Stocks Falling Substantially into Afternoon on Soaring European/Emerging Markets/US High-Yield Debt Angst, Healthcare Price Control Worries, Oil Decline, Healthcare/Construction Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Lower
  

• Sector Performance: Almost Every Sector Declining
  

• Volume: Above Average

• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• Volatility(VIX) 26.95 +15.27%

• Euro/Yen Carry Return Index 134.85 -1.01%

• Emerging Markets Currency Volatility(VXY) 12.86 +2.14%

• S&P 500 Implied Correlation 64.98 +3.49%

• ISE Sentiment Index 45.0 -19.64%

• Total Put/Call 1.12 +15.46%

• NYSE Arms 1.10 +10.0% 

Credit Investor Angst:

• North American Investment Grade CDS Index 122.19 +6.47%

• America Energy Sector High-Yield CDS Index 2,058.0 +1.26%

• European Financial Sector CDS Index 136.82 +13.3%

• Western Europe Sovereign Debt CDS Index 28.42 +5.8%

• Asia Pacific Sovereign Debt CDS Index 84.10 +4.75%

• Emerging Market CDS Index 393.74 +3.64%
  

• iBoxx Offshore RMB China Corporate High Yield Index 122.90 +.06%

• 2-Year Swap Spread 11.25 +2.75 basis points

• TED Spread 33.50 +.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -23.75 -2.5 basis points
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 68.23 -.50%
• 3-Month T-Bill Yield .27% -1.0 basis point

• Yield Curve 108.0 -5.0 basis points

• China Import Iron Ore Spot $45.73/Metric Tonne n/a

• Citi US Economic Surprise Index -55.7 +2.2 points

• Citi Eurozone Economic Surprise Index -20.70 -1.3 points

• Citi Emerging Markets Economic Surprise Index -5.30 +.9 point

• 10-Year TIPS Spread 1.25% -10.0 basis points
• 5.9% chance of Fed rate hike at April 27 meeting, 15.3% chance at June 15 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -739 open in Japan 
• China A50 Futures: Indicating n/a open in China

• DAX Futures: Indicating -41 open in Germany

Portfolio: 

• Slightly Higher: On gains in my index hedges and emerging markets shorts

• Disclosed Trades: None

• Market Exposure: 25% Net Long

Bear Radar

Style Underperformer:

• Mid-Cap Growth -3.5%

Sector Underperformers:

• 1) Gaming -6.4% 2) Hospitals -6.3% 3) Construction -5.1%

Stocks Falling on Unusual Volume:

• KWEB, BRX, PRFZ, PUK, DXCM, DKT, DATA, HSEA, WEX, ABMD, NEWR, DCUA, WMB, DTK, TOT, WPZ, LXFT, CRM, WAL, WDAY, FBHS, AZN, ABB, STZ, LYV, RLGY, FB, ORLY, CHTR, LB, BAC, Z, ATHN, CRAY, TROW, CIT, JLL, RCL, CMA, GS, HBI, FLT, ZG, CTSH, MPWR, MPC, SABR, DY, ITCI, GRUB, CRM, TSLA, DATA, SPLK, VA, RNG, NOW, PANW, W, TSRO, ALGN, CSOD, GWRE, ZEN, RDC, ABMD, PCTY and ETP

Stocks With Unusual Put Option Activity:

• 1) JNPR 2) PYPL 3) YELP 4) WSM 5) V

Stocks With Most Negative News Mentions:

• 1) DATA 2) ETE 3) RCL 4) ADBE 5) CSGP

Charts:

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

Bull Radar

Style Outperformer: 

• Small-Cap Value -1.7% 

Sector Outperformers:

• 1) Gold & Silver +5.5% 2) Road & Rail -.3% 3) Utilities -.6% 

Stocks Rising on Unusual Volume: 

• GOLD, USLV, GG, ABX, OUTR, GPRO and SLW

Stocks With Unusual Call Option Activity: 

• 1) BK 2) APOL 3) P 4) ZNGA 5) GDXJ

Stocks With Most Positive News Mentions: 

• 1) TSN 2) GPRO 3) HAS 4) FCFS 5) F

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running +44.6% Above 100-Day Average
• 0 Sectors Rising, 10 Sectors Declining
• 12.3% of Issues Advancing, 87.0% Declining
• 38 New 52-Week Highs, 377 New Lows
• 18.8% of Issues Above 200-day Moving Average
• Average 14-Day RSI 38.6%
• Vix 26.6 +13.8%
• Total Put/Call 1.06 +9.3%
• TRIN/Arms .89 -11.32%

Monday Watch

Today's Headlines
Bloomberg:

• Holding Back China's Capital Flight ‘Dam’ Is Key. The decline in China’s foreign-currency reserves to a four-year low, even without evidence of widespread domestic capital flight, adds pressure on policy makers to strengthen the economy through fiscal easing and structural reforms. China’s reserves, once a continuously rising hoard, fell $99.5 billion in January, continuing a slump from 2015 as the People’s Bank of China sought to shore up the yuan. While estimates of the sources of the hard-currency outflows differ, much of the total is thought to be pay-downs of foreign debt. A much bigger threat -- "the dam that the PBOC must make sure doesn’t break," according to Frederic Neumann at HSBC Holdings Plc -- would be an exodus of funds from domestic investors.
• The Magic Formula That Powered Japanese Stocks Is Falling Apart. For Japanese investors, it must have seemed the equivalent of turning lead into gold. Unlike in the Middle Ages, the alchemy now relied on mixing central bank stimulus with a weakening yen to create rising profits and a stock market that soared to an eight-year high. But that was back in August, and the formula has since lost its potency. By one measure, earnings in the world’s third-largest stock market are poised to retreat more than 20 percent this quarter, and for the first time since 2012 more Japanese companies are missing forecasts than beating them. Meanwhile, the yen just staged its biggest weekly rally since 2009 even though the Bank of Japan surprised the world by cutting interest rates to below zero.
• Consumption Seen Dropping as Japan's Workers Eke Out 0.1% Rise. Japan’s workers barely got a pay rise in 2015, with a 0.1 percent increase in cash earnings slower than the 0.4 percent bump in 2014. Total wages in Japan haven’t risen more than 1 percent in any year since 1997 and they fell for the past four years once inflation is accounted for, the labor ministry said on Monday in Tokyo. Higher wages are considered crucial to generate growth and consumption and for the Bank of Japan’s efforts to spur inflation. Japanese Prime Minister Shinzo Abe has repeatedly called for companies to boost pay, and Bank of Japan Governor Haruhiko Kuroda has said that the level of increase is "somewhat slow" considering Japan’s low unemployment and companies’ profits.
• Russia Courts Foreign Banks as Funding Crunch Overtakes Politics. Pressure is mounting on Russia to break the vow of abstinence on selling Eurobonds it has maintained since the U.S. and Europe slapped sanctions on some of its biggest companies. In the three weeks since the finance ministry last said there’s no point to go abroad for cash while penalties are still in place, the ruble tumbled to a record amid an oil plunge and rising yields at home made borrowing targets more elusive. For the first time since Russia last issued international bonds in September 2013, the government said on Friday it invited banks from nine countries to submit proposals to broker its return to foreign capital markets. “Russia probably needs to access international markets to raise funds to plug its deficit this year,” Greg Saichin, the chief investment officer for emerging-market fixed-income at Allianz Global Investors Europe GmbH, said by e-mail Friday. “The problem is sanctions. They are still on, but we presume that they may fall away completely at best or eased at worst.”
• Dollar Gains Versus Yen, Euro as Fed Odds Weighed Before Yellen. The dollar rose for a second day against the euro and yen as investors looked toward Federal Reserve Chair Janet Yellen’s testimony to Congress Wednesday for signs of whether markets are underestimating the odds of a near-term interest-rate increase. The greenback climbed after a U.S. employment report showed wage growth exceeded estimates, bolstering the case for the Fed to continue lifting rates this year. Futures pricing for a move before year-end climbed to 53 percent Friday from 46 percent the previous day. The yen weakened versus Australia’s dollar as equities in Japan pared declines and the nation reported a current account surplus that was smaller than economists had forecast.
• Gulf Stocks Retreat From Highest Level in More Than Three Weeks. Stocks across the Gulf fell, following a drop in global markets, as traders cashed in on gains after a gauge of the region’s biggest companies climbed to a three-week high. The Bloomberg GCC 200 Index, which tracks some of the six-nation Gulf Cooperation Council’s largest companies, slipped 0.8 percent from the highest level since Jan. 11. The Tadawul All Share Index was the region’s biggest decliner as it retreated 1.3 percent, followed by ADX General Index with a 0.9 percent drop. The MSCI World Index lost 1.6 percent on Friday. “Markets have had a good run, now we’re seeing a bit of profit taking," said Wafic Nsouli, the managing director and head of equities at Dubai-based investment bank Arqaam Capital Ltd.

Wall Street Journal:

• Big Companies Pull Back After Rough Quarter. Strong dollar, slumping stocks lead to cautious capital budgets; some firms plan layoffs. After a tough end to 2015, big companies are starting the new year with a tight rein on capital spending, and in some cases layoffs, as they seek to cope with sluggish industrial demand and uncertainties about the continued resilience of the American consumer.
• Emerging-Market Central Banks Battle Capital Flight. Rate cuts are avoided as they signal concerns about growth prospects. Central banks in some emerging markets are stepping up efforts to flood their financial systems with cash, highlighting the pressure that they face from rapid capital flight.

CNBC:

• This group of stocks are in a free fall.

Zero Hedge:

• Catch Up On The Latest Chinese News With These Seven Bullets.
• What The Charts Say: "Now Is The Time To Worry". (graph)
• Why The 'Sultan Of Chaos' Is Freaking Out.
• "Few Are Yet Willing To Admit The Harsh Reality..."
• Steve Keen Exposes Our Dysfunctional Monetary System.
• Even The Fed's "Owners" Aren't Buying What Janet Is Selling. (graph)
• The Number Everyone's Been Waiting For: Chinese Reserves Plunge By $100BN - What Does It Mean For Markets?
• Madeleine Albright Stunner: "There's A Special Place In Hell For Women Who Don't Help" Hillary.
• The "Minimum Wage" Surged In 6 Cities Last Year; Then This Happened. (graph)
• P2P Cracks Start To Show As LendingClub Write-Offs Double Forecasts.
• Bank Of America(BAC) Admits The U.S. May Already Be In A Recession.
• Dot Com 2.0 – The Sequel Unfolds.
• Mainstream Media Guide To Obama's Economic "Recovery".

 Business Insider:

• The rapid pace of China's currency reserve depletion is 'simply unsustainable'. 
• JP MORGAN(JPM) STRATEGIST: Central banks tried to control the world … and failed miserably.
• People are boycotting Beyoncé after her Super Bowl song sent a harsh message to police.
• Oil prices may counterintuitively crash further because of oil producers' high debt levels.
• Thousands marched in anti-Islam Pegida rallies across Europe.
• APPLE(AAPL): THE WORST-CASE SCENARIO — 2016.
• The American Dream Is Dead (And Now Even The Mainstream Media Is Starting To Admit It).
• Donald Trump on New Hampshire: 'I don't think I need it' to win the nomination.

Chicago Sun-Times:

• Losing GOP candidates double down on being mean. Chris Christie and Jeb Bush, in particular, have decided their best chance to stay in the race is to attack other candidates. Chris Christie seems to be reverting to form as a guy with a mean streak, something he has mostly avoided in the debates. He is at his best when he channels his anger toward terrorists and worst when he demeans his fellow Republicans. His comments this week about Marco Rubio make Christie, not Rubio, look bad. If Bush, Christie or Kasich fare poorly in New Hampshire, I hope they will do the right thing. The same goes for Ben Carson and Carly Fiorina. Hanging on hoping you can take another candidate down a notch certainly does the party no good.

Night Trading

• Asian indices are -.50% to unch. on average.
• Asia Ex-Japan Investment Grade CDS Index 159.0 +3.0 basis points.
• Asia Pacific Sovereign CDS Index 80.25 +.75 basis point.
• Bloomberg Emerging Markets Currency Index 68.58 +.02%.
• S&P 500 futures +.29%.
• NASDAQ 100 futures +.34%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (CNA)/.89
• (CTSH)/.78
• (DO)/.53
• (HAS)/1.30
• (L)/.77
• (WEX)/1.05
• (OMI)/.49
• (OI)/.40
• (YELP)/.12

Economic Releases
10:00 am EST

• Labor Market Conditions Index for January is estimated to fall to 2.5 versus 2.9 in December.

Upcoming Splits

• (HRL) 2-for-1

Other Potential Market Movers

• The German Industrial Production report, CSFB Financial Services Forum and the BIO investor conference could also impact trading today.

BOTTOM LINE: Asian indices are modestly lower, weighed down by commodity and industrial shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 25% net long heading into the week.

Weekly Outlook

Week Ahead by Bloomberg.

Wall St. Week Ahead by Reuters.

Weekly Economic Calendar by Briefing.com.

BOTTOM LINE: I expect US stocks to finish the week modestly lower on earnings outlook concerns, rising European/Emerging Markets/US High-Yield debt angst, commodity weakness, Fed rate-hike fears, yen strength and technical selling. My intermediate-term trading indicators are giving neutral signals and the Portfolio is 25% net long heading into the week.