Wednesday, February 05, 2014

Bull Radar

Style Outperformer:
  • Large-Cap Value -.44%
Sector Outperformers:
  • 1) Steel +.57% 2) Medical Equipment +.43% 3) Tobacco +.15%
Stocks Rising on Unusual Volume:
  • OHRP, DATA, TVIX, MYGN, OMER, ORMP, LVLT, OMCL and CVD
Stocks With Unusual Call Option Activity:
  • 1) DATA 2) BWLD 3) HUM 4) BEAM 5) FNSR
Stocks With Most Positive News Mentions:
  • 1) GOOG 2) RL 3) LUV 4) TSLA 5) MRK
Charts:

Wednesday Watch

Evening Headlines 
Bloomberg:
  • China Savers’ Penchant for Property Magnifies Bust Danger. Chinese households’ concentration of wealth in real estate is magnifying the danger to the world’s second-largest economy of any property bust, as the nation grapples with the consequences of its record credit surge. Some 66.1 percent of family assets were in housing in 2013, a national survey of about 28,000 households shows. Mortgage debt as a share of disposable income rose to 30 percent from 18 percent in 2008, according to estimates by Nicholas Lardy at the Peterson Institute for International Economics in Washington. The buildup raises the stakes for any slide in property prices amid China’s efforts to head off defaults by local governments and developers that propelled a run-up in borrowing that now amounts to more than double the size of the economy, according to Goldman Sachs Group Inc. A hit to household wealth could impair consumer spending, rebuffing policy maker efforts to rebalance the economy toward domestic demand. 
  • Pimco’s Bill Gross Says He Avoids China ‘Mystery Meat'. Bill Gross, who oversees the world’s biggest bond fund at Pacific Investment Management Co., said the pace of economic growth in China is among the biggest questions in developing nations and the largest risks for markets. “I call China the mystery meat of emerging-market countries,” Gross said yesterday during an interview on Bloomberg Television’s “Market Makers” with Erik Schatzker and Stephanie Ruhle. “Nobody knows what’s there and there’s a little bit of bologna, so we’re just going to have to wonder going forward through this year as to the potential problems in China and other emerging markets.”
  • Deadly New Bird Flu Strain Spawned by Virus Behind H5N1. The new bird flu that’s infected two people in China, killing one, was spawned by the same pathogen that produced two other deadly flu strains, a study found. The new H10N8 strain, which hasn’t previously been reported in humans, contains six out of eight genes from the H9N2 virus that also provided the genetic foundation for the H5N1 virus that’s killed 386 people since 2003, and the H7N9 strain that led to at least 70 fatalities, Chinese researchers wrote in The Lancet medical journal today. 
  • Japan Real Wages Fall to Global Recession Low in Spending Risk. Japan’s base wages adjusted for inflation last year matched a record low in 2009 when the world was gripped by recession, posing a risk to consumer spending as the nation girds for a higher sales tax. Pay excluding bonuses and overtime payments dropped to 98.9 in 2013 on a labor ministry index that takes price changes into account, equaling the level four years earlier. The gauge is based at 100 in 2010 in data dating back to at least 2002.
  • Chinese Shares Decline to Six-Month Low in Hong Kong. The Hang Seng China (HSCEI) Enterprises Index dropped to a six-month low as financial companies and energy producers retreated. Ping An Insurance Group Co. slid 1.4 percent, while Huaneng Power International Inc. slumped 2.9 percent. Cheung Kong Holdings Ltd., the Hong Kong developer controlled by billionaire Li Ka-shing, fell 1.5 percent, heading for its lowest close since September. Anhui Conch Cement Co. gained 2.1 percent after Credit Suisse Group AG named the stock as one of its top picks. The Hang Seng China gauge of mainland companies, known as the H-share index, lost 0.3 percent to 9,482.01 at the midday break in Hong Kong, heading for its lowest close since Aug. 7.
  • Asian Stocks Follow U.S. Rebound as Earnings Boost Japan. Asian stocks rose, with the regional benchmark index rebounding from its biggest slump since June, after U.S. shares rebounded and Japanese companies posted earnings that cheered investors. Toyota Motor Corp., the world’s largest carmaker, jumped 6.2 percent in Tokyo after forecasting a record profit. Panasonic Corp. surged 21 percent, heading for its largest gain in almost 40 years of trading, after Japan’s biggest consumer-electronics maker posted third-quarter profit that beat analyst estimates. Hyundai Development Co-Engineering & Construction gained 5.7 percent in Seoul after the homebuilder’s rating was raised at KTB Securities Co. The MSCI Asia Pacific Index climbed 0.8 percent to 131.25 as of 11:03 a.m. in Tokyo, after plunging the most since June 20 yesterday.
  • Rubber in Tokyo Trades Near 17-Month Low Amid China Holidays. Rubber in Tokyo traded near the lowest level in 17 months as demand from biggest-user China remains subdued during holidays, while output in major producing nations is poised to decline. The contract for delivery in July rose and fell by at least 1.2 percent before trading at 220.6 yen a kilogram ($2,177 a metric ton) by 11:48 a.m. local time on the Tokyo Commodity Exchange. Futures earlier touched 217.8 yen, the lowest intraday level for a most-active contract since Sept. 5, 2012. The commodity entered a bear market last week and has lost 20 percent this year.
  • Fed Presidents Say Stock Decline Unlikely to Derail QE Taper. Two Federal Reserve district bank presidents signaled a decline in global stock markets probably won’t deter the Fed from further trimming bond buying that has pushed up central bank assets to $4.1 trillion. “The hurdle ought to remain pretty high for pausing in tapering,” Richmond Fed President Jeffrey Lacker said after a speech today in Winchester, Virginia. Chicago’s Charles Evans said in Detroit that policy makers probably face “a high hurdle to deviate” from $10 billion cuts in monthly bond buying at each of their next several meetings
Wall Street Journal:
  • Assault on California Power Station Raises Alarm on Potential for Terrorism. April Sniper Attack Knocked Out Substation, Raises Concern for Country's Power Grid.
    The attack began just before 1 a.m. on April 16 last year, when someone slipped into an underground vault not far from a busy freeway and cut telephone cables. Within half an hour, snipers opened fire on a nearby electrical substation. Shooting for 19 minutes, they surgically knocked out 17 giant transformers that funnel power to Silicon Valley. A minute before a police car arrived, the shooters disappeared into the night. To avoid a blackout, electric-grid officials rerouted power around the site and asked power plants in Silicon Valley to produce more electricity. But it took utility workers 27 days to make repairs and bring the substation back to life. Nobody has been arrested or charged in the attack at PG&E Corp.'s Metcalf transmission substation. It is an incident of which few Americans are aware. But one former federal regulator is calling it a terrorist act that, if it were widely replicated across the country, could take down the U.S. electric grid and black out much of the country.
  • Steel Scrapyards in U.S. Feel Effects of Turkey's Tarnished Economy. The reach of Turkey's economic turmoil stretches to a sprawling scrapyard in this blue-collar town and to veteran metals trader Ken Puckett. Turkey is the world's largest consumer of scrap steel, meaning strong demand from the country is essential to keeping prices firm for the $20 billion U.S. industry. But with the Turkish economy in crisis, demand is drying up. The country's imports of scrap from the U.S., Turkey's top supplier, fell 18% to 4.9 million tons in the first 11 months of last year. That means that scrap that had been destined to be used in Turkish steel mills remains in the U.S. looking for buyers.
  • The Jobless Care Act. Congress's budget office says ObamaCare will increase unemployment. There are 7.8 million Americans working part-time who want full-time work, including a fry cook whose restaurant cut his hours to avoid Affordable Care Act mandates and confronted President Obama in an online Google Q&A last week: "We can't survive. It's not a living." Mr. Obama changed the subject to raising the minimum wage. But he can't dodge reality forever as the evidence piles up that ObamaCare is harming the labor market.
Fox News:
  • S&P Cuts Puerto Rico Debt to Junk. Standard & Poor’s on Tuesday cut Puerto Rico’s credit rating to junk status, citing the Caribbean island’s inability to borrow money to cover looming budget deficits. All of Puerto Rico’s general obligation debt was cut one level to BB+, the high level of junk status debt. S&P said all of its ratings on Puerto Rico remain on watch for additional downgrades.
CNBC:
Zero Hedge:
Business Insider:
Forbes:
The Federalist:
Reuters:
Telegraph:
Evening Recommendations
  • None of note
Night Trading
  • Asian equity indices are -.75% to +.75% on average.
  • Asia Ex-Japan Investment Grade CDS Index 151.0 -6.0 basis points.
  • Asia Pacific Sovereign CDS Index 116.75 -2.5 basis points.
  • FTSE-100 futures -.38%.
  • S&P 500 futures -.22%.
  • NASDAQ 100 futures -.20%.
Morning Preview Links

Earnings of Note

Company/Estimate
  • (MDC)/.60
  • (STE)/.69
  • (COCO)/.02
  • (HUM))/.92
  • (TWX)/1.15
  • (NDAQ)/.67
  • (MRK)/.89
  • (EL)/1.06
  • (ADP)/.77
  • (RL)/2.51
  • (AGN)/1.34
  • (GMCR)/.90
  • (ALL)/1.37
  • (DIS)/.91
  • (IACI)/.91
  • (AKAM)/.51
  • (YELP)/-.02
  • (SPF)/.14
  • (PRU)/2.23
  • (TSO)/.31
  • (TWTR)/-.02
Economic Releases
8:15 am EST
  • The ADP Employment Change for January is estimated to fall to 185K versus 238K in December.
10:00 am EST
  • ISM Non-Manufacturing for January is estimated to rise to 53.7 versus 53.0 in December.
10:30 am EST
  • Bloomberg consensus estimates call for a weekly crude oil inventory build of +2,270,000 barrels versus a +6,421,000 barrel gain the prior week. Gasoline supplies are estimated to rise by +920,000 barrels versus a -819,000 barrel decline the prior week. Distillate inventories are estimated to fall by -2,120,000 barrels versus a -4,584,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to fall by -.29% versus a +1.7% gain the prior week.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Fed's Plosser speaking, Fed's Lockhart speaking, Eurozone Services PMI, Australian Trade Balance report, weekly MBA mortgage applications report and the Cowen Aerospace/Defense Conference could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted by technology and consumer shares in the region. I expect US stocks to open mixsed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the day.

Tuesday, February 04, 2014

Stocks Rebounding into Final Hour on Less Emerging Markets Debt Angst, Short-Covering, Yen Weakness, Financial/Biotech Sector Strength

Broad Equity Market Tone:
  • Advance/Decline Line: Higher
  • Sector Performance: Most Sectors Rising
  • Volume: Slightly Below Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • Volatility(VIX) 18.22 -12.22%
  • Euro/Yen Carry Return Index 143.21 +.53%
  • Emerging Markets Currency Volatility(VXY) 9.87 -4.27%
  • S&P 500 Implied Correlation 60.33 -2.99%
  • ISE Sentiment Index 147.0 +50.0%
  • Total Put/Call 1.05 +31.25%
  • NYSE Arms .77 -76.45% 
Credit Investor Angst:
  • North American Investment Grade CDS Index 72.71 -2.45%
  • European Financial Sector CDS Index 101.20 -2.25%
  • Western Europe Sovereign Debt CDS Index 55.68 +1.24%
  • Asia Pacific Sovereign Debt CDS Index 115.71 -3.06%
  • Emerging Market CDS Index 332.06 -4.12%
  • 2-Year Swap Spread 13.25 unch.
  • TED Spread 18.50 -3.0 basis points
  • 3-Month EUR/USD Cross-Currency Basis Swap -6.0 +.75 basis point
Economic Gauges:
  • 3-Month T-Bill Yield .05% +3.0 basis points
  • Yield Curve 231.0 +3.0 basis points
  • China Import Iron Ore Spot $122.60/Metric Tonne unch.
  • Citi US Economic Surprise Index 31.10 -1.5 points
  • Citi Emerging Markets Economic Surprise Index 11.0 -2.0 points
  • 10-Year TIPS Spread 2.12 -1.0 basis point
Overseas Futures:
  • Nikkei Futures: Indicating +329 open in Japan
  • DAX Futures: Indicating +19 open in Germany
Portfolio: 
  • Slightly Lower: On losses in my index hedges and emerging markets shorts
  • Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges
  • Market Exposure: Moved to 50% Net Long

Today's Headlines

Bloomberg:
  • Brazil December Industrial Output Drops Below Every Estimate. Brazil’s industrial production in December fell by the most in five years, surprising analysts, as the central bank continues to boost interest rates in the world’s second-biggest emerging market. Swap rates fell. Industrial output dropped 3.5 percent from the previous month after declining a revised 0.3 percent in November, the national statistics agency said today in Rio de Janeiro. That was the biggest fall since December 2008, and steeper than predicted by all 37 economists surveyed by Bloomberg, whose median estimate was for a 1.7 percent decline
  • Pimco Sees Delay in Emerging Markets Recovery on Interest Rates. A recovery in emerging-market growth will be pushed back amid rising interest rates and declines in developing-nations currencies, according to Pacific Investment Management Co. “There is a real possibility that this vicious cycle of rate adjustments in EM coupled with currency weakness will further postpone EM growth recovery,” Masha Gordon, who oversees more than $2.5 billion in assets as London-based head of emerging-market equities at Pimco, said by e-mail today.
  • Emerging-Market Stocks Extend Worst Start Ever on Economy. Emerging-market stocks fell, extending the worst start to a year on record, on concern the global economic recovery will wane. Lenovo Group Ltd. (992) drove a selloff in technology companies after five analysts downgrades. The MSCI Emerging Markets Index dropped 0.8 percent to 919.59 at 12:45 p.m. in New York, the lowest in five months. The decline brought this year’s slump to 8.3 percent, the most in the same period since at least 1988.
  • Japanese Banks’ Record Earnings Mask Profit-Growth ProspectsJapan’s biggest banks, poised to achieve record annual earnings after last year’s stock-market surge, may still disappoint investors as the equity rally fades, leaving them reliant on a lending recovery for profit
  • Real Yields at Two-Year High Offer Little Comfort: Turkey Credit. Turkish bond yields near the highest in two years once inflation is accounted for are proving insufficient to lure traders seeing the need for further rate increases to shore up the weakening currency. Real yields on Turkey’s two-year notes touched 3.66 percent on Jan. 28, the most since October 2011, according to data compiled by Bloomberg. That’s higher than Russia, India, Indonesia and South Africa, the data show. Turkish producer prices surged 10.7 percent in January from a year earlier, a report showed yesterday, suggesting the full effect of lira weakness has yet to be passed onto consumers, who saw inflation accelerate more than forecast in the period, to 7.5 percent.
  • Owl Creek Said to Short Denmark Expecting Debt Crisis. Owl Creek Asset Management LP, one of last year’s best-performing hedge-fund firms, is betting against Denmark’s sovereign bonds in anticipation of a debt crisis, according to two people familiar with the matter. The $3.2 billion New York-based firm also bought credit default swaps on Danske Bank A/S (DANSKE), the country’s biggest lender, founder and investment chief Jeffrey Altman said last week at a conference panel discussion in Palm Beach, Florida, according to the people, who attended and asked not to be identified because the information is private.
  • European Stocks Little Changed; Vestas Drops as UBS Jumps. European stocks were little changed, paring earlier losses, as banks rallied while telecommunication companies fell. UBS (UBSN) AG jumped 5.4 percent after Switzerland’s biggest bank posted earnings that exceeded analysts’ projections. Royal KPN NV lost 4.8 percent after the biggest Dutch telecommunications provider said it would cut jobs as a mobile-phone price war hurt earnings. Vestas Wind Systems A/S dropped 4.8 percent after saying it seeks to raise capital. The Stoxx Europe 600 Index slipped 0.2 percent to 317.58 at the close of trading after earlier dropping as much as 0.8 percent. The Stoxx 600 has fallen 5.5 percent from its six-year high on Jan. 22. 
  • Copper Rises, Snapping Longest Slump Since 1995, as Dollar Drops. Copper futures for March delivery rose 0.3 percent to settle at $3.192 a pound at 1:21 p.m. on the Comex in New York. The price dropped in the previous nine sessions, the longest slump since December 1995.
  • Natural Gas Surges as Forecasts Show Arctic Cold Persisting. Natural gas futures jumped in New York, rising for the first time in four days, on forecasts for a polar blast that would deplete stockpiles of the heating fuel. Gas gained as much as 7.2 percent as MDA Weather Services predicted below-normal temperatures in most of the lower-48 states through Feb. 13.
  • U.S. 1-Month Bill Rate Highest Since October Debt Ceiling Debate. Rates on one-month bills reached the highest since October’s debt-ceiling deadlock after Treasury Secretary Jacob J. Lew reiterated yesterday that the U.S. expects to run out of borrowing capacity by the end of February. Rates surged to as high as 0.14 percent from 0.0304 percent, Bloomberg Bond Trader data show.
  • Plunging Stocks Push Volatility to Biggest January Gain: Options. Investors snapping up insurance against stock losses after $1 trillion was erased from U.S. equity values have pushed the cost of options to a record increase for the start of a year. The Chicago Board Options Exchange Volatility Index jumped 34 percent last month for the biggest January advance since it was created in 1990, according to data compiled by Bloomberg. The VIX climbed 16 percent yesterday to 21.44, a one-year high.
Wall Street Journal:
  • Health-Care Law Expected to Take Greater Toll on Workforce. The Affordable Care Act is projected to reduce the number of full-time workers by roughly 2.3 million people through 2021 and insure 2 million fewer people this year than previously estimated, the Congressional Budget Office said Tuesday. The CBO had previously estimated the labor force impact would be around 800,000 people in that time frame. CBO said the jobs figures largely represent Americans who will choose not to work rather than those who will lose their jobs or have their workweeks reduced because of the law. The new estimates could further complicate the political landscape ahead of the midterms for some vulnerable Democrats, as Republicans are planning to use the health-care law as a cudgel in November. While the White House has been working to reverse the number of workers who are leaving the labor market, and CBO's new estimates on this phenomenon could embolden many in the GOP.
  • Microsoft(MSFT) Names Satya Nadella as CEO. Bill Gates Leaves Chairman Post to Become Technology Adviser. 
  • Mexico's Stocks Fall After Long Weekend. Mexico's stocks opened sharply lower Tuesday as local investors returned from a long holiday weekend, while the peso recovered from the previous session's losses in international trading. The benchmark IPC index was recently down 1.5% at 40268 points on volume of 16.7 million shares worth 519.1 million pesos ($38.8 million). Bellwether America Movil (AMX, AMX.MX) L shares were down 1.2% at MXN14.11.
Fox News:
  • Obama heaps more blame on Fox in part-two of O'Reilly interview. (video) President Obama extended his criticism of Fox News during the second part of his interview with host Bill O’Reilly, suggesting the network has profited by unfairly covering such stories as the Benghazi terror attacks and the IRS targeting of conservative groups.
MarketWatch:
  • Hang Seng in correction as Hong Kong stocks drop. Hong Kong shares dropped into correction territory Tuesday, hitting their lowest level since late July as a U.S. stock selloff extended to Asia. The blue chip Hang Seng Index fell 637.65 points, or 2.9%, to 21,397.77, just above a session low of 21,388.61 hit shortly before the close.
CNBC: 
ZeroHedge:
ValueWalk:
Business Insider: 
Financial News:
  • Risk rises, yields fall – but hunger for debt grows. Investor appetite for higher returns is pushing many of them into ever-riskier debt investments, apparently undaunted by fears of overheating and last week’s emerging-market rout. Overheating in debt markets – government and corporate – was identified as the top concern of top finance industry professionals polled by Financial News at the start of 2014, but the past month has seen investors willing to accept ever more aggressive terms in their hunt for yield. Among the signs:
Forbes:
Reuters:
  • Fed's Lacker says tough to see pause in tapering ahead. The U.S. Federal Reserve will probably keep reducing monthly asset purchases at its current pace and it would be hard to make the case for a pause in the tapering process, a senior Fed official said on Tuesday. Richmond Federal Reserve President Jeffrey Lacker said U.S. stocks had performed well looking at the last year and recent moves likely reflected a downward adjustment in expectations for growth.
  • Fed's Evans sees 'high hurdle' to deviating from pace of QE3 taper. Only a sharp economic downturn or unexpected rise in inflation could force the Federal Reserve to pause or speed up the pace at which it is cutting its massive bond-buying program, a top Fed official said on Tuesday. "I think it's probably a high hurdle to deviate from that pace over the next several meetings," Chicago Federal Reserve Bank President Charles Evans told reporters after a speech here. Evans said that world financial markets should not be surprised at the Fed's decision to keep tapering its third round of quantitative easing, or QE3, because the cuts come in response to improved momentum in the economy.
  • Farm machinery maker Agco forecasts weak demand for 2014. Agriculture machinery maker Agco Corp warned of weak demand in 2014 due to reduced farm income and forecast current-quarter earnings well below Wall Street expectations. Economic uncertainty in Europe, coupled with a slowdown in demand from U.S. farmers, has weighed on Agco as corn prices continue to slide, pressured by a record crop in 2013.
  • Boehner: House Republicans want to tackle debt drivers as part of deal. U.S. Congressional Republicans are aiming for deficit-reduction steps as part of any deal to raise the nation's debt limit but have not decided on a strategy yet, House Speaker John Boehner said on Tuesday.

Bear Radar

Style Underperformer:
  • Large-Cap Value +.49%
Sector Underperformers:
  • 1) Hospitals -.87% 2) Utilities -.64% 3) Disk Drives -.23%
Stocks Falling on Unusual Volume:
  • TTWO, ARMH, AFOP, DNB, BRO, FN, PPS, CFN, OAS, UTX, MDT, TVIX, ETN, CPHD, LGP, VRSN, TMH, CEO, LMNX, ORMP, FUEL, VLRS, TX, SU, ADVS, SZYM and GDOT
Stocks With Unusual Put Option Activity:
  • 1) JRCC 2) BBT 3) VLO 4) LL 5) XHB
Stocks With Most Negative News Mentions:
  • 1) PCG 2) EMC 3) F 4) DO 5) TTWO
Charts:

Bull Radar

Style Outperformer:
  • Large-Cap Growth +.94%
Sector Outperformers:
  • 1) Restaurants +1.71% 2) Steel +1.31% 3) Construction -1.28%
Stocks Rising on Unusual Volume:
  • ATMI, FURX, IPHI, ENTG, KORS, YUM, HW, IDTI, ITUB, ABG, ACM, OZM, LL, ITMN, FOSL, AOL and XYL
Stocks With Unusual Call Option Activity:
  • 1) TTWO 2) HZNP 3) XLU 4) EA 5) EDC
Stocks With Most Positive News Mentions:
  • 1) YUM 2) KORS 3) AMZN 4) CME 5) LLY
Charts: