Stocks Reversing Lower into Final Hour on Profit-Taking, Govt Shutdown Worries, Yen Strength, Retail/Energy Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Modestly Lower
  

• Sector Performance: Mixed
  

• Volume: Heavy

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 12.1 +18.7%

• Euro/Yen Carry Return Index 141.05 -.15%

• Emerging Markets Currency Volatility(VXY) 7.76 +1.31%

• S&P 500 Implied Correlation 34.78 +5.8%

• ISE Sentiment Index 107.0  +10.3%
  

• Total Put/Call .68 -8.11%

• NYSE Arms 1.25 +.92%

Credit Investor Angst:

• North American Investment Grade CDS Index 48.19 +2.79%
  

• America Energy Sector High-Yield CDS Index 318.0 -.09%

• European Financial Sector CDS Index 42.68 -1.04%

• Italian/German 10Y Yld Spread 140.75 +.5 basis point
  

• Asia Pacific Sovereign Debt CDS Index 9.89 +.61%

• Emerging Market CDS Index 110.34 +.78%
  

• iBoxx Offshore RMB China Corporate High Yield Index 146.78 +.13%

• 2-Year Swap Spread 20.0 +.75 basis point

• TED Spread 27.25 -.75 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -23.75 -.75 basis point

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 75.55 -.15%
• 3-Month T-Bill Yield 1.42% -2.0 basis points
  

• Yield Curve 52.75 -2.25 basis points

• China Iron Ore Spot 506.50 CNY/100 Metric Tonnes +.40%

• Citi US Economic Surprise Index 65.60 -4.8 points

• Citi Eurozone Economic Surprise Index 56.60 -1.7 basis points

• Citi Emerging Markets Economic Surprise Index 5.1 -1.3 basis points

• 10-Year TIPS Spread 2.04 +2.0 basis points
  
• 88.2% chance of Fed rate hike at March 21 meeting, 88.7% chance at May 2 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -251 open in Japan 
• China A50 Futures: Indicating +35 open in China

• DAX Futures: Indicating -98 open in Germany

Portfolio: 

• Slightly Lower: On losses in my biotech/retail sector longs

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

• Market Exposure: Moved 75% Net Long

Bear Radar

Style Underperformer:

• Small-Cap Growth -.2%

Sector Underperformers:

• 1) Alt Energy -1.2% 2) Steel -1.1% 3) Biotech -1.1%

Stocks Falling on Unusual Volume: 

• SIMO, TAL, TSRO, AGIO, GE, CAR, XON, HTZ, ZAGG, UA, AVXS, CLVS and BMY

Stocks With Unusual Put Option Activity:

• 1) PF 2) TMUS 3) ABC 4) SPXU 5) CL

Stocks With Most Negative News Mentions:

• 1) SIMO 2) UAA 3) FNSR 4) ONCE 5) BHGE

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Value +.3%

Sector Outperformers:

• 1) Gaming +3.0% 2) REITs +1.3% 3) Robotics +1.1%

Stocks Rising on Unusual Volume:

• HAWK, PKE, ENR, LADR, NHTC, BPT, CASA, MRK, NSH, IIPR, INFY, VIPS, BOTZ, BA, AWK, MSB, SLF, TGS, BB, AFL, FANH, MTN, SPB, KALA, GG, MGP, OSIS, TER and AYI

Stocks With Unusual Call Option Activity:

• 1) DISH 2) QCOM 3) FAST 4) MRK 5)UNH

Stocks With Most Positive News Mentions:

• 1) MRK 2) CBP 3) UNH 4) LRCX 5) FLR

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running +43.6% Above 100-Day Average
• 8 Sectors Rising, 2 Sectors Declining
• 67.1% of Issues Advancing, 30.1% Declining
• 382 New 52-Week Highs, 21 New Lows
• 65.6% of Issues Above 200-day Moving Average
• Average 14-Day RSI 55.3%
• Vix 10.8 +6.2%
• Total Put/Call .54 -27.0%
• TRIN/Arms 1.77 +171.3%

Tuesday Watch

Today's Headlines

Bloomberg:

• Xi Jinping’s Debt Clampdown Has Left a Trail of Dead Projects. A pile of rusty pipes and materials are all that remain of Lanzhou New Area’s tram project. Only a year ago it was a flagship public-private partnership for the planned city in Central China, before it fell victim to President Xi Jinping’s debt clampdown.

• China Escalates Crackdown on Cryptocurrency Trading. (video)

• Lira Falls as Erdogan Warns of Attack on Syria at Any Moment. Turkey’s currency weakened for the first time in three days, extending early losses against the dollar on Monday after President Recep Tayyip Erdogan warned of a potentially imminent offensive against a Kurdish stronghold in northwest Syria, raising the prospect of further escalating tensions with the U.S.

• Dollar Down, Euro Gains; Asia Stock Futures Steady. Stock-index futures declined in Japan, while contracts for markets in South Korea and Australia signaled a muted open on Tuesday. Focus remains on China’s yuan, trading at the strongest level in more than two years and prompting speculation about possible steps to cool its gains. The euro held gains after comments from ECB Governing Council member Ardo Hansson on the prospect of a September end to bond purchases. Futures on Japan’s Nikkei 225 slid 0.6 percent in Chicago trading. Futures on Australia’s S&P/ASX 200 Index and on South Korea’s Kospi index were little changed. Futures on Hong Kong’s Hang Seng Index added 0.1 percent after yesterday coming close to its all-time high reached in 2007. The Stoxx Europe 600 Index declined 0.2 percent. Futures on the S&P 500 Index remained 0.2 percent higher, with American equity markets poised to reopen Tuesday after the holiday.

• Five Things You Need to Know to Start Your Day.

• Great Iron Ore Wave Set to Peter Out as Exporters Hit Targets. Rio Tinto Group forecasts its iron ore shipments will remain flat this year or rise by 3 percent at most, reinforcing market sentiment that a wave of new supply is turning into a trickle. The world’s second-largest exporter expects shipments from Western Australia of between 330 million metric tons and 340 million tons in 2018, the company said Tuesday, confirming guidance published last month. That compares with 330.1 million metric tons recorded last year.

• GOP Sees Possible DACA Deal as Trump Bemoans Sticking Points. Republican lawmakers held out hope that a deal can be reached allowing young undocumented immigrants to remain in the U.S., despite President Donald Trump saying the effort is “probably dead” amid growing tensions about keeping the government funded past Friday. Trump told reporters on his way to a dinner Sunday evening that “I don’t know if there is going to be a shutdown” at the end of the week. Heading to dinner at his Palm Beach, Florida, golf club with House Majority Leader Kevin McCarthy, Republican of California, Trump said that on immigration “we have a lot of sticking points but they are all Democrat sticking points,” adding “they don’t want security at the border.”

Wall Street Journal: 

• U.S. Warned Jared Kushner About Wendi Deng Murdoch. Officials said the businesswoman could be trying to further Beijing’s interests, people familiar with the matter say.

• Shutdown Deadline Looms as Congress Deal Remains Elusive. President Trump’s recent remarks complicate talks on spending levels and immigration, congressional aides say.

• Shell Bids a Long Goodbye to Middle Eastern Oil. Energy company abandons last Iraqi oil fields but maintains a presence in natural-gas industry.

• Confirming Judges, a Trump Win in 2017, May Get Tougher. Democrats see improved position to push back on nominees with narrower Senate margin and cracks in GOP unanimity.

MarketWatch.com:

• Heed Warren Buffett’s warning: bitcoin is pure FOMO. Cryptocurrency mania rests on greater fools.

• How to best play the oil rally — and it’s not by buying WTI or Brent.

• 5 stocks to capitalize on the records being set by the Dow Jones Transportation Index.

Fox News: 

• Democrats ramp up efforts to boycott Trump's State of the Union address. (video)

CNBC:

• Woman dies after fire engulfs casino shuttle boat off Florida's Gulf Coast; 14 others injured.

• Apple’s(AAPL) iPhone 7 Plus was the second-best selling phone in China last year.

• Trump's going to Davos where 'America First' will be his buzzword.

• South Korea says it will decide on what to do about crypto exchanges after talks.

• North Korean news agency threatens Olympics pullout after Seoul praises Trump.

• Cheap oil over for now? Trader Robert Raymond sees reasons to get bullish. (video)

Zero Hedge:  

• Watch A Sitting Congresswoman Shred The MSM Narrative In Under A Minute.

• Norway's $1.1 Trillion Wealth Fund Goes All-In On Asset Bubbles, Seeks Permission To Invest In Private Equity.

• Democratic Candidate For Illinois Attorney General Mugged At Gunpoint During Chicago Photo Shoot.

• Latest O'Keefe Video Exposes How Creepy Twitter(TWTR) Really Is: "They're Paid To Look At Your XXX Pics".

• Illinois Treasurer Shoots Self In Foot Defending Activist Social Investing.

• FBI Probe Into Russian Uranium Bribes Concealed By Obama DOJ; Mueller, McCabe, Rosenstein Involved.

• More Than 100 Now Dead As Worst Flu Epidemic In Years Sweeps Across US.

• China Is Heaping Debt On Its Least Productive Companies.

• Dollar Tumbles As Euro Soars To 3-Year High; US Markets Closed. (graph)

• UK Construction Giant With 43,000 Employees Collapses.

• How One Employee "Pushed The Wrong Button" And Unleashed Doomsday Panic Across Hawaii.

• UAE Accuses Qatar Of Intercepting Two Commercial Planes, Stocks Plunge.  

Business Insider: 

• Mark Zuckerberg's former mentor has spent a week attacking Facebook for becoming 'toxic'.

• SOROS: 'The dominant ideology in the world now is nationalism'.

• The floor of the Jakarta Stock Exchange has collapsed, injuring at least 72.

• Apple(AAPL) has an obligation to make the iPhone safer for kids.

• A new study found that 700 Amazon(AMZN) employees in Ohio are on food stamps.

• 'I’m bored of bitcoin already': Fund manager tells crypto investors to cash out while they can.

• The euro is at its highest level in more than 3 years.

Night Trading

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

• Asia Ex-Japan Investment Grade CDS Index 60.75 +.75 basis point.

• Asia Pacific Sovereign CDS Index 10.0 -.5 basis point.

• Bloomberg Emerging Markets Currency Index 75.66 -.01%.

• S&P 500 futures +.13%.

• NASDAQ 100 futures +.04%.

Morning Preview Links

Earnings of Note

Company/Estimate

• (AZZ)/.51

• (OZRK)/.55

• (C)/1.19

• (CMA)/1.25

• (UNH)/2.51

• (ADTN)/.00

• (CSX)/.56

• (IBKR)/.40

Economic Releases
8:30 am EST

• Empire Manufacturing for January is estimated to rise to 19.0 versus 18.0 in December.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Congressional recommendation on steel/aluminum import tariffs, UK CPI report, Eurozone CPI report and the Deutsche Bank Auto Conference could also impact trading today.

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