Stocks Lower into Final Hour on China Trade Deal Worries, Global Growth Fears, Technical Selling, Healthcare/Energy Sector Weakness

 Broad Equity Market Tone:

• Advance/Decline Line: Substantially Lower
  

• Sector Performance: Most Sectors Declining
  

• Volume: Around Average

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• Volatility(VIX) 20.17 +4.5%

• Euro/Yen Carry Return Index 121.86 -.39%

• Emerging Markets Currency Volatility(VXY) 9.25 -.54%

• S&P 500 Implied Correlation 47.56 +6.2%

• ISE Sentiment Index 95.0 +10.5%
  

• Total Put/Call 1.0 -6.5%

• NYSE Arms 1.17 +80.3%

Credit Investor Angst:

• North American Investment Grade CDS Index 56.54 -.43%
  

• America Energy Sector High-Yield CDS Index 423.0 -.73%

• European Financial Sector CDS Index 60.49 -6.24%

• Italian/German 10Y Yld Spread 183.25 -15.75 basis points
  

• Asia Ex-Japan Investment Grade CDS Index 65.82 -.19%
  

• Emerging Market CDS Index 214.72 +.29%
  

• iBoxx Offshore RMB China Corporate High Yield Index 164.79 -.03%

• 2-Year Swap Spread -2.25 -1.5 basis points

• TED Spread 18.5 unch.

• 3-Month EUR/USD Cross-Currency Basis Swap -15.0 -.75 basis point

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 64.97 -.15%

• 3-Month T-Bill Yield 1.96% -2.0 basis points

• Yield Curve -.04 -4.0 basis points

• China Iron Ore Spot 79.82 USD/Metric Tonne -2.34%

• Citi US Economic Surprise Index -13.7 +2.6 points

• Citi Eurozone Economic Surprise Index -42.0 +1.1 points

• Citi Emerging Markets Economic Surprise Index -20.5 +1.3 points

• 10-Year TIPS Spread 1.55 unch.

• 100.0% chance of Fed rate cut at Oct. 30th meeting, 100.0% chance of cut at Dec. 11th meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +39 open in Japan 

• China A50 Futures: Indicating +18 open in China

• DAX Futures: Indicating +12 open in Germany

Portfolio:

• Slightly Higher: On gains in my tech/medical sector longs and index hedges

• Disclosed Trades: None

• Market Exposure: 50% Net Long

Bear Radar

Style Underperformer:

• Small-Cap Value -1.0%

Sector Underperformers:

• 1) Tobacco -3.1% 2) Healthcare Providers -2.2% 3) Education -2.1%

Stocks Falling on Unusual Volume: 

• PM, MO, SJM, DSLV, PLAN, LANC, ORTX, INMD, IGV, RGS, BTI, BILI, TDG, PINC, ZGNX, BMO, GOSS, ASR, TME, SPLK MRNA, DGLD, CMPR, LB and MTW

Stocks With Unusual Put Option Activity:

• 1) NLY 2) ETFC 3) PM 4) VNQ 5) XHB

Stocks With Most Negative News Mentions:

• 1) SJM 2) MNK 3) RRGB 4) GTT 5) CAH

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Growth -.6%

Sector Outperformers:

• 1) Gold & Silver +3.7% 2) Video Gaming +.5% 3) Utilities +.4%

Stocks Rising on Unusual Volume:

• TSE, CAL, MDCO, AUTL, FSLY, BITA, AMWD, PZZA, ATVI, GCO, MAG, USLV and PAAS

Stocks With Unusual Call Option Activity:

• 1) TLRA 2) PM 3) MO 4) YELP 5) PZZA

Stocks With Most Positive News Mentions:

• 1) EV 2) ATVI 3) ZNGA 4) AMGN 5) FTI

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running -10.2% Below 100-Day Average
• 5 Sectors Rising, 6 Sectors Declining
• 39.6% of Issues Advancing, 57.2% Declining
• 111 New 52-Week Highs, 148 New Lows
• 45.7% of Issues Above 200-day Moving Average
• Average 14-Day RSI 42.6%
• Vix 19.9 +3.0%
• Total Put/Call .85 -20.6%
• TRIN/Arms 1.14 +72.7%

Tuesday Watch

Evening Headlines

Bloomberg: 

• Trump Shifts Tone on China But Not Tactics as Deal Grows Distant.  

• Trump Says China Badly Wants Deal, U.S. Open to Calm Negotiation.

• China Ramps Up Talk of Army Intervention Amid Hong Kong Violence.

• Asia Stocks Seen Higher as Trade Mood Swings Again. Asian stocks are set to gain at the open Tuesday as the erratic trade narrative turned hopeful, lifting U.S. equities. The dollar strengthened while 10-year Treasury yields were little changed. Futures were higher in Tokyo and Sydney, with muted gains in Hong Kong. S&P 500 Index futures dipped. U.S. shares recovered some ground on Monday following Friday’s swoon after President Donald Trump said prospects for a trade deal were better now than at any time since talks began last year. France’s Emmanuel Macron said things were moving forward between the U.S. and China. The S&P 500 Index closed near session highs in a broad-based rally, though volume was almost 20% below average. The yen retreated. Futures on the Nikkei 225 rose 1% in Singapore. S&P/ASX 200 Index contracts were up 0.3%. S&P 500 futures fell 0.1% as of 8:16 a.m. in Tokyo.  

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

• The World's Best-Performing Hedge Fund Is Up 278% This Year.

Wall Street Journal:

• Trump Softens Tone on China, Iran at G-7 Summit.

• Drone Ambitions Soar to the Stratosphere.

• Soaring Student Debt Opens Door to Relief Scams.

Fox News:

• 2020 Democrats fume at DNC over debate criteria crackdown.

• Washington Post columnist warns of need to 'burn down the Republican Party'.

CNBC:

• Amazon’s(AMZN) top treasurer leaves the company after 15 years of managing its money.

• Top options trader says now is the perfect time to buy the market dip.

• Judge rules against Johnson & Johnson(JNJ) in landmark opioid case in Oklahoma.

• Wall Street sees elevated recession risk, market woes after US and China stoke trade fears.

• The most ‘valuable’ college majors.

Zero Hedge:   

• The Great Failure Of The Climate Models.

• Israel Warns Any Hezbollah Attack Will Bring "Reprisal On Whole Lebanese State".

• Americans Under The Age Of 39 Have Completely Different Values Than The Generations That Came Before Them.

• Johnson & Johnson Ordered To Pay $572 Million In Landmark Opioid Trial.

• Stocks Jump On Trump-Pump But Yield Curve Inverts Most In Over 12 Years.

Business Insider:

• The US-China trade war has escalated dramatically in recent weeks. Here's a timeline of everything that's happened so far.

Night Trading 

• Asian equity indices are +.25% to +1.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 65.25 +.75 basis point.

• China Sovereign CDS 48.25 -2.0 basis points.

• Bloomberg Emerging Markets Currency Index  65.06 unch.

• FTSE 100 futures unch.

• S&P 500 futures -.22%.

• NASDAQ 100 futures -.20%.

Morning Preview Links 

Earnings of Note 
Company/Estimate

Before the Open:

• (AMWD)/1.98

• (PLAN)/-.16

• (EV)/.86

• (FRO)/.02

• (JLL)/-.09

After the Close:

• (ADSK)/.17

• (PAHC)/.38

• (VEEV)/.49

Economic Releases
9:00 am EST

• The 2Q House Price Purchase Index for August is estimated to rise +.2% versus a +1.1% gain in 1Q.

• The S&P CoreLogic CS 20-City MoM for June is estimated to rise +.1% versus a +.14% gain in May.

10:00 am EST

• The Richmond Fed Manufacturing Index for August is estimated to rise to -2 versus -12 in July.

• The Conference Board Consumer Confidence Index for August is estimated to fall to 129.0 versus 135.7 in July.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The German GDP report, $40B 2Y T-Note auction and the US weekly retail sales reports could also impact trading today.

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

Stocks Rising into Final Hour on Diminished China Trade Deal Tensions, Bargain-Hunting, Short-Covering, Telecom/Restaurant Sector Strength

 Broad Equity Market Tone:

• Advance/Decline Line: Higher
  

• Sector Performance: Almost Every Sector Rising
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 20.3 +2.1%

• Euro/Yen Carry Return Index 122.33 +.29%

• Emerging Markets Currency Volatility(VXY) 9.33 +4.95%

• S&P 500 Implied Correlation 47.19 -.69%

• ISE Sentiment Index 85.0 +41.7%
  

• Total Put/Call 1.02 -14.3%

• NYSE Arms .95 -69.4%

Credit Investor Angst:

• North American Investment Grade CDS Index 57.08 -1.26%
  

• America Energy Sector High-Yield CDS Index 428.0 +4.32%

• European Financial Sector CDS Index 64.53 +.25%

• Italian/German 10Y Yld Spread 199.0 -.25 basis point
  

• Asia Ex-Japan Investment Grade CDS Index 65.94 +2.08%
  

• Emerging Market CDS Index 214.03 -.27%
  

• iBoxx Offshore RMB China Corporate High Yield Index 164.84 -.02%

• 2-Year Swap Spread -.75 unch.

• TED Spread 18.5 +3.75 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -14.25 -1.75 basis points

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 65.07 -.24%
• 3-Month T-Bill Yield 1.98% +2.0 basis points

• Yield Curve 0.0 unch.

• China Iron Ore Spot 82.27 USD/Metric Tonne -3.67%

• Citi US Economic Surprise Index -16.3 +.3 point

• Citi Eurozone Economic Surprise Index -43.10 -1.6 points

• Citi Emerging Markets Economic Surprise Index -21.82-2.6 points

• 10-Year TIPS Spread 1.55 +1.0 basis point
• 100.0% chance of Fed rate cut at Oct. 30th meeting, 100.0% chance of cut at Dec. 11th meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +249 open in Japan 
• China A50 Futures: Indicating +67 open in China

• DAX Futures: Indicating +8 open in Germany

Portfolio:

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

• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges and some of my emerging market shorts

• Market Exposure: Moved to 50% Net Long