Bull Radar

Style Outperformer:

• Large-Cap Growth +.5%

Sector Outperformers:

• 1) Software +1.6% 2) REITs +1.4% 3) Airlines +1.3%

Stocks Rising on Unusual Volume:

• CASC, PGEM, SFLY, GEB, SAP, XRX, BOFI, ZLAB, MGPI, NVGS, KNX, PBI, EA, WNC, HPP, OMN, RCKT, GEK, INXN, BA, AMD, AAXJ, RHI, VMW, SLGN, MTOR, ASGN, OFG, ENR, REN, TTWO, NATI, AVY, WWD, IOVA, FCE/A, MKTX and CR

Stocks With Unusual Call Option Activity:

• 1) CHRW 2) VMW 3) EA 4) PBI 5) KLAC

Stocks With Most Positive News Mentions:

• 1) SFLY 2) AMD 3) NVGS 4) AVGO 5) RHI

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running +17.6% Above 100-Day Average
• 9 Sectors Rising, 1 Sector Declining
• 67.7% of Issues Advancing, 29.0% Declining
• 70 New 52-Week Highs, 42 New Lows
• 60.5% of Issues Above 200-day Moving Average
• Average 14-Day RSI 47.4%
• Vix 13.9 -5.8%
• Total Put/Call 1.06 +11.6%
• TRIN/Arms 1.14 -4.1%

Wednesday Watch

Evening Headlines

Bloomberg:

• Trump to Credit Tax Cuts for Bonuses to 3 Million Workers. President Donald Trump will promote the benefits of his tax cuts in his first State of the Union speech on Tuesday, claiming that 3 million American workers received bonuses from their employers after he signed the legislation last year. The White House has billed the prime-time address as part economic victory lap and part uplifting and bipartisan rallying cry.

• Japan Factory Output Surges in December on Strong Exports. Industrial production in Japan accelerated in December, pushing output to the highest level since the global financial crisis. The third straight month of rising factory output points to solid economic growth in the fourth quarter.

• Samsung Shares Surge After 50-1 Stock Split, Record Earnings. Samsung Electronics Co. is splitting its stock as a “step to enhance shareholder value,” after reporting record earnings on robust demand for memory chips and sales of high-end displays for the iPhone X.

• China Factory Gauge Weakened Amid Pollution, Leverage Campaigns. (video) China’s official factory gauge missed estimates as efforts to rein in debt and reduce pollution dragged on activity. The manufacturing purchasing managers index slipped to 51.3 in January, compared with a 51.6 forecast in a Bloomberg survey of economists and 51.6 the prior month, the National Bureau of Statistics said Wednesday. The non-manufacturing PMI rose to 55.3 from 55 in December. A new composite index covering both services and manufacturing was released for the first time; it stood at 54.6. Numbers above 50 indicate improving conditions while those below signal deterioration.

• U.K. Consumers and Businesses Start 2018 With Confidence Boost. U.K. consumers and businesses have started 2018 with cautious optimism. GfK’s household confidence index rose for the first time in four months in January, with improvements in how consumers view the economy, their personal finances and willingness to spend big. Expectations for an easing of inflation may be helping, though wage growth remains sluggish.

• Stocks Selloff Continues in Asia; Yields Steady. (video) Shares in Japan and Australia were down in early Wednesday trading, although stocks in Korea bucked the trend. The MSCI All-Country World Index suffered its biggest two-day slide since September 2016, as the Dow Jones Industrial Average tumbled more than 360 points on Tuesday. The 10-year Treasury yield held at 2.72 percent, near the highest since April 2014. Commodities retreated, led by crude and industrial metals. Japan’s Topix index sank 0.4 percent as of 9:25 a.m. in Tokyo. Australia’s S&P/ASX 200 Index slid 0.3 percent. South Korea’s Kospi index rose 0.2 percent. Futures on Hong Kong’s Hang Seng Index declined 0.8 percent. Futures on the S&P 500 Index were flat after the underlying gauge sank 1.1 percent Tuesday. 

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

• Blackstone(BX) to Buy Thomson Reuters Unit in $20 Billion Deal. A group led by Blackstone Group LP agreed to buy a majority stake in Thomson Reuters Corp.’s financial and risk unit in a deal that values the business at $20 billion, sealing plans for the firm’s biggest buyout in a decade. Canada Pension Plan Investment Board and Singapore’s sovereign wealth fund, GIC Pte, will co-invest alongside Blackstone to acquire 55 percent of the business, according to a statement Tuesday. Thomson Reuters will retain a 45 percent equity stake. The unit, which provides data, analytics and trading to Wall Street and financial professionals around the world, doesn’t include the news-gathering operation.

Wall Street Journal:

• Trump's State of the Union Address—Live Analysis.

• Fujifilm Nears Deal With Xerox. Xerox shareholders would own just under half of new company.

Fox News:

• Trump to proclaim ‘new American moment’ in State of the Union address. (video)

• FBI officials review surveillance memo, could not cite 'any factual inaccuracies': source. (video)

CNBC:

• Stocks making the biggest moves after hours: Advanced Micro Devices, Electronic Arts & more. (video)

• Top steel CEO says US 'desperately' needs new infrastructure to sustain economic boom.

• DoubleLine's Gundlach still betting on commodities.

• Former FBI Deputy Director Andrew McCabe's conduct in Hillary Clinton email investigation reportedly at center of internal DOJ probe.

• As Bon-Ton shutters stores, Kohl's(KSS) could reap the benefits.

Zero Hedge:

• Second "Trump Dossier" Emerges One Day After FISA Memo Vote.

• Second Person Of Interest Identified In Las Vegas Massacre.

• On Wall Street, Banker Bonuses Soar While Traders Reap Smaller Payouts.

• WTI/RBOB Drop After Surprise Crude Build. (graph)

• Bond Funds See Biggest Monthly Inflow Since October 2009 Amid Panic To "Buy Everything".

• China's Largest Conglomerate Is On The Verge Of Bankruptcy.

• DNC Unraveling: CEO Quits After 8 Months Amid Bailing Megadonors And Cash Panic.

• Markets In Turmoil: Bonds Bloodbath, Stocks Slammed, VIX Vertical. (graph)

Business Insider:

• Harley-Davidson(HOG) says it will launch an electric motorcycle in 2019.

TheStreet:

• 5 Worst-Case Scenarios That Could Cause the Price of Bitcoin to Crash. Bitcoin may not necessarily turn out to be Tulip Bubble 2.0, but its price could take a huge tumble if these things were to happen.

Macrobusiness: 

• Bitcoin crashes anew as Bitfinex, Tether probed.

Night Trading 

• Asian equity indices are -.50% to +.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 65.25 +1.75 basis point. 

• Asia Pacific Sovereign CDS Index 11.25 +.5 basis point.

• Bloomberg Emerging Markets Currency Index 76.02 +.05%.

• S&P 500 futures +.13%.

• NASDAQ 100 futures +.15%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (ANTM)/1.27

• (MT)/.77

• (ADP)/.90

• (BA)/2.88

• (DHI)/.64

• (LLY)/1.07

• (IR)/1.03

• (JCI)/.53

• (PBI)/.37

• (TUP)/1.50

• (AFL)/1.55

• (T)/.65

• (EBAY)/.59

• (FB)/1.96

• (LSTR)/1.02

• (MSFT)/.87

• (OSTK)/-.03

• (PYPL)/.52

• (QCOM)/.91

• (SYMC)/.44

• (TSCO)/.87

• (X)/.68

Economic Releases

8:15 am EST

• The ADP Employment Report for January is estimated to fall to 185K versus 250K in December.

8:30 am EST

• The Employment Cost Index for 4Q is estimated to rise +.6% versus a +.7% gain in 3Q.
  

9:45 am EST

• Chicago Purchasing Manager for January is estimated to fall to 64.0 versus 67.8 in December.
  

10:00 am EST

• Pending Home Sales MoM for December are estimated to rise +.5% versus a +.2% gain in November.

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory gain of +308,800 barrels versus a -1,071,000 barrel decline the prior week. Distillate inventories are estimated to fall by -230,500 barrels versus a +639,000 barrel gain the prior week. Gasoline supplies are estimated to rise by +1,877,400 barrels versus a +3,098,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to fall by -.62% versus a -2.1% decline prior.

2:00 pm EST

• The FOMC is expected to leave the benchmark Fed Funds Rate at 1.25%-1.5%.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The China Manufacturing PMI report, Eurozone CPI report, Australia CPI report, weekly MBA Mortgage Applications report and the Stifel Healthcare REIT conference could also impact trading today.

BOTTOM LINE:  Asian indices are mostly lower, weighed down by energy and consumer shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed.  The Portfolio is 75% net long heading into the day.

Stocks Lower into Final Hour on Profit-Taking, Fed Rate-Hike Worries, Oil Decline, Energy/Healthcare Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Lower
  

• Sector Performance: Almost Every Sector Declining
  

• Volume: Heavy

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 14.9 +7.4%

• Euro/Yen Carry Return Index 140.58 +.04%

• Emerging Markets Currency Volatility(VXY) 8.31 +.61%

• S&P 500 Implied Correlation 35.27 +6.5%

• ISE Sentiment Index 106.0 +16.5%
  

• Total Put/Call .94 +30.6%

• NYSE Arms 1.18 +70.2%

Credit Investor Angst:

• North American Investment Grade CDS Index 47.30 +2.24%
  

• America Energy Sector High-Yield CDS Index 303.0 +2.71%

• European Financial Sector CDS Index 42.63 +3.07%

• Italian/German 10Y Yld Spread 134.75 +1.5 basis points
  

• Asia Pacific Sovereign Debt CDS Index 11.20 +4.87%

• Emerging Market CDS Index 117.26 +1.01%
  

• iBoxx Offshore RMB China Corporate High Yield Index 146.61 +.06%

• 2-Year Swap Spread 19.25 -.25 basis point

• TED Spread 34.0 -1.75 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -30.50 -1.5 basis points

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 75.96 -.25%
• 3-Month T-Bill Yield 1.42% +2.0 basis points
  

• Yield Curve 60.0 +2.25 basis points

• China Iron Ore Spot 71.75 USD/Metric Tonne -.14%

• Citi US Economic Surprise Index 35.30 -.2 point

• Citi Eurozone Economic Surprise Index 43.70 -11.8 basis points

• Citi Emerging Markets Economic Surprise Index 3.3 +1.8 basis points

• 10-Year TIPS Spread 2.10 +1.0 basis point
  
• 88.8% chance of Fed rate hike at March 21 meeting, 89.3% chance at May 2 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -61 open in Japan 
• China A50 Futures: Indicating +15 open in China

• DAX Futures: Indicating +1 open in Germany

Portfolio: 

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

• Disclosed Trades: None

• Market Exposure: 75% Net Long

Today's Headlines

Bloomberg:

• French Economy Sustains Momentum, Has Best Year Since 2011. The French economy expanded for a fifth straight quarter, delivering its best full-year since 2011 as the election of President Emmanuel Macron combined with a global upturn to bolster confidence and investment. Gross domestic product rose 0.6 percent in the three months through December, in line with the median forecast of economists. Capital investment rose 1.1 percent, household spending increased 0.3 percent and net trade added to growth.

• PetroChina Says Profit May Triple Amid Cost Cuts, Higher Oil. 

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

• Start of 5% Pullback? VIX Curve Signals Stocks May Recover Soon.

Wall Street Journal:

• SEC Moves to Stop $600 Million Digital Coin Offering. Regulator obtains court order to seize cryptocurrencies held by AriseBank.

• Apple(AAPL) to Cut iPhone X Production in the Face of Weak Demand. Company will offer its first report on iPhone X sales when it reports earnings Thursday.

• Wynn Resorts(WYNN) Board Faces Scrutiny Following Allegations Against Steve Wynn. Executive compensation a major source of criticism in recent years; $330 million severance agreement. 

• ‘Do It for Amazon(AMZN),’ Say Atlanta Politicians When They Want Something Done. Prospect of online giant moving second headquarters to Atlanta colors fights over religion, immigration; ‘Amazon has really upped the ante’. 

• Value Meals Drive McDonald’s(MCD) Sales. Same-store sales rose 5.5% globally, 4.5% in the U.S.

• Hundreds of Russia’s Elite Put on a U.S. List, Irking Moscow. The 200 names include officials and businessmen, Treasury Department denies report is a sanctions list.

MarketWatch.com:

• Homeownership rate reaches three-year high as rebound from crisis gathers pace.

• How the stock market has reacted to State of the Union speeches.

Fox News:

• Surveillance memo vote triggers war of words on Capitol Hill. (video)

• North Korea increasing executions of top political officers amid sanctions strain, US general says. (video)

CNBC:

• Trump advisor Cohn: President to focus on $1.5 trillion infrastructure plan in State of the Union. (video)

• Clouds hang over 2018 Super Bowl bonanza.

• Treasury Secretary Mnuchin wants to keep cryptocurrencies away from 'bad guys'. Consumer confidence jumps as Americans expect 2017 momentum to continue. Consumer optimism pushed higher than anticipated in January, after a surprise decline the previous month. The Conference Board's measure of consumer confidence rose to 125.4 in January, higher than the 123.1 anticipated by economists polled by Reuters. The measure had declined to 122.1 in December.The key index rose to 129.5 in November, the highest mark since the index hit 132.6 in November 2000.'

• Exxon Mobil(XOM) will triple production in the Permian basin, the hottest US shale oil field, by 2025.

• Facebook(FB) is banning all ads promoting cryptocurrencies — including bitcoin and ICOs.

Zero Hedge:

• FBI Director Wray "Shocked To His Core" By FISA Memo, McCabe 'Removed' Next Day, More Heads To Roll: Report.

• Immigration, Russia, And Health-Care: Here's What To Expect From Tonight's State Of The Union.

• US Launches Probe Into Apple(AAPL) Slowing Older iPhones.

• Bitcoin Battered Below $10k After Bitfinex, Tether Subpoena'd. (graph)

• European Credit Markets Plunge To 6-Month Lows; Stocks Tank. (graph)

• US Home Prices Surge Most Since 2014. (graph)

• "This Isn't A Drill" Mortgage Rates Hit Highest Level Since May 2014. (graph)

•  Dan Och Stepping Down As Och-Ziff CEO, Replaced By Robert Shafir.

• Amazon(AMZN), Berkshire(BRK/A) And JPMorgan(JPM) To Form Healthcare Company "Free From Profit-Making Incentives".

AppleInsider:

• Kantar calls iPhone X pricing 'vindicated' as Apple(AAPL) sees marketshare grow across Europe, China, Australia & Japan.

TheStreet.com:

• Buy Apple(AAPL) Stock as It Nears Dreaded 10% Correction.