Stocks Higher into Final Hour on Central Bank Hopes, Oil Bounce, Short-Covering, Energy/Financial Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Higher
  

• Sector Performance: Most Sectors Rising
  

• Volume: Slightly Above Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 14.65 -5.06%

• Euro/Yen Carry Return Index 138.58 -.29%

• Emerging Markets Currency Volatility(VXY) 10.85 +.56%

• S&P 500 Implied Correlation 57.92 -2.21%

• ISE Sentiment Index 87.0 +5.0%

• Total Put/Call .76 -23.23%

• NYSE Arms 1.24 +24.84% 

Credit Investor Angst:

• North American Investment Grade CDS Index 79.14 +1.30%

• America Energy Sector High-Yield CDS Index 1,134.0 +1.93%

• European Financial Sector CDS Index 68.51 -2.09%

• Western Europe Sovereign Debt CDS Index 18.39 -3.11%

• Asia Pacific Sovereign Debt CDS Index 72.89 -1.17%

• Emerging Market CDS Index 323.11 -.95%
  

• iBoxx Offshore RMB China Corporates High Yield Index 122.28 +.02%

• 2-Year Swap Spread 10.0 -1.5 basis points

• TED Spread 30.75 -1.0 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -29.75 -2.25 basis points

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 71.78 -.09%
• 3-Month T-Bill Yield .04% +2.0 basis points

• Yield Curve 139.0 -2.0 basis points

• China Import Iron Ore Spot $49.95/Metric Tonne -3.01%

• Citi US Economic Surprise Index -10.0 +.1 point

• Citi Eurozone Economic Surprise Index 19.9 +1.8 points

• Citi Emerging Markets Economic Surprise Index -13.60 -.1 point

• 10-Year TIPS Spread 1.47 -2.0 basis points
• # of Months to 1st Fed Rate Hike(Morgan Stanley) 5.89 +.49

Overseas Futures:

• Nikkei 225 Futures: Indicating +137 open in Japan 
• China A50 Futures: Indicating +49 open in China

• DAX Futures: Indicating -12 open in Germany

Portfolio: 

• Higher: On gains in my retail/medical/tech sector longs and emerging markets shorts

• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges, then added them back

• Market Exposure: 50% Net Long

Bear Radar

Style Underperformer:

• Large-Cap Growth +.42%

Sector Underperformers:

• 1) Utilities -1.31% 2) HMOs -.66% 3) Airlines -.51%

Stocks Falling on Unusual Volume:

• AKAM, LNCE, H, ICPT, EVER, IDXX, DORM, ZLTQ, RUBI, SAIA, COT, IBP, KKR, SNCR, FEIC, ODFL, CIB, WEX, TWTR, WBA, FLIR, QUNR, STRA, CMC, VRSK, SM, HSY, CHRW, MDSO, SKYW, HTS, RPXC, EIX, TWOU, HTLD, FSP, ARW, TECH, ECHO and SNCR
  

Stocks With Unusual Put Option Activity:

• 1) DXJ 2) EA 3) KSU 4) CLF 5) JWN
  

Stocks With Most Negative News Mentions:

• 1) AKAM 2) EIX 3) FEIC 4) HSY 5) UAL
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Small-Cap Growth +2.15%

Sector Outperformers:

• 1) Gold & Silver +4.16% 2) Hospitals +3.52% 3) Oil Service +3.48%
  

Stocks Rising on Unusual Volume:

• DMND,  ABCB, ROCK, CBI, HOT, CAB, NHTC, GNRC, VNTV, SLCA, NOC, INFN, BSX, TSS, VDSI, CEMP, CBG, TER, BAH, VNTV, LVLT, AGCO, DMND, IPHI, LLL, TDW, NRF and PAH
  

Stocks With Unusual Call Option Activity:

• 1) TER 2) AKAM 3) RAD 4) HOT 5) VTL
  

Stocks With Most Positive News Mentions:

• 1) CNP 2) NOC 3) HOT 4) JBSS 5) TXT
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Morning Market Internals

NYSE Composite Index:

• Volume Running +29.2% Above 100-Day Average
• 7 Sectors Rising, 3 Sectors Declining
• 74.9% of Issues Advancing, 22.1% Declining
• 53 New 52-Week Highs, 42 New Lows
• 34.1% of Issues Above 200-day Moving Average
• Average 14-Day RSI 44.3
• Vix 14.9
• Total Put/Call .87
• TRIN/Arms 1.12

Wednesday Watch

Evening Headlines 

Bloomberg: 

• UBS Analyst Who Called Emerging-Market Rout Sees Rebound Fading. The one-month long rebound in emerging-market assets is poised to reverse, according to Bhanu Baweja, a UBS Group AG strategist, who correctly called this year’s rout. While expectations for more monetary easing from global central banks have helped stabilize developing-nation stocks and currencies in the past month, weakness in exports and commodity prices as well as higher debt repayments will keep the assets under pressure, said Baweja, USB’s head of emerging-market cross asset strategy in London. “Today EM sentiment is taking a break from perceived extreme negativity,” Baweja wrote in a note Tuesday. “However, fundamentals are still slowly worsening.” South Africa’s rand, the Indonesian rupiah, Malaysia’s ringgit and the Columbian peso will lead the renewed decline “before long,” while emerging-market stocks will start underperforming their peers in advanced economies again, he said.  

• Westpac MNI China consumer confidence index sinks to lowest on record in October. (graph) 

• PBOC Done Cutting Benchmark Rates, According to Economist Survey. China’s central bank will refrain from further benchmark interest-rate cuts and economic growth will hold steady in the fourth quarter, according to economists surveyed by Bloomberg News.

• Landlord Boom a Bigger Risk for Aussie Bad Debts Than Businesses. The boom in Australian buy-to-let mortgages that has helped fuel record household borrowing could be the next driver of bank bad debts rather than corporate defaults. While business-loan losses were behind the biggest bad debt cycles in the past three decades, according to a discussion paper from the Reserve Bank of Australia, unprecedented borrowing by individuals and signs that the residential property market is coming off the boil mean that for banks the next one might be different.

• Australian Core Inflation Slows, Sending Currency Down Half Cent. Australian core consumer prices rose less than economists forecast last quarter, giving the central bank scope to resume interest-rate reductions if needed and sending the currency down half a U.S. cent.

• Asian Stocks Retreat Before Fed as Material Shares Lead Losses. Asian stocks followed U.S. shares lower as material companies led declines and investors awaited a Federal Reserve decision on monetary policy. The MSCI Asia Pacific Index slipped 0.2 percent to 135.64 as of 9:01 a.m. in Tokyo.

• Moody's Says Iron Ore to Extend Slump in 2016 on Excess Supplies. Iron ore’s slump will deepen next year as rising supplies from the biggest producers overwhelm weakening demand in China, according to Moody’s Investors Service. Prices will probably average $45 a metric ton next year and in 2017, said Carol Cowan, senior vice president in New York. So far this year, they averaged about $58. The glut may expand as the majors boost low-cost output and billionaire Gina Rinehart’s Roy Hill mine starts up, Cowan said in an interview. 

Wall Street Journal:

• Budget Deal Stirs Anger on the Right. Two-year plan reduces risk of a government shutdown. Congressional leaders worked Tuesday to marshal support for a sweeping budget and debt deal that offered an end to fiscal fights with President Barack Obama but opened up top Republicans to criticism from conservatives, including GOP presidential hopefuls.

• U.S. Looks at Proposals to Step Up Fight Against Islamic State. Washington may send Apache attack helicopters to Iraq. The White House is seriously considering deploying a small squadron of Apache attack helicopters to Iraq as part of a package of new assistance programs to counter Islamic State, according to U.S. officials.

• The Best Worst Budget Deal. Obama gets more spending, the GOP gets some disability reform. The Obama Presidency staged a last policy gasp Tuesday, as the White House and congressional leaders completed a budget deal that defers every serious choice to the next Administration. The mutual nonaggression pact is the product of a hyper-polarized Washington, and perhaps the only thing worse than passing it would be not passing it. 

Fox News: 

• House Republicans introduce measure to impeach IRS Commissioner Koskinen. House Republicans on Tuesday introduced a resolution to impeach IRS Commissioner John Koskinen, accusing him of making "false statements" under oath and failing to comply with a subpoena for evidence. House Oversight Committee Chairman Jason Chaffetz, R-Utah, and 18 other committee members introduced the resolution to begin impeachment proceedings. In doing so, they followed through on a threat first made over the summer, when Republicans accused the IRS leader of making inaccurate statements to Congress regarding the Tea Party targeting scandal and its aftermath.

MarketWatch.com:

• Dow transports take a beating. (graph)

• Weak oil prices deplete Russia’s sovereign-wealth fund.

CNBC: 

• Twitter(TWTR) plunges as much as 12% on light guidance. (video)

• Yellen earns worst grade yet in CNBC Fed Survey. (video)

• Crude oil is making a mad dash for $35: Expert. (video)

Zero Hedge:

• China Margin Debt Hits 8-Week High, Japan Pumps'n'Dumps As Kyle Bass Fears Looming EM Banking Crisis. (graph)

• Why Are Half Of All 25-Year-Olds Living With Their Parents? The Federal Reserve Answers.

• 'Untouchables': Obama Cronies "Protected Wall Street's Most Criminal From Prosecution". (video)

• The Calm Before The Storm.

• Millennials: 70% Want To Be Debt Free, 66% Refuse To "Gamble" In The Stock Market.

• OECD Chief Economist: It's Time To "Temper The Frothiness" In Markets.

• Yes, A New Crisis is Coming - And Here's Why.

• Apple(AAPL) Beats On Sales And EPS, Misses iPhone, iPads Sales, China Slows Down: The Quarter In Charts. (graph)

• Crude Jumps Despite API Reporting 5th Consecutive Weekly Inventory Build. (graph)

• Americans Renouncing US Citizenship Soars To Yet Another Record High. (graph)

• Pre-Fed Jitters Spark Bond Bid, Stock Skid Amid Crude Carnage. (graph)

Business Insider:

• This is why oil prices are crashing again.

• IBM(IBM) is close to buying part of the Weather Company.

• Larry Ellison just painted a frightening picture of what hackers could do next.

Reuters:

• Gilead(GILD) hepatitis C drug sales trend flattens, shares dip. Gilead Sciences Inc on Tuesday said its quarterly profit rose 70 percent, but sales growth for its hepatitis C drugs flattened as health insurers limited access to the expensive treatments. Shares of the biotechnology company fell slightly. Gilead's quarterly product sales rose 37 percent to $8.2 billion. Sales of hepatitis C drugs Sovaldi and Harvoni totaled $4.8 billion, which was just ahead of the $4.5 billion average Wall Street estimate, but little changed from second quarter sales. Company officials said hepatitis C sales were likely to stay flat through 2016 as health insurers restrict patient access to Gilead's drugs, which have list prices of more than $1,000 a pill. Gilead's shares, which rose 2 percent in regular trading, were down 2 percent at $108.75 after hours.

• FTC looking at Valeant's contact lens dealings -source. The U.S. Federal Trade Commission is looking into whether Canadian drugmaker Valeant Pharmaceuticals International Inc illegally cornered the market for a component of a new type of contact lens, an industry source told Reuters. Valeant said on Monday it had received a letter from the FTC on or about Oct. 16 seeking more information about Valeant's recent acquisition of Paragon Vision Sciences, which produces a material used to make gas permeable lenses. That probe focuses primarily on a small subset of the contact lens market, Ortho-K lenses, according to the contact lens industry source, who asked not to be named to protect business relationships.

• Akamai(AKAM) forecasts revenue, profit below analysts' estimates. Akamai Technologies Inc, a provider of services that help deliver Internet content faster, forecast current-quarter revenue and profit below analysts' expectations, citing a strong dollar and slowing online traffic growth. The company's shares fell about 14 percent in extended trading on Tuesday.

• HCA(HCA) says some patients dropping their new insurance coverage. Hospital operator HCA Holdings Inc on Tuesday said more patients are coming through its doors who have lost their health insurance, most likely because they stopped paying for it.

Telegraph:

• Fossil fuel companies risk plague of 'asbestos' lawsuits as tide turns on climate change. The UN says the world is poised for a sweeping climate deal in Paris. 'It is unstoppable. No amount of lobbying is going to change the direction'.

Evening Recommendations 

• None of note

Night Trading

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

• Asia Ex-Japan Investment Grade CDS Index 131.0 -2.75 basis points.

• Asia Pacific Sovereign CDS Index 73.75 +2.0 basis points.

• Bloomberg Emerging Markets Currency Index 71.79 -.07%. 

• S&P 500 futures +.16%.

• NASDAQ 100 futures +.16%.

Morning Preview Links

Earnings of Note

Company/Estimate

• (AGCO)/.50

• (ADP)/.65

• (BSX)/.23

• (CMC)/.43

• (GRMN)/.54

• (GD)/2.13

• (HSY)/1.13

• (HES)/-1.20

• (HLT)/.23

• (IDXX)/.53

• (ICE)/2.92

• (IP)/.93

• (JLL)/2.01

• (MDLZ)/.41

• (NOV)/.55

• (NSC)/1.41

• (NOC)/2.19

• (OXY)/.03

• (Q)/.81

• (HOT)/.71

• (WOOF)/.68

• (WEX)/1.42

• (aem)/.02

• (AMGN)/2.38

• (ABX)/.07

• (BWLD)/1.30

• (CRUS)/.59

•  (ESV)/.75

• (FFIV)/1.74

• (GPRO)/.29

• (MTW)/.09

• (MAR)/.74

• (NEM)/.18

• (ORLY)/2.38

• (TSO)/6.05

• (WDC)/1.56

• (WMB)/.15

• (YELP)/.07

Economic Releases

8:30 am EST

• Advance Goods Trade Balance for Sept. is estimated at -$64.3B versus -$67.19B in August.  

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory build of +3,560,000 barrels versus a +8,028,000 barrel gain the prior week. Gasoline supplies are estimated to fall by -1,050,000 barrels versus a -1,518,000 barrel decline the prior week. Distillate inventories are expected to fall by -1,765,000 barrels versus a -2,622,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise by +.08% versus a +.4% gain prior.

2:00 pm EST

• The FOMC is expected to leave the benchmark Fed Funds rate at 0.0%-.25%.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The $35b 5Y T-Note Auction, $15B 2Y FRN Treasury Auction, weekly MBA mortgage applications report, (ABCO) investor day, (ABM) investor day and the (PH) General Meeting could also impact trading today.

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

Stocks Lower into Final Hour on Global Growth Fears, Earnings Outlook Concerns, Emerging Markets/US High-Yield Debt Angst, Transport/Homebuilding Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Lower
  

• Sector Performance: Almost Every Sector Declining
  

• Volume: Slightly Below Average

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• Volatility(VIX) 15.75 +3.01%

• Euro/Yen Carry Return Index 138.82%

• Emerging Markets Currency Volatility(VXY) 10.87 -.91%

• S&P 500 Implied Correlation 60.29 +3.17%

• ISE Sentiment Index 163.0 +21.64%

• Total Put/Call 1.10 +13.4%

• NYSE Arms .95 -18.87% 

Credit Investor Angst:

• North American Investment Grade CDS Index 78.65 +1.13%

• America Energy Sector High-Yield CDS Index 1,107.0 +4.27%

• European Financial Sector CDS Index 69.97 +1.41%

• Western Europe Sovereign Debt CDS Index 18.81 +.03%

• Asia Pacific Sovereign Debt CDS Index 73.99 +2.91%

• Emerging Market CDS Index 326.85 +1.37%
  

• iBoxx Offshore RMB China Corporates High Yield Index 122.26 -.02%

• 2-Year Swap Spread 11.5 +.25 basis point

• TED Spread 31.75 unch.

• 3-Month EUR/USD Cross-Currency Basis Swap -27.5 +2.0 basis points

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 71.83 -.43%
• 3-Month T-Bill Yield .02% +1.0 basis point

• Yield Curve 141.0 -1.0 basis point

• China Import Iron Ore Spot $51.50/Metric Tonne +.92%

• Citi US Economic Surprise Index -10.10 -2.4 points

• Citi Eurozone Economic Surprise Index 18.1 -2.2 points

• Citi Emerging Markets Economic Surprise Index -13.50 -.2 point

• 10-Year TIPS Spread 1.49 unch.
• # of Months to 1st Fed Rate Hike(Morgan Stanley) 5.40 -.05

Overseas Futures:

• Nikkei 225 Futures: Indicating +108 open in Japan 
• China A50 Futures: Indicating -46 open in China

• DAX Futures: Indicating +5 open in Germany

Portfolio: 

• Higher: On gains in my biotech/medical sector longs, index hedges and emerging markets shorts

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

• Market Exposure: Moved to 25% Net Long