Stocks Rising into Afternoon on Economic Optimism, Yen Weakness, Technical Buying, Tech/Biotech Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Slightly Higher
  

• Sector Performance: Mixed
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 11.28 -3.34%

• Euro/Yen Carry Return Index 128.76 +.75%

• Emerging Markets Currency Volatility(VXY) 11.10 -1.94%

• S&P 500 Implied Correlation 45.96 -1.67%

• ISE Sentiment Index 60.0 -37.50%
  

• Total Put/Call .89 -22.61%

• NYSE Arms 1.17 +15.04%

Credit Investor Angst:

• North American Investment Grade CDS Index 64.07 +.26%
  

• America Energy Sector High-Yield CDS Index 422.0 -.69%

• European Financial Sector CDS Index 87.50 +.36%

• Western Europe Sovereign Debt CDS Index 20.65 -1.45%

• Asia Pacific Sovereign Debt CDS Index 33.73 +1.32%

• Emerging Market CDS Index 229.22 +.83%
  

• iBoxx Offshore RMB China Corporate High Yield Index 132.90 +.05%

• 2-Year Swap Spread 27.0 +1.25 basis points

• TED Spread 49.75 +1.75 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -46.75 -1.75 basis points
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 69.98 -.41%
• 3-Month T-Bill Yield .51% -1.0 basis point

• Yield Curve 120.0 -1.0 basis point
  

• China Import Iron Ore Spot $76.25/Metric Tonne -3.4%

• Citi US Economic Surprise Index 27.0 -1.9 points

• Citi Eurozone Economic Surprise Index 71.10 +10.5 basis point

• Citi Emerging Markets Economic Surprise Index 26.0 +2.0 points

• 10-Year TIPS Spread 1.98% unch.
• 34.8% chance of Fed rate hike at March 15 meeting, 47.8% chance at May 3 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +186 open in Japan 
• China A50 Futures: Indicating +44 open in China

• DAX Futures: Indicating +11 open in Germany

Portfolio: 

• Higher: On gains in my tech/biotech/medical sector longs and emerging market shorts

• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges

• Market Exposure: Moved to 75% Net Long

Bear Radar

Style Underperformer:

• Small-Cap Value +.1%

Sector Underperformers:

• 1) Gold & Silver -3.9% 2) Steel -1.6% 3) Homebuilders -1.3%

Stocks Falling on Unusual Volume: 

• LIVE, ICUI, SHAK, REGN, CHDN, GIII, AZZ, TEVA, SHOP, P, CYNO, TAHO, CATO, FCN, MAG, SCHN, MERC, BRFS, GLP, AEO, DEPO, IFF, CLGX, BGFV, TLRD, SHLD and EROS

Stocks With Unusual Put Option Activity:

• 1) CTSH 2) JCP 3) REGN 4) BK 5) BSX

Stocks With Most Negative News Mentions:

• 1) GPRO 2) SHAK 3) FCN 4) VALE 5) ADM

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Growth +.4%

Sector Outperformers:

• 1) Internet +.9% 2) Restaurants +.6% 3) Insurance +.6%

Stocks Rising on Unusual Volume:

• PCRX, MNTA, GBX, GKOS, NBIX, ETSY, STML and FCAU

Stocks With Unusual Call Option Activity:

• 1) ILMN 2) CPN 3) REGN 4) DEPO 5) SLV

Stocks With Most Positive News Mentions:

• 1) PSMT 2) HWAY 3) VRTU 4) WAT 5) ILMN

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running -12.6% Below 100-Day Average
• 3 Sectors Rising, 7 Sectors Declining
• 39.2% of Issues Advancing, 57.6% Declining
• 48 New 52-Week Highs, 8 New Lows
• 60.1% of Issues Above 200-day Moving Average
• Average 14-Day RSI 42.9%
• Vix 11.3 -2.9%
• Total Put/Call 1.03 -10.4%
• TRIN/Arms 1.34 +32.2%

Friday Watch

Evening Headlines

Bloomberg:

• China Ready to Step Up Scrutiny of U.S. Firms If Trump Starts Feud: Sources. China is prepared to step up its scrutiny of U.S. companies in the event President-elect Donald Trump takes punitive measures against Chinese goods and triggers a trade war between the world’s two biggest economies after he takes office, according to people familiar with the matter. The options include subjecting well-known U.S. companies or ones that have large Chinese operations to tax or antitrust probes, the people said, asking not to be identified because the matter isn’t public. Other possible measures include the launch of anti-dumping investigations and scaling back government purchases of American products, according to the people.
• China's Credit Wheel Has a Creaking Cog.
• Japan Shares Drop While Dollar Maintains Declines: Markets Wrap. Japanese shares fell after the dollar sank as the reflation trades sparked by Donald Trump’s election showed signs of faltering ahead of Friday’s U.S. jobs report. The Topix index lost 0.5 percent. The greenback held losses for a third day after reaching a 14-year high, as China moved to stem capital outflows and investors reconsidered Federal Reserve intentions. U.S. stocks recovered from session lows to end little changed. The yield on 10-year Treasury notes slid below its level prior to the Fed’s December interest-rate increase, while emerging-market shares erased post-election losses. The offshore yuan surged and gold traded near a four-week high on Thursday. Samsung Electronics Co. shares climbed in Seoul after profit beat estimates. The MSCI Asia Pacific Index slipped 0.2 percent as of 9:45 a.m. in Tokyo. Australia’s S&P/ASX 200 Index added 0.1 percent and New Zealand’s benchmark gauge fell less than 0.1 percent. South Korea’s Kospi advanced 0.4 percent as Samsung climbed.
• Will OPEC Deliver Promised Output Cuts? Here’s How We’ll Know. The promise of production cuts from OPEC and its partners sent oil rallying in 2016. Now traders want proof they’re delivering on those vows. It won’t come easy. The challenge: Building a coherent picture from the morass of data that emerges at each step along the process, from the wellheads where the oil is produced, to the tankers that carry it, and the depots that store it.
• U.S. Claims Thousands of D-Link Users Exposed to Hacking. A U.S. consumer protection watchdog sued a Taiwan-based maker of home-networking equipment over claims that lax security left its products vulnerable to hackers. The Federal Trade Commission alleged that D-Link Corp. and a U.S. unit failed to secure their routers and web cameras, exposing thousands of American consumers to targeted online security breaches. Products with inadequate safeguards allowed attackers to “monitor a consumer’s whereabouts in order to target them for theft or other crimes," according to the complaint filed Thursday in San Francisco federal court.

Wall Street Journal:

• Lessons From Obama’s Failure. Republicans must sell their replacement to ObamaCare—the way the president didn’t.
• What Smartphones Do to Children’s Eyes. A study found symptoms of pediatric dry-eye disease were more common among frequent smartphone users.
• Trump Says ‘No Way’ to Toyota Plant in Mexico. President-elect’s tweet comes hours after head of the Japanese auto maker signaled willingness to work with new administration.

Fox News:

• Email Headache Returns: New Clinton messages show passwords, schedules flowed freely. (video)

CNBC:

• Donald Trump’s Twitter Account Is A Security Disaster Waiting To Happen.

Zero Hedge:

• Trump Splits With 'Senior Advisor' Former CIA Chief Woolsey.
• Chinese Overnight Funding Rate Hits Unprecedented 105%. (graph)
• GOP Plans 'Pre-Emptive' Law Crackdown On Liberal City Agendas.
• Why Profits Are Faltering. (graph)
• California Farmers Fret Over Labor Shortages As Trump Vows To Deport Their Work Force.
• Looting, Riots In Mexico Spiral Out Of Control Over 20% Gas Hike; Hundreds Arrested.
• "Blind Faith" Has Ended: The World Is A Complicated Place (And Getting More So). (graph)
• GasBuddy Issues "Sticker Shock" Warning: Motorists Will Spend $52 Billion More At The Pump In 2017.
• Trump Taps Former Senator Dan Coats As Director Of National Intelligence.
• 3 Things: Policy Hopes, Consumer-Spending Puppies, & Tax-Cut Rainbows.
• Bonds & Bullion Bounce But Banks Bruised And Bitcoin Bloodbath'd. (graph)

Busines Insider:

• Renters can't keep up with Manhattan's office supply.
• Gap(GPS) is soaring after ending a rough day for the retail industry with good news.
• The United States will probably be a net energy exporter by 2026.

Boersen Zeitung:

• Pimco's Fels Worried About Future of Euro Zone. Pimco managing director and global economic adviser Joachim Fels said in an interview he is deeply concerned about the situation in euro area and cohesion of the monetary union. Euro zone more vulnerable to crises. No longer sure if political will to maintain the community under any circumstances is available everywhere.

Economic Information Daily:

• China Should Curb Capital Flows in 'Hot' Cities. China should curb capital flows in "hot" cities to control property prices, a front-page commentary says. Banks should reduce financial support to high-priced property projects, according to the commentary. China should prevent capital flows to property sector via "structured leverage tools," the commentary said.

Night Trading 

• Asian equity indices are -.25% to +.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 114.0 -2.25 basis points.
• Asia Pacific Sovereign CDS Index 33.25 -1.75 basis points.
• Bloomberg Emerging Markets Currency Index 70.21 -.09%. 
• S&P 500 futures +.01%. 
• NASDAQ 100 futures +.03%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (ANGO)/.16
• (AZZ)/.87
• (GBX)/.83

Economic Releases
8:30 am EST

• The Trade Deficit for November is estimated at -$45.4B versus -$42.6B in October.
• The Change in Non-Farm Payrolls for December is estimated at 175K versus 178K in November.
• The Unemployment Rate for December is estimated to rise to 4.7% versus 4.6% in November.
• Average Hourly Earnings for December MoM is estimated to rise +.3% versus a -.1% decline in November. 

10:00 am EST

• Factory Orders for November are estimated to fall -2.3% versus a +2.7% gain in October.
• Final Durable Goods Orders for November are estimated to fall -4.6% versus a prior estimate of a -4.6% decline. 

Upcoming Splits 

• None of note

Other Potential Market Movers

• The Fed's Evans speaking, Fed's Lacker speaking, Fed's Kaplan speaking and the German Factory Orders report could also impact trading today.

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

Stocks Slightly Lower into Final Hour on Earnings Outlook Worries, Yen Strength, Profit-Taking, Retail/Financial Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Lower
  

• Sector Performance: Mixed
  

• Volume: Around Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 11.82 -.25%

• Euro/Yen Carry Return Index 127.88 -.47%

• Emerging Markets Currency Volatility(VXY) 11.34 +2.16%

• S&P 500 Implied Correlation 47.16 +1.25%

• ISE Sentiment Index 104.0 +28.4%
  

• Total Put/Call 1.15 +32.18%

• NYSE Arms .92 -9.48%

Credit Investor Angst:

• North American Investment Grade CDS Index 64.12 -.11%
  

• America Energy Sector High-Yield CDS Index 427.0 -.64%

• European Financial Sector CDS Index 87.19 +1.68%

• Western Europe Sovereign Debt CDS Index 20.95 +4.14%

• Asia Pacific Sovereign Debt CDS Index 33.64 -3.80%

• Emerging Market CDS Index 227.50 -2.31%
  

• iBoxx Offshore RMB China Corporate High Yield Index 132.83 +.03%

• 2-Year Swap Spread 25.75 +1.5 basis points

• TED Spread 48.0 +1.0 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -45.0 +1.25 basis points
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 70.22 +.66%
• 3-Month T-Bill Yield .52% -1.0 basis point

• Yield Curve 119.0 -3.0 basis points
  

• China Import Iron Ore Spot $78.93/Metric Tonne +2.17%

• Citi US Economic Surprise Index 28.90 +3.4 points

• Citi Eurozone Economic Surprise Index 59.60 -1.0 basis point

• Citi Emerging Markets Economic Surprise Index 24.0 -1.6 points

• 10-Year TIPS Spread 1.98%-2.0 basis points
• 31.3% chance of Fed rate hike at March 15 meeting, 45.0% chance at May 3 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -31 open in Japan 
• China A50 Futures: Indicating +64 open in China

• DAX Futures: Indicating -10 open in Germany

Portfolio: 

• Slightly Lower: On losses in my retail sector longs and emerging market shorts

• Disclosed Trades: None

• Market Exposure: 50% Net Long