Bear Radar

Style Underperformer: 

• Small-Cap Value +.4%

Sector Underperformers: 

• 1) Oil Tankers -.8% 2) Alt Energy -.4% 3) Steel -.3%

Stocks Falling on Unusual Volume:

• NTRA, CAF, RRMS, ROVI, AVGR, TGP, IPAR, HRZN, NS, DQ, IFN, CVTI, AMTG, MED, SPH, GBX, NRZ, ARLP, SEMG, CQP, IEP, IPHS, GBT, SHO and APPF

Stocks With Unusual Put Option Activity: 

• 1) LQD 2) DHR 3) JNPR 4) KSS 5) GS

Stocks With Most Negative News Mentions: 

• 1) AVGR 2) VRX 3) DDD 4) KMI 5) OSIR

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Growth +.8%

Sector Outperformers: 

• 1) Biotech +1.5% 2) Internet +1.4% 3) Hospitals +1.4%

Stocks Rising on Unusual Volume: 

• FXCM, TGI and PBY

Stocks With Unusual Call Option Activity: 

• 1) HPQ 2) OCN 3) SYMC 4) ACI 5) TAP

Stocks With Most Positive News Mentions: 

• 1) MA 2) PBY 3) ATVI 4) AWK 5) ROVI

Charts: 

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

Morning Market Internals

NYSE Composite Index:

• Volume Running -37.7% Below 100-Day Average
• 0 Sectors Rising, 10 Sectors Declining
• 63.7% of Issues Advancing, 33.7% Declining
• 83 New 52-Week Highs, 24 New Lows
• 32.6% of Issues Above 200-day Moving Average
• Average 14-Day RSI 41.3%
• Vix 16.2 -4.5%
• Total Put/Call .80 -38.5%
• TRIN/Arms 1.90 +5.1%

Tuesday Watch

Evening Headlines
Bloomberg:

• China Bond Defaults Seen Rising as Borrowing Costs Climb in 2016. Chinese corporate defaults will likely spread next year as borrowing costs climb, financial companies surveyed by Bloomberg said. All 22 bond traders, analysts and others surveyed forecast China’s corporate default rate will rise in 2016, while over 70 percent expect the extra yield on corporate notes to increase. The premium on five-year AA rated company securities over government notes has risen to 175.9 basis points after plunging to an eight-year low of 169.2 basis points last month. More firms in China are struggling to repay debt amid the worst economic slowdown in a quarter century. The number of listed companies with more debt than equity has jumped to 913 from 705 in 2007, according to data compiled by Bloomberg. Three Chinese manufacturers said last week that they lack funds to repay bonds due this month. Earlier in December, pig iron producer Sichuan Shengda Group Ltd. became at least the seventh Chinese firm to renege on local debt obligations this year.   
• Is Rising Global Debt a Cause for Concern? (video)
• The Biggest Risks to Markets in 2016. (video)
• The World's Richest People Got Poorer This Year. The richest people on Earth became a bit poorer this year. The world’s 400 wealthiest individuals shed $19 billion in 2015, according to the Bloomberg Billionaires Index. Falling commodities prices and signs of a slower-growing China spooked investors around the world leading to the first annual decline for the daily wealth index since its 2012 debut. 
• Japan Steelmakers Fall as Inventories Rise Despite Output Cuts. Steelmakers led declines in Japan after an increase in stockpiles signaled a slower pace of a recovery as global peers struggle with overcapacity. JFE Holdings Inc., Japan’s second-biggest steel supplier, fell as much as 4 percent and traded 3.1 percent lower at 1,900 yen as of 11:24 a.m. in Tokyo. Tokyo Steel Manufacturing Co. dropped as much as 6.1 percent before paring its decline to 3.5 percent. The Iron and Steel Index fell the most among segments listed on Japan’s Topix.
• Emerging-Market Stocks Extend Losses on Persistent Oil Weakness. Emerging-market equities fell for a second day, extending the biggest annual decline in four years, as persistent weakness in commodities weighs on the global growth outlook. The MSCI Emerging-Markets Index dropped 0.2 percent, led by losses in technology and raw-material stocks, as deteriorating risk appetite boosted demand for healthcare and utilities.
• Asian Mining Stocks Fall With Metals as China Outlook Weighed. Asian materials shares dropped with industrial metals in London as concerns about demand from China’s slowing economy reasserted themselves. The dollar gained against all its G10 peers, while oil drifted lower after snapping its rally Monday.A gauge of mining shares dropped on the MSCI Asia Pacific Index, as BHP Billiton Ltd. and Rio Tinto Ltd. fell in Sydney. The MSCI Asia Pacific Index dropped 0.1 percent by 10:36 a.m. in Tokyo, with South Korea’s Kospi retreating 0.5 percent and Japan’s Topix index little changed. 
• Iran Adding to Global Oil Glut Dims Hopes for Recovery Next Year. Investors are losing faith in an oil-price recovery next year as Iran prepares to add more crude to a global glut. That’s good news for American drivers who have enjoyed the lowest gasoline prices in six years. Hedge funds reduced bets on rising prices to a three-month low and kept bearish wagers near a record high in the week ended Dec. 22, data from the U.S. Commodity Futures Trading Commission show. 
  

Wall Street Journal:

• Fed Poised to Look a Bit More Divided. New voters bring more-hawkish views to policy-setting committee. The Federal Reserve in 2016 could look more divided as policy makers assess the health of the U.S. economy and debate whether, when and how much further to raise short-term interest rates. The regular rotation of voting seats on the rate-setting Federal Open Market Committee will mean a more prominent role in the coming year for several officials who argued for the central bank to start raising rates well ahead of its Dec. 16 decision to do so. They replace officials who generally voted with the majority in 2015 and..
• Key Funding Source for Miners Is Depleted. Companies that provide the majority of ‘streaming’ financing are running low on capital. For struggling mining companies, an important source of financing is growing scarce. Contending with falling profits and hefty debt payments, mining firms such as Glencore PLC and Vale SA this year increasingly turned for cash to specialist lenders who pay large lump sums in exchange for metal deliveries.
• A Bold Few Traders Earn Billions Flouting Rivals. The investors that did the best in 2015 are those that defied conventional wisdom. Most Wall Street traders early this year predicted oil prices would rebound through 2015 and buoy the drillers and equipment providers with close ties to crude. But John Armitage believed more trouble was ahead.

Fox News:

• New Iran sanctions fight looms in 2016. (video) Despite President Obama’s nuclear deal with Iran that provides a gradual easing of decades of crippling economic sanctions, senators are fighting to renew a vital law that would preserve the sanctions option should Iran renege on its end of the bargain. The Hill reports that senators plan to move soon on a proposal to extend what’s known as the Iran Sanctions Act, which is set to expire next year. Sen. Ben Cardin, D-Md., top Democrat on the Foreign Relations Committee, told the newspaper his colleagues have floated the possibility of tackling the issue in January or February.

MarketWatch.com:

• Fed gradualism sets us up for another financial crisis.

CNBC:

• Database of 191M US voters exposed on Internet: Researcher. An independent computer security researcher uncovered a database of information on 191 million voters that is exposed on the open Internet due to an incorrectly configured database, he said on Monday.

Zero Hedge:

• Offshore Yuan Tumbles As China Devalues Fix To Weakest Since June 2011. (graph)
• 2015 - The Year Of FX Reserve Rundowns (Or Playing The "Fool's Game"). (graph)
• The Fed's Rate Hike Trickles Down: JPM To Hike Deposit Rates... For Its Wealthiest Clients. (video)
• "It Really Brings It All Out": Seized Documents Detail Depth Of ISIS Bureaucracy.
• ISIS Flees Ramadi, This Is What They Left Behind: Photo Album "From The Devil's Grasp". (pic)
• The Death Of Decoupling. (graph)
• Furious Coal Baron Lashes Out: "Obama Is The Greatest Enemy I've Ever Had. It's Beyond Personal".
• Howard Marks Warns "Investor Behavior Has Entered A Zone Of Imprudence".
• China Crash Sparks Holiday Hangover In Stocks & Commodities, Curve Flattens To 9-Month Lows. (graph)

Business Insider:

• Here is what could go wrong on Wall Street in 2016.
• America's 'children in the basement' won't be moving out any time soon.

Reuters:

• Carl Icahn raises offer for Pep Boys(PBY) to $18.50 per share.

Telegraph:

• Saudi riyal in danger as oil war escalates. “If anything happens to the riyal exchange peg, the consequences will be dramatic," warns the country's exchange rate guru.

Evening Recommendations 

• None of note

Night Trading 

• Asian equity indices are -.25% to +.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 138.25 unch.
• Asia Pacific Sovereign CDS Index 72.0 -.75 basis point.
• Bloomberg Emerging Markets Currency Index 69.66 -.02%.
• S&P 500 futures +.10%.
• NASDAQ 100 futures +.10%.

Morning Preview Links 

Earnings of Note 
Company/Estimate

• None of note

Economic Releases
8:30 am EST

• Advance Goods Trade Deficit for November is estimated at -$60.87B versus -$58.41B in October.  

9:00 am EST

• The S&P/CS 20 City MoM SA for October is estimated to rise +.6% versus a +.61% in September. 

10:00 am EST

• Consumer Confidence for December is estimated to rise to 93.8 versus 90.4 in November. 

Upcoming Splits

• None of note

Other Potential Market Movers

• The weekly US retail sales reports and the $26B 2Y T-Note auction could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by commodity and industrial shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.

Stocks Lower into Final Hour on China Bubble-Bursting Fears, Rising Emerging Markets/US High-Yield Debt Angst, Oil Decline, Commodity/Biotech Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Lower
  

• Sector Performance: Almost Every Sector Declining
  

• Volume: Light

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• Volatility(VIX) 17.16 +8.96%

• Euro/Yen Carry Return Index 138.03 +.01%

• Emerging Markets Currency Volatility(VXY) 11.25 -.44%

• S&P 500 Implied Correlation 58.29 -1.07%

• ISE Sentiment Index 83.0 -31.97%

• Total Put/Call 1.34 unch.

• NYSE Arms 1.77 -2.41% 

Credit Investor Angst:

• North American Investment Grade CDS Index 91.43 +1.16%

• America Energy Sector High-Yield CDS Index 1,690.0 +2.09%

• European Financial Sector CDS Index 72.06 -.72%

• Western Europe Sovereign Debt CDS Index 17.21 -.52%

• Asia Pacific Sovereign Debt CDS Index 72.09 -.75%

• Emerging Market CDS Index 357.89 +1.80%
  

• iBoxx Offshore RMB China Corporate High Yield Index 123.77 +.03%

• 2-Year Swap Spread 12.25 unch.

• TED Spread 40.5 +.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -25.5 +.25 basis point

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 69.68 -.01%
• 3-Month T-Bill Yield .20% +1.0 basis point

• Yield Curve 121.0 -4.0 basis points

• China Import Iron Ore Spot $41.30/Metric Tonne +.73%

• Citi US Economic Surprise Index -31.2 +1.0 point

• Citi Eurozone Economic Surprise Index 13.9 -2.0 points

• Citi Emerging Markets Economic Surprise Index 15.90 -2.0 points

• 10-Year TIPS Spread 1.53% -1.0 basis point
• 56.7% chance of next Fed rate hike at April 27 meeting, 74.2% chance at June 15 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -28 open in Japan 
• China A50 Futures: Indicating -63 open in China

• DAX Futures: Indicating +38 open in Germany

Portfolio: 

• Slightly Lower: On losses in my retail/biotech sector longs

• Disclosed Trades: None

• Market Exposure: 50% Net Long

Bear Radar

Style Underperformer: 

• Small-Cap Growth -.9%

Sector Underperformers: 

• 1) Coal -9.0% 2) Gold & Silver -4.4% 3) Oil Service -3.4%

Stocks Falling on Unusual Volume:

• GLP, ADMS, GSM, KMF, CEN, FEI, FIF, CEM, MGPI, QURE, CQP, GBX, JMF, RWLK, TYG, NHTC, AMOT, SXL, CFMS, CHD, AAXJ, NVGS, RRMS, KYN and APU

Stocks With Unusual Put Option Activity: 

• 1) PII 2) XRT 3) EWT 4) LRCX 5) TSO

Stocks With Most Negative News Mentions: 

• 1) VALE 2) CVX 3) PBR 4) FCX 5) CMRX

Charts:

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