Stocks Rising into Final Hour on Economic Optimism, Tax Reform Hopes, Technical Buying, Tech/Biotech Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Higher
  

• Sector Performance: Most Sectors Rising
  

• Volume: Light

• Market Leading Stocks: Outperforming
  

Equity Investor Angst:

• Volatility(VIX) 11.08 -5.3%

• Euro/Yen Carry Return Index 136.85 -.15%

• Emerging Markets Currency Volatility(VXY) 7.53 +.67%

• S&P 500 Implied Correlation 33.55 +2.29%

• ISE Sentiment Index 108.0 +96.4%
  

• Total Put/Call .69 -10.39%

• NYSE Arms 1.03 -5.6%

Credit Investor Angst:

• North American Investment Grade CDS Index 59.30 -1.55%
  

• America Energy Sector High-Yield CDS Index 474.0 -.47%

• European Financial Sector CDS Index 54.90 -3.03%

• Western Europe Sovereign Debt CDS Index 5.76 -4.0%

• Asia Pacific Sovereign Debt CDS Index 18.33 -3.04%

• Emerging Market CDS Index 182.71 -1.69%
  

• iBoxx Offshore RMB China Corporate High Yield Index 141.08 -.02%

• 2-Year Swap Spread 21.0 +.5 basis point

• TED Spread 29.50 -.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -26.75 +1.25 basis points

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 74.38 -.17%
• 3-Month T-Bill Yield 1.01% +1.0 basis point
  

• Yield Curve 81.0 unch.

• China Import Iron Ore Spot $76.08/Metric Tonne -.37%

• Citi US Economic Surprise Index -21.20 +9.0 points

• Citi Eurozone Economic Surprise Index 29.80 +4.0 points

• Citi Emerging Markets Economic Surprise Index 18.60 -1.5 basis points

• 10-Year TIPS Spread 1.76 +1.0 basis point
  
• 15.6% chance of Fed rate hike at Nov. 1 meeting, 39.1% chance at Dec. 13 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +84 open in Japan 
• China A50 Futures: Indicating +6 open in China

• DAX Futures: Indicating +24 open in Germany

Portfolio: 

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

• Disclosed Trades: None

• Market Exposure: 100% Net Long

Bear Radar

Style Underperformer:

• Small-Cap Value +.2%

Sector Underperformers:

• 1) Hospitals -1.5% 2) Oil Service -1.4% 3) Gold & Silver -1.2%

Stocks Falling on Unusual Volume: 

• DY, JUNO, MDCO, SMCI, ADMS, SFL, HRB and FRAC

Stocks With Unusual Put Option Activity:

• 1) OTIC 2) HRB 3) GORO 4) ALSN 5) CTWS

Stocks With Most Negative News Mentions:

• 1) FRAN 2) CIEN 3) OLED 4) MNK 5) MAT

Charts:

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

Bull Radar

Style Outperformer:

• Mid-Cap Growth +1.0%

Sector Outperformers:

• 1) Biotech +2.5% 2) Semis +1.6% 3) Defense +1.6%

Stocks Rising on Unusual Volume:

• AVAV, WVE, MZOR, CAL, USG, VERI, USCR, RILY, GILD, ITCI, OLED, MTCH, ABEO, KEM, EXP, CBPX, TEDU, SUM, BOBE, EVBG, SNP, ADI, BLUE, IMKTA, MLM, USCR, KEM, LSTR and JILL

Stocks With Unusual Call Option Activity:

• 1) DY 2) GILD 3) WDAY 4) ADI 5) BIIB

Stocks With Most Positive News Mentions:

• 1) OLED 2) BMRN 3) LSTR 4) ADI 5) GILD

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running -8.4% Below 100-Day Average
• 7 Sectors Rising, 3 Sectors Declining
• 47.5% of Issues Advancing, 47.5% Declining
• 29 New 52-Week Highs, 37 New Lows
• 38.3% of Issues Above 200-day Moving Average
• Average 14-Day RSI 33.6%
• Vix 11.4 -3.0%
• Total Put/Call .55 -28.6%
• TRIN/Arms 1.22 +11.7%

Wednesday Watch

Evening Headlines

Bloomberg:

• China's $2 Trillion of Shadow Lending Throws Focus on Rust Belt. Regional banks in China’s rust-belt provinces are driving the rapid expansion of shadow banking in the country, fueling a web of informal lending that poses wider risks to the financial system, according to a study by UBS Group A. Smaller rust-belt banks like Bank of Tangshan Co. and Baoshang Bank have been using products such as trust beneficiary rights and directional asset-management plans to hide the true state of their bad loans and circumvent lending restrictions, the study by analyst Jason Bedford said. Others have been using the shadow loan instruments to diversify away from lending in their struggling home provinces, exposing themselves to a much wider spectrum of Chinese corporate risk in the event of a default, according to the report.

• Asian Stocks Set to Rebound After Korea Fears Ease. Equity index futures pointed to higher opens in Japan, South Korea and Australia after U.S. stocks rebounded from losses initially sparked when Kim Jong Un’s regime fired a missile over Japan. The yen rallied on Tuesday as safe havens advanced, only to more than give up those gains as investors speculated the event won’t escalate. Yields on benchmark 10-year Treasuries fell to the lowest this year and the dollar touched the weakest level since January 2015 before recovering. Gold reached a 2017 high. Gasoline advanced for a sixth day as Tropical Storm Harvey picked up strength again. Futures on the Nikkei 225 Stock Average were up as much as 0.5 percent at 7:02 a.m. Tokyo time, while those on the Kospi index rose about 0.3 percent. Contracts on Australia’s main gauge gained about 0.5 percent.

• One World Trade Center Reveals Yet More Risks for Steel Industry. New York’s One World Trade Center is emblematic of a struggle by steelmakers to boost demand from construction, an industry that buys almost half the output of the alloy. While the Twin Towers it replaced were erected around scores of steel columns, the Western Hemisphere’s tallest building is held up by a concrete core to help prevent the kind of devastating collapse that followed the terror attacks of Sept. 11, 2001.

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

Wall Street Journal:

• Texas Hit Hard by Tropical Storm Harvey: Live Coverage.

• Louisiana Braces for Harvey as Waters Keep Rising in Texas. Officials said already strained reservoirs would overflow for the first time ever.

• United Technologies(UTX) Nears Deal to Buy Rockwell Collins for More Than $20 Billion. The tie-up that would create one of the world’s biggest aircraft-equipment makers.

• Uber Faces Investigation of Possible Foreign-Bribery Law Violations. Justice Department opens preliminary probe into whether managers at ride-sharing firm breached Foreign Corrupt Practices Act.

• East Coast May Face Fuel Shortages After Storm Disrupts Major Pipeline. Colonial, the biggest fuel pipeline in the U.S., says its system is starting to have problems in Texas.

• Ivy League Profs vs. ‘The Tyranny of Public Opinion’. A few brave scholars urge students to think for themselves.

Fox News:

• Rain record broken in Texas as Harvey dumps nearly 52 inches.

• Houston police officer, part of Harvey response, confirmed dead.

CNBC:

• Target(TGT) is plotting a big move away from AWS as Amazon(AMZN) takes over retail.

• Micron(MU) to rally nearly 30% on rising demand for its memory chips: JPMorgan.

• After Harvey and North Korea, big economic and market gains are coming, Jim Paulsen says. (video)

• Amazon's(AMZN) price cuts at Whole Foods are 'more bark than bite,' says analyst.

Zero Hedge:

• Houston Warns Bridges And Roads Are "Starting To Fail".

• FBI Denies FOIA Request For Hillary Documents Due To "Lack Of Public Interest".

• North Korea Warns "More Drills" Coming, Says Launch Was "Prelude To Containing Guam".

• Emerging Market Debt: Dumb, Dumber, And Dumbest.

• Male, Female, Or 'Nonbinary': California Set To Be First State To Add "Gender X" Designation To Licenses.

• Hurricane Harvey Likely To Destroy More Cars Than Katrina: "This Is Bad; Real Bad".

• 25 Oil Tankers Stuck In Gulf, Unable To Offload Due To Harvey Port Closures.

• RBOB Stable at 2-Year Highs After Big Crude Draw, Surprise Gasoline Build.

• Giant Chemical Plant In Crosby, Texas Warns It Is In "Real Danger" Of Exploding.

• 'Traders' Panic-Buy Stocks, Shrug Off Nuclear Armaggedon, Debt Ceiling, & Biblical Flood Fears. (graph)

Night Trading 

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

• Asia Ex-Japan Investment Grade CDS Index 79.25 +.25 basis point. 

• Asia Pacific Sovereign CDS Index 19.0 +.75 basis point.

• Bloomberg Emerging Markets Currency Index 74.50 -.01%.

• S&P 500 futures +.07%.

• NASDAQ 100 futures +.14%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (ADI)/1.15

• (BOBE)/.37

• (CHS)/.21

• (VRA)/.10

• (CTRP)/.19

• (SCVL)/.20

• (WDAY)/.15

• (BOX)/-.13

• (BF/B)/.39

Economic Releases 
8:15 am EST

• The ADP Employment Change for August is estimated to rise to +185K versus +178K in July.

8:30 am EST

• 2Q GDP is estimated to rise +2.7% versus a prior estimate of a +2.6% gain.  

• 2Q Personal Consumption is estimated to rise +3.0% versus a prior estimate of a +2.8% gain.

• The 2Q GDP Price Index is estimated to rise +1.0% versus a prior estimate of a +1.0% gain.

• 2Q Core PCE is estimated to rise +.9% versus a prior estimate of a +.9% gain.

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory decline of -1,990,500 barrels versus a -3,327,000 barrel decline the prior week. Gasoline supplies are estimated to fall by -1,127,500 barrels versus a -1,223,000 barrel decline the prior week. Distillate inventories are estimated to fall by -185,880 barrels versus a +28,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to fall by -.7% versus a -.7% decline prior.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Eurozone CPI report, Eurozone Industrial Production report, US weekly MBA Mortgage Applications report, Morgan Stanley China TMT conference, (COST) Monthly Sales Release and the (ZUMZ) Monthly Sales Release could also impact trading today.

BOTTOM LINE:  Asian indices are higher, boosted by industrial 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 Reversing Higher into Final Hour on Diminishing Rate-Hike Fears, Yen Weakness, Short-Covering, Tech/Transport Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: About Even
  

• Sector Performance: Mixed
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 11.89 +5.04%

• Euro/Yen Carry Return Index 136.84 +.26%

• Emerging Markets Currency Volatility(VXY) 7.48 +4.19%

• S&P 500 Implied Correlation 36.22 +3.54%

• ISE Sentiment Index 48.0 -66.0%
  

• Total Put/Call .69 -24.18%

• NYSE Arms 1.01 -27.2%

Credit Investor Angst:

• North American Investment Grade CDS Index 60.19 +1.04%
  

• America Energy Sector High-Yield CDS Index 477.0 +.27%

• European Financial Sector CDS Index 56.62 +3.18%

• Western Europe Sovereign Debt CDS Index 6.0 +2.04%

• Asia Pacific Sovereign Debt CDS Index 18.21 +3.96%

• Emerging Market CDS Index 186.46 +.24%
  

• iBoxx Offshore RMB China Corporate High Yield Index 141.11 -.02%

• 2-Year Swap Spread 20.5 -1.25 basis points

• TED Spread 30.0 -.75 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -28.0 -1.25 basis points

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 74.52 +.03%

• 3-Month T-Bill Yield 1.0% -2.0 basis Points
  

• Yield Curve 81.0 -2.0 basis points

• China Import Iron Ore Spot $76.36/Metric Tonne -1.02%

• Citi US Economic Surprise Index -30.20 +.7 point

• Citi Eurozone Economic Surprise Index 25.80 -.1 point

• Citi Emerging Markets Economic Surprise Index 20.10 +.4 basis point

• 10-Year TIPS Spread 1.75 -1.0 basis point
  

• 15.6% chance of Fed rate hike at Nov. 1 meeting, 37.5% chance at Dec. 13 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +73 open in Japan 

• China A50 Futures: Indicating +11 open in China

• DAX Futures: Indicating +29 open in Germany

Portfolio: 

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

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

• Market Exposure: Moved to 100% Net Long