Stocks Slightly Lower into Final Hour on Profit-Taking, Oil Decline, Sector Rotation, Tech/Alt Energy Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Around Even
  

• Sector Performance: Mixed
  

• Volume: Heavy

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 10.61 +5.78%

• Euro/Yen Carry Return Index 138.27 +.50%

• Emerging Markets Currency Volatility(VXY) 7.92 +1.15%

• S&P 500 Implied Correlation 16.28 n/a

• ISE Sentiment Index 79.0 -34.17%
  

• Total Put/Call .68 +1.49%

• NYSE Arms .54 -9.45%

Credit Investor Angst:

• North American Investment Grade CDS Index 52.72 +.16%
  

• America Energy Sector High-Yield CDS Index 384.0 +.44%

• European Financial Sector CDS Index 46.43 -1.87%

• Western Europe Sovereign Debt CDS Index 3.51 -4.1%

• Asia Pacific Sovereign Debt CDS Index 13.95 +1.53%

• Emerging Market CDS Index 182.05 +1.4%
  

• iBoxx Offshore RMB China Corporate High Yield Index 145.59 +.03%

• 2-Year Swap Spread 17.75 +.5 basis point

• TED Spread 19.25 +.25 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -48.5 +2.0 basis points

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 73.31 -.05%
• 3-Month T-Bill Yield 1.28% +1.0 basis point
  

• Yield Curve 61.5 +3.5 basis points

• China Import Iron Ore Spot $67.92/Metric Tonne +.24%

• Citi US Economic Surprise Index 58.90 +.8 point

• Citi Eurozone Economic Surprise Index 81.90 -4.4 basis points

• Citi Emerging Markets Economic Surprise Index 9.60 -1.1 points

• 10-Year TIPS Spread 1.87 +1.0 basis point
  
• 100.0% chance of Fed rate hike at Jan. 31 meeting, 100.0% chance at March 21 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +48 open in Japan 
• China A50 Futures: Indicating -47 open in China

• DAX Futures: Indicating -2 open in Germany

Portfolio: 

• Slightly Lower: On losses in my tech sector longs

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

• Market Exposure: Moved to 75% Net Long

Bear Radar

Style Underperformer:

• Large-Cap Growth -.7%

Sector Underperformers:

• 1) Semis -3.8% 2) Social Media -2.9% 3) Disk Drives -2.3%

Stocks Falling on Unusual Volume: 

• ADSK, SQ, DAIO, LRCX, ESIO, XNET, HTHT, PYPL, VMW, NVDA, ICHR, IPGP, CGNX, LITE, SMTC, CY, KLAC, AMAT, MU, EXTR, UCTT and VERI

Stocks With Unusual Put Option Activity:

• 1) USB 2) RAD 3) HAIN 4) WDAY 5) DUST

Stocks With Most Negative News Mentions:

• 1) ADSK 2) WAIR 3) CREE 4) FNSR 5) TWTR

Charts:

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

Bull Radar

Style Outperformer:

• Small-Cap Value +.9%

Sector Outperformers:

• 1) Retail +2.9% 2) Airlines +2.7% 3) Road & Rail +2.6%

Stocks Rising on Unusual Volume:

• RGC, NUAN, BY, OOMA, IBTX, THR, DERM, CADE, CSBK, M, JNPR, IBCP, HESM, OMC, JWN, TGT, CACC, NSC, FTRPR, SFBS, PNFP, RYAAY, MGLN, CPLA, ATKR, DDS, SHOO, BBBY, SLM, HOME, TLRD, RGC, DKS, CUBI, ROST, SCMP, OMC, BBT, CMA, TCBI, CMG, EW and BOFI

Stocks With Unusual Call Option Activity:

• 1) JBLU 2) XRT 3) XLF 4) TIF 5) MS

Stocks With Most Positive News Mentions:

• 1) DPZ 2) SHOO 3) NUAN 4) UNH 5) WMT

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running +40.2% Above 100-Day Average
• 8 Sectors Rising, 2 Sectors Declining
• 46.8% of Issues Advancing, 50.4% Declining
• 267 New 52-Week Highs, 42 New Lows
• 61.3% of Issues Above 200-day Moving Average
• Average 14-Day RSI 51.3%
• Vix 10.6 +6.0%
• Total Put/Call .68 +1.49%
• TRIN/Arms .64 +5.6%

Wednesday Watch

Evening Headlines

Bloomberg:

• Tax Plan Gains Steam After Trump ‘Lovefest’ With GOP Senators. (video) The outlook for Republicans to deliver a U.S. tax overhaul by the end of the year brightened Tuesday after President Donald Trump addressed GOP Senate holdouts in a closed-door, lunchtime session. The GOP meeting was “somewhat of a lovefest,” Trump said later Tuesday, as he prepared to meet with Majority Leader Mitch McConnell and House Speaker Paul Ryan at the White House. “They want to see it happen.” 

• Japan Retail Sales Disappoint After Weak 3Q Consumption.

• Asia Stocks Track U.S. Gains, Shrug Off Missile. (video) Asian stocks climbed, following a surge in U.S. equities, and as a well-worn path of North Korean missile tests did little to dent investors’ optimism in the strength of global earnings and economic growth. The dollar maintained gains as U.S. tax cuts inched close to reality. Shares rose in Tokyo, Hong Kong, China and Sydney after the S&P 500 Index jumped 1 percent as the Senate budget committee advanced the Republican tax bill, also buoying the greenback. U.S. lenders advanced as Federal Reserve chair nominee Jerome Powell signaled a lighter touch on financial regulations. Stocks in Seoul were steady as markets demonstrated a familiar response to the latest intercontinental ballistic missile launchfrom North Korea, showing little sign of concern. The Topix index gained 0.7 percent as of 10:34 a.m. in Tokyo and the Nikkei 225 Stock Average rose 0.5 percent. Hong Kong’s Hang Seng Index rose 0.4 percent and the Shanghai Composite Index was up 0.3 percent. Australia’s S&P/ASX 200 Index rose 0.7 percent. The Kospi index was little changed.

• Five Things You Need to Know to Start Your Day. (video)

• Goldman(GS) Sees Iron Ore Sinking Back to $50. Iron ore will weaken next year as global supplies increase including from a new mine in Brazil at the same time that steel production risks topping out in China, according to Goldman Sachs Group Inc., which expects prices to decline back toward $50 a metric ton. The raw material may fall to $60 a ton in three months, $55 in six and $50 in 12, according to the New York-based bank’s projections, which suggest a second year of lower prices after they dropped in 2017. Benchmark ore with 62 percent content was last at $67.76 a dry ton, according to Metal Bulletin Ltd.

• Million-Barrel Oil Hedging Surge Signals Shale Boom Here to Stay. (video) Oil explorers took advantage of a market rally to lock in prices for almost 1 million barrels a day’s worth of future output, signaling the shale boom’s staying power as OPEC ponders the extension of its supply curbs. New hedging contracts in the third quarter covered 897,000 barrels a day of annualized production, a 147 percent increase over the second quarter, according to an analysis of 33 companies released Tuesday by industry researcher Wood MacKenzie Ltd. It was the biggest jump in crude hedging volumes since Wood Mackenzie began tracking such activity two years ago.

• Bitcoin Blasts to Record $10,000 as Bubble Warnings Multiply. (video)

• Hackers Now Have Incredibly Sophisticated Ways to Breach Banks' Defenses.

• Why Battery Cost Could Put the Brakes on Electric Car Sales. (video)

Wall Street Journal: 

• Senate Tax Revamp Gains Traction. Budget Committee votes 12-11 to advance measure to the floor.

• A Trigger Warning on Taxes. An automatic tax increase in year six if revenues don’t arrive.

• Powell Suggests Fed Is Likely to Raise Rates in December. At Senate hearing, the Fed chairman nominee signals he will stick to Janet Yellen’s course and says Wall Street regulations are tough enough.

• Strange Bedfellows: Democrats and Trump Blow Up 20-Year Unity on Trade. In fight to overturn Nafta, White House makes common cause with Ohio Sen. Sherrod Brown, a longtime free-trade skeptic.

MarketWatch.com:

• 4 reasons the global bull market in stocks can persist for years.

Fox News:

• Trump shames Pelosi, Schumer with empty seats at meeting they boycotted. (video)

CNBC:

• Stock rally signals possible melt-up into year-end and beyond. 

• Republicans won't make themselves look 'small' by sinking tax bill: Norquist. (video)

• Chinese stocks are beginning to show 'cracks.' Here's what it means. (video)

• Democrats could come up losers in government shutdown fight.

• GOP tax plan can help boost economy already growing above trend: Goldman chief economist. (video)

• Facebook(FB) and Alphabet(GOOGL) hit record highs as investors shrug off inappropriate content and ads.

• Home Depot(HD) shares hit all-time high as housing momentum swells, company advances mobile initiatives.

• Amazon's(AMZN) Prime customers are spending more this holiday season, as retailers scramble to keep up online.

Zero Hedge: 

• "It Can Reach Washington, DC": Latest North Korean ICBM Can Hit Anywhere In The Continental US.

• "The Cover-Up Begins To End": Judicial Watch Hints At Explosive New Clinton-Lynch Tarmac Docs.

• Suffolk County DA Used $3.3 Million In Asset Forfeitures To Fund Massive Public Employee "Bonuses".

• There Have Been 698 Earthquakes In California Within The Past 30 Days.

• Flynn Used White House Position To Lobby For Mid-East Nuclear Reactors: WSJ.

• Trump Wins: Judge Denies Obama Holdover's Suit Against Mulvaney Running CFPB.

• WTI Sinks After Surprise Crude Build. (graph)

• North Korea Fires Intercontinental Ballistic Missile; Lands Inside Japan's Economic Zone.

• Stocks Hit Record Highs As Tax Hype Trumps Nuclear Doomsday Fears. (graph)

Night Trading 

• Asian equity indices are -.25% to +.5% on average.

• Asia Ex-Japan Investment Grade CDS Index 72.75 -1.75 basis points. 

• Asia Pacific Sovereign CDS Index 13.75 -.5 basis point.

• Bloomberg Emerging Markets Currency Index 73.32 -.03%.

• S&P 500 futures -.07%.

• NASDAQ 100 futures -.05%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (TIF)/.76

• (JACK)/.89

• (LZB)/.45

• (PVH)/2.91

• (RMAX)/.51

• (SMTC)/.50

• (SNPS)/.57

• (WDAY)/.14

Economic Releases 

8:30 am EST

• 3Q GDP QoQ is estimated to rise +32% versus a prior estimate of a +3.0% gain. 

• 3Q Personal Consumption is estimated to rise +2.5% versus a prior estimate of a +2.4% gain.

• 3Q GDP Price Index is estimated to rise +2.2% versus a prior estimate of a +2.2% gain.

• Core PCE QoQ is estimated to rise +1.3% versus a prior estimate of a +1.3% gain.

10:00 am EST

• Pending Home Sales MoM for October are estimated to rise +1.1% versus unch. in September.
  

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory decline of -2,640,140 barrels versus a -1,855,000 barrel decline the prior week. Gasoline supplies are estimated to rise by +1,076,430 barrels versus a +44,000 barrel gain the prior week. Distillate inventories are estimated to rise by +311,140 barrels versus a +269,000 barrel gain the prior week. Refinery Utilization is estimated to rise by +.6% versus a +.3% gain prior.

2:00 pm EST

• US Fed Beige Book report.
  

Upcoming Splits

• (CGNX) 2-for-1

Other Potential Market Movers

• The Senate vote on motion to proceed with tax reform debate, Fed's Yellen speaking, Eurozone Industrial Production report, Eurozone CPI report, weekly MBA Mortgage Applications report, (COST) Nov. sales results and the BofA Merrill Leveraged Finance Conference could also impact trading today.

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