Review at MIT After U.S. Blacklists Company.  

• Trouble Is Brewing in the Darkest Corner of China’s Shadow Banking.

• Stocks Drop as Trade Tensions Ramp Up Before Talks. Asian stocks dropped Wednesday after a slump on Wall Street spurred by escalating U.S.-China trade tensions, though declines were more modest than in the U.S. Japan’s benchmark Topix in early trading was down by about half the 1.6% drop in the S&P 500 Index overnight, continuing the pattern of outperformance seen last month. U.S. futures were little changed, as was the dollar. Ten-year Treasury yields were flat, not far from their lowest levels in a month. Crude oil dipped toward $52 a barrel in New York. Japan’s Topix index dropped 0.7% as of 9:21 a.m. in Tokyo. Australia’s S&P/ASX 200 Index declined 0.8%. Futures on the S&P 500 Index rose 0.2%.  

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

• Repo Rout Didn’t Have to Happen. Powell Is Trying to Avoid Rerun.

Wall Street Journal:

• FBI Use of Surveillance Database Violated Privacy Rights, Court Ruled.

• Impeachment in Secret.

• J&J Hit With $8 Billion Jury Award Over Antipsychotic Drug.

• U.S. to Restrict Visas for Chinese Officials Linked to Abuse of Muslim Minorities .

• In Syria, Kurdish Fighters Prepare to Battle Turkey as Residents Fret.

• California Governor Signs Rent Law Amid Rising Housing Costs, Homelessness.

• Sleepovers Have Parents Worried About Gadget Use.

Fox News:

• WH hits Dems with bombshell letter refusing to comply with 'illegitimate' impeachment inquiry.

MarketWatch.com:   

• California utilities may cut power to 800,000 customers due to fire risk.

CNBC:

• China ‘strongly urges’ US to remove sanctions and stop accusing it of human rights violations.

• China’s heavy-handed reaction to the NBA is just the wake-up call the world needed.

• US puts visa restrictions on Chinese officials over abuses of Muslims in Xinjiang.

• Powell says the Fed will start expanding its balance sheet ‘soon’ in response to funding issues.

Zero Hedge:   

• Full Turkish Assault On NE Syria Coming "Next 24 Hours" As Kurds Make Late Night Appeal.

• Chinese Citizens Will Be Required To Scan Their Faces To Use The Internet.

• 800,000 Californians To Lose Power After Midnight.

• Fed Announces QE4 One Day After BIS Warns QE Has Broken The Market.

• CIA Whistleblower 'Professionally Tied' To 2020 Candidate.

• Trudeau Rumored To Be In Talks To Suppress Potentially Career-Ending Sex Scandal.

• Extinction Rebellion: Climate Change Protests Aim To Crash Global Economy To Usher In MMT.

• Trump Demands Vote As White House Rejects Democrats' "Constitutionally Invalid" Impeachment 'Inquiry'.

• SoftBank Damaged After WeWork Implosion, Losses Could Exceed $5 Billion.

• Death Toll In Iraq Soars As Pro-Iran Gunmen Start 'Shooting Protesters'.

• WTI Rebounds After Earlier Flash-Crash On Major Product Inventory Draws.

• Stocks Drop, Gold Pops As Powell Promises (Not)QE & Trump Dumps On Xi.

Night Trading 

• Asian equity indices are -.75% to -.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 79.5 +1.0 basis point.

• China Sovereign CDS 49.5 -.75 basis point.

• Bloomberg Emerging Markets Currency Index  65.19 -.02%.

• FTSE 100 futures -.06%.

• S&P 500 futures +.22%.

• NASDAQ 100 futures +.23%.

Morning Preview Links 

Earnings of Note 
Company/Estimate

Before the Open:

• None of note

After the Close:

• None of note

Economic Releases
10:00 am EST

• JOLTS Job Openings for Aug. are estimated to rise to 7250 versus 7217 in July.

• Wholesale Trade Sales MoM for Aug.
  

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory gain of +1,438,300 barrels versus a +3,104,000 barrel gain the prior week. Gasoline supplies are estimated to fall by -418,000 barrels versus a -228,000 barrel decline the prior week. Distillate inventories are estimated to fall by -2,031,500 barrels versus a -2,418,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise +.16% versus a -3.4% decline prior.
  

2:00 pm EST

• FOMC Meeting Minutes for Sept. 18.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Powell speaking, $24B 10Y T-Note auction and the weekly MBA Mortgage Applications report 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 mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the day.

Stocks Lower into Final Hour on Rising China Trade Tensions, FOMC Commentary, Technical Selling, Tech/Medical Sector Weakness

 Broad Equity Market Tone:

• Advance/Decline Line: Substantially Lower
  

• Sector Performance: Most Sectors Declining
  

• Volume: Around Average

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• Volatility(VIX) 18.9 +6.3%

• Euro/Yen Carry Return Index 121.92 -.20%

• Emerging Markets Currency Volatility(VXY) 8.19 +.24%

• S&P 500 Implied Correlation 45.70 +5.0%

• ISE Sentiment Index 78.0 -5.1%
  

• Total Put/Call .96 -11.11%

• NYSE Arms 1.17 -5.7%

Credit Investor Angst:

• North American Investment Grade CDS Index 61.84 +1.48%
  

• America Energy Sector High-Yield CDS Index 503.0 +1.82%

• European Financial Sector CDS Index 69.50 +2.7%

• Italian/German 10Y Yld Spread 143.75 +1.0 basis point
  

• Asia Ex-Japan Investment Grade CDS Index 79.05 +.73%
  

• Emerging Market CDS Index 214.86 +.35%
  

• iBoxx Offshore RMB China Corporate High Yield Index 166.27 +.04%

• 2-Year Swap Spread 3.0 +.25 basis point

• TED Spread 34.25 +.25 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -24.5 -.75 basis point

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 65.21 -.11%
• 3-Month T-Bill Yield 1.68% -2.0 basis points

• Yield Curve .09 -4.0 basis points

• China Iron Ore Spot 89.35 USD/Metric Tonne -.38%

• Citi US Economic Surprise Index 19.0 -1.9 points

• Citi Eurozone Economic Surprise Index -77.30 +.4 point

• Citi Emerging Markets Economic Surprise Index -11.0 -.2 point

• 10-Year TIPS Spread 1.48 -3.0 basis points
• 90.8% chance of Fed rate cut at Dec. 11th meeting, 95.6% chance of cut at Jan. 29th meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -177 open in Japan 
• China A50 Futures: Indicating -143 open in China

• DAX Futures: Indicating +5 open in Germany

Portfolio:

• Slightly Lower: On losses in my biotech/tech/retail/medical/industrial sector long

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

• Market Exposure: Moved to 25% Net Long