Stocks Reversing Sharply Lower into Final Hour on Mueller Investigation Worries, Yen Strength, Profit-Taking, Tech/Transport Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Lower
  

• Sector Performance: Mixed
  

• Volume: Heavy

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 12.4 +10.3%

• Euro/Yen Carry Return Index 138.97 -.46%

• Emerging Markets Currency Volatility(VXY) 7.92 -.75%

• S&P 500 Implied Correlation n/a

• ISE Sentiment Index 115.0 +4.55%
  

• Total Put/Call .70 -16.67%

• NYSE Arms .69 -16.89%

Credit Investor Angst:

• North American Investment Grade CDS Index 52.74 +.84%
  

• America Energy Sector High-Yield CDS Index 370.0 -1.74%

• European Financial Sector CDS Index 46.95 +.13%

• Western Europe Sovereign Debt CDS Index 3.48 -.29%

• Asia Pacific Sovereign Debt CDS Index 13.79 +.04%

• Emerging Market CDS Index 181.07 -.06%
  

• iBoxx Offshore RMB China Corporate High Yield Index 145.60 unch.

• 2-Year Swap Spread 18.25 -.25 basis point

• TED Spread 23.5 +4.25 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -47.75 -.5 basis point

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 73.26 +.05%
• 3-Month T-Bill Yield 1.26% unch.
  

• Yield Curve 59.0 -3.75 basis points

• China Import Iron Ore Spot $70.11/Metric Tonne +2.91%

• Citi US Economic Surprise Index 60.10 +.7 point

• Citi Eurozone Economic Surprise Index 70.30 -1.0 basis points

• Citi Emerging Markets Economic Surprise Index 1.80 +.2 point

• 10-Year TIPS Spread 1.88 unch.
  
• 100.0% chance of Fed rate hike at Jan. 31 meeting, 100.0% chance at March 21 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -160 open in Japan 
• China A50 Futures: Indicating -83 open in China

• DAX Futures: Indicating +81 open in Germany

Portfolio: 

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

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

• Market Exposure: Moved to 75% Net Long

Morning Market Internals

NYSE Composite Index:

• Volume Running +14.6% Above 100-Day Average
• 6 Sectors Rising, 4 Sectors Declining
• 54.1% of Issues Advancing, 42.3% Declining
• 115 New 52-Week Highs, 12 New Lows
• 62.2% of Issues Above 200-day Moving Average
• Average 14-Day RSI 52.6%
• Vix 11.2 -.44%
• Total Put/Call .66 -21.4%
• TRIN/Arms .56 -32.2%

Friday Watch

Evening Headlines

Bloomberg:

• Japan’s Inflation Edges Higher But Remains Far From Target. (video) Japanese inflation sped up in October but price rises are still less than half the central bank’s target, despite the tightest labor market in decades.

• Korea's Inflation Slips to 1-Year Low While GDP Strengthens. (video) South Korea’s inflation unexpectedly slowed to a one-year low as the government lowered city gas charges and vegetable prices stabilized on higher farm output. Economic growth was slightly stronger than the central bank’s initial estimate and exports expanded close to 10 percent.

• Asia Stocks Pare Gains as U.S. Equity Futures Drop. (video) Japanese shares gave up an advance that briefly helped the Nikkei 225 Stock Average reclaim a 25-year high reached in November. Shares rose in Australia and fell in Hong Kong. The Dow Jones Industrial Average climbed past 24,000 after John McCain backed the Senate tax bill, and the S&P 500 Index capped its longest monthly winning streak since 2007 as technology stocks rebounded. Treasuries held a slide, with the 10-year yield breaking above 2.4 percent. The dollar came under pressure after the U.S. Senate suspended votes on the bill until Friday as it emerged a key compromise to help its passage collapsed. The Topix index was down 0.2 percent as of 10:50 a.m. in Tokyo and the Nikkei 225 Stock Average fell 0.1 percent after earlier jumping as much as 1.2 percent to touch the highest since 1992. Australia’s S&P/ASX 200 Index advanced 0.4 percent. The Kospi index was down 0.1 percent. Hong Kong’s Hang Seng Index lost 0.3 percent. The Shanghai Composite Index was down 0.4 percent.

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

• Uber Investor Shervin Pishevar Accused of Sexual Misconduct by Multiple Women. Five women tell Bloomberg the venture capitalist used his position of power to pursue romantic relationships and unwanted sexual encounters.

• Bristol-Myers(BMY) Cancer Drug Opdivo Shows Surprising HIV Impact. Bristol-Myers Squibb Co.’s blockbuster drug Opdivo had a stunning effect on a lung-cancer patient treated at a Paris hospital: it drained hard-to-reach reservoirs of his HIV infection, too.

Wall Street Journal:

• Dow Industrials Climb 332 Points to Finish Above 24000. Blue-chip index hits fifth thousand-point milestone this year as hopes grow for a tax bill.

• Senate Bill Hits Obstacle Over Deficit Concern. ‘It doesn’t look like the trigger’s going to work,’ Sen. John Cornyn says.

• When Democrats Backed Tax Cuts. In 2001, Bush won support from a dozen of them in the Senate and 28 in the House.

• Electricity Prices Plummet as Gas, Wind Gain Traction and Demand Stalls. Texas is a microcosm of pressures facing power generators; ‘It’s too late’ for coal.

• China’s Tech Giants Have a Second Job: Helping Beijing Spy on Its People. Tencent and Alibaba are among the firms that assist authorities in hunting down criminal suspects, silencing dissent and creating surveillance cities. 

• CVS Health(CVS) Closes In on Deal to Buy Aetna(AET). Deal would likely be valued at between $200 and $205 per Aetna share, sources say.

• FDA to Allow Quicker Approval of Some Promising Cancer Drugs. Commissioner Scott Gottlieb says there will be more cases of drugs that show early and large potential.

MarketWatch.com:

• Republican tax plan heads for Senate vote: live updates.

Fox News:

• Senate Ethics Committee opens 'preliminary inquiry' into Al Franken allegations. (video)

CNBC:

• Bitcoin is already dwarfing some of the largest financial market bubbles of all time. (video)

• Amazon(AMZN) is in exploratory talks with generic-drug makers. (video)

• GM thinks it can make billions in the ride-hailing business with its self-driving cars. (video)

• US formally opposes China market economy status at WTO.

• Apple(AAPL) COO Jeff Williams on Apple's next steps in health.

• Robots may replace 800 million workers by 2030. These skills will keep you employed.

• Stocks could surge by 17 percent — if tax reform passes. (video)

Zero Hedge:

• "We Fought Hard But Did Not Deliver": $2.2BN Hutchin Hill Is Shutting Down.

• Obese Millennials Jeopardize America's Future: Study.

• Satellite Photos Show North Korea Preparing Another Missile Launch.

• Russian Marines Deploy To North Korean Border After ICBM Launch.

• Senate Bill Nearly Killed By Deficit Hawks: Will Include $350 Billion In New Tax Hikes.

• "Huge Bag Of Sex Toys": At Least 8 Women Now Accuse Lauer Of Harassment.

• McCain Mania Sends Dow Soaring To Record Highs As Yield Curve Collapse Continues. (graph)

Night Trading 

• Asian equity indices are -.25% to +.75% on average.

• Asia Ex-Japan Investment Grade CDS Index 73.25 +.5 basis point. 

• Asia Pacific Sovereign CDS Index 13.75 unch.

• Bloomberg Emerging Markets Currency Index 73.32 +.02%.

• S&P 500 futures -.33%.

• NASDAQ 100 futures -.40%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (AMWD)/1.22

• (BIG)/.04

• (GCO)/1.12

Economic Releases

10:00 am EST

• ISM Manufacturing for November is estimated to fall to 58.3 versus 58.7 in October. 

• ISM Prices Paid for November is estimated to fall to 67.0 versus 68.5 in October.

• Construction Spending for October is estimated to rise +.5% versus a +.3% gain in September.

Afternoon:

• Wards Total Vehicle Sales for November are estimated to fall to 17.5M versus 18.0M in October.
  

Upcoming Splits

• (CGNX) 2-for-1

Other Potential Market Movers

• The Senate vote on tax reform, Fed's Bullard speaking, Fed's Kaplan speaking, China Manufacturing PMI report and the Eurozone GDP report could also impact trading today.

BOTTOM LINE:  Asian indices are mostly higher, boosted by transport and technology shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing modestly higher.  The Portfolio is 100% net long heading into the day.

Stocks Surging into Final Hour on Tax Reform Hopes, Economic Optimism, Yen Weakness, Energy/Transport Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Modestly Higher
  

• Sector Performance: Most Sectors Rising
  

• Volume: Heavy

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 11.0 +2.8%

• Euro/Yen Carry Return Index 139.48 +.88%

• Emerging Markets Currency Volatility(VXY) 7.98 +.38%

• S&P 500 Implied Correlation n/a

• ISE Sentiment Index 110.0 +32.5%
  

• Total Put/Call .76 +8.57%

• NYSE Arms .97 +64.98%

Credit Investor Angst:

• North American Investment Grade CDS Index 52.28 -1.12%
  

• America Energy Sector High-Yield CDS Index 386.0 -.86%

• European Financial Sector CDS Index 46.84 +1.05%

• Western Europe Sovereign Debt CDS Index 3.49 -.57%

• Asia Pacific Sovereign Debt CDS Index 13.77 -1.33%

• Emerging Market CDS Index 181.52 -.31%
  

• iBoxx Offshore RMB China Corporate High Yield Index 145.60 +.04%

• 2-Year Swap Spread 18.5 +.75 basis point

• TED Spread 19.25 unch.

• 3-Month EUR/USD Cross-Currency Basis Swap -47.25 +1.25 basis points

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 73.24 -.08%
• 3-Month T-Bill Yield 1.26% -2.0 basis points
  

• Yield Curve 62.75 +1.25 basis points

• China Import Iron Ore Spot $68.13/Metric Tonne +.31%

• Citi US Economic Surprise Index 59.40 +.5 point

• Citi Eurozone Economic Surprise Index 71.30 -10.6 basis points

• Citi Emerging Markets Economic Surprise Index 1.60 -8.0 points

• 10-Year TIPS Spread 1.88 +1.0 basis point
  
• 100.0% chance of Fed rate hike at Jan. 31 meeting, 100.0% chance at March 21 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +204 open in Japan 
• China A50 Futures: Indicating +77 open in China

• DAX Futures: Indicating +26 open in Germany

Portfolio: 

• Higher: On gains in my tech/biotech/medical sector longs

• Disclosed Trades: None

• Market Exposure: 100% Net Long

Bear Radar

Style Underperformer:

• Small-Cap Value -.1%

Sector Underperformers:

• 1) Steel -.8% 2) Gold & Silver -.5% 3) REITs -.3%

Stocks Falling on Unusual Volume: 

• CPL, UVSP, SGH, GTN, AXTA, JNPR, SMTC, NUAN, AZUL, BOX, OSTK, STMP, MOMO, JNPR and BKE

Stocks With Unusual Put Option Activity:

• 1) AET 2) HCA 3) OCN 4) SFM 5) S

Stocks With Most Negative News Mentions:

• 1) CATO 2) BKE 3) GNC 4) PFS 5) FFIC

Charts:

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