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

Bear Radar

Style Underperformer:

• Mid-Cap Value +.5%

Sector Underperformers:

• 1) Steel -1.6% 2) Shipping -.8% 3) Papers -.4%

Stocks Falling on Unusual Volume: 

• ZGNX, DSLV, CREE, MSG, GWPH, SPLK, LB, RGS, VRTU, BLKB, VRTU, BLKB, ALXN, GLP, TLND, DSGX, ADS, ROK, NEWR, TW and RGS

Stocks With Unusual Put Option Activity:

• 1) BK 2) EWY 3) BBT 4) AXL 5) VMW

Stocks With Most Negative News Mentions:

• 1) LB 2) FRED 3) CREE 4) JNJ 5) AXAS

Charts:

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

Bull Radar

Style Outperformer:

• Small-Cap Value +.9%

Sector Outperformers:

• 1) Alt Energy +1.1% 2) Telecom +1.0% 3) Retail +1.0%

Stocks Rising on Unusual Volume:

• AMEH, MDCO, PDCE, GOSS, FSLY, FGEN, FOSL, MRNA, CDXS, FL, LYFT, FOSL and IOTS

Stocks With Unusual Call Option Activity:

• 1) CBLK 2) MDCO 3) VMW 4) RF 5) BREW

Stocks With Most Positive News Mentions:

• 1) MDCO 2) TOMZ 3) DISH 4) AMGN 5) LYFT

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running -23.7% Below 100-Day Average
• 10 Sectors Rising, 1 Sector Declining
• 65.3% of Issues Advancing, 31.6% Declining
• 37 New 52-Week Highs, 96 New Lows
• 44.5% of Issues Above 200-day Moving Average
• Average 14-Day RSI 41.2%
• Vix 21.1 +6.2%
• Total Put/Call 1.07 -10.1%
• TRIN/Arms 1.04 -56.8%

Monday Watch

Today's Headlines

Bloomberg:

• Trump Clarifies His Trade Regrets: China Tariffs Should Be Higher.

• China Preparing for Worsening U.S. Ties, Global Times’ Hu Says.  

• Tensions Escalate at Hong Kong Protest With Police Weapon Fired.

• Trump Aides Say He Has Power to Force Companies From China.

• Trump, Abe Cite Agreement in Principle on U.S.-Japan Trade Deal.  

• Macron Invites Iran's Zarif to G-7 Sidelines, Risks U.S. Outrage.  

• France Dangles Prospect of Zarif Meeting U.S. Team: G-7 Update.  

• U.S. Stock Futures Tumble, Yen Gains on Trade War. U.S. equity futures tumbled while the yen and Treasury contracts climbed after the latest escalation in the Sino-American trade war. The yuan weakened and stocks looked headed for steep losses in Asia. Futures were more than 2% lower in Tokyo and Hong Kong. S&P 500 contracts fell more than 1% after sliding Friday, when President Donald Trump announced additional levies on Chinese imports and called for American companies to pull out of Asia’s largest economy after China said it would impose retaliatory tariffs on U.S. goods. Trump acknowledged having second thoughts on escalating the trade war, only for aides to clarify he meant he regretted not raising tariffs even more. The yen touched a fresh 2019 high against the greenback, while the Aussie and kiwi dipped. Futures on the S&P 500 retreated 1.3% as of 7:31 a.m. in Tokyo. The underlying index sank 2.6% on Friday. Futures on Japan’s Nikkei 225 fell 2.6%. Hang Seng futures declined 2.4%. Futures on Australia’s S&P/ASX 200 Index lost 1.3%.

• Mideast Stocks Slide in Sign of Damage to Come From Trade War.   

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

• Oil Declines for a Fourth Day After Escalation in Trade War.

• Mnuchin Says Don't Take Trump's ‘Enemy’ Barb at Powell Literally.  

• Tropical Storm Dorian Moves Toward Caribbean Island of Barbados.   

• Target(TGT), Disney(DIS) Partner on Displays For Holidays.

Wall Street Journal:

• Latest Stock Volatility Adds to August Turbulence.

• David Koch.

• The New Pay Gap: What Firms Report Paying CEOs Versus What They Take Home.

• Americans Have Shifted Dramatically on What Values Matter Most.

• Trump Gambles That Trade War Will Pay Off in 2020.

• Hong Kong Protests Force Companies to Choose: Their Employees or China.

Fox News:

• Sanders camp weighs in after Biden's Obama comments make waves.

CNBC:

• Trump on US-China trade war: ‘I could declare a national emergency’

• At G-7, Trump says he is not happy about North Korea missile test.

• Trump hints at a ‘very big trade deal’ with Britain post Brexit.

• Kudlow does not expect China to retaliate against Trump’s latest tariffs despite Beijing’s warning.

Zero Hedge:   

• Chaos Continues: Gold Spikes, Yuan Crashes, Stocks Plunge As Asia Opens.

• Turkish Lira Flash Crashes, Plummets 15% In Seconds.

• China's Patience Runs Out As Beijing Signals It Has "Responsibility To Intervene" In Hong Kong.

• Trump Says He Regrets Escalating Trade War With China, White House Immediately Retracts.

• UK Birth Rate Plunges To Lowest Level In 80 Years As More Women Choose Careers Over Motherhood.

• New Video Emerges Of 6-Ton Russian Drone That Can Stay Aloft For 24-Hours.

• BigBrotherWatch: Facial Recognition "Epidemic" In The UK.

• YouTube Banning Robot Fighting Videos Over 'Animal Cruelty' .

• What Globalism Did Was To Transfer The US Economy To China, PCR.

Business Insider:

• Hong Kong police deployed water cannons for the first time after protests over surveillance turned violent.

• Muslims in China's most oppressed, closed-off region are turning to China's version of Gen Z favorite TikTok to communicate with the world.

Telegraph:

• The eurozone risks imploding - only a German spending spree can save it.

• Boris’s dastardly Brexit plan: keep stringing ’em along until it happens.

Night Trading

• Asian indices are -2.5% to -1.5% on average.

• Asia Ex-Japan Investment Grade CDS Index 64.5 +.25 basis point.

• China Sovereign CDS 50.25 +4.0 basis points.

• Bloomberg Emerging Markets Currency Index 65.15 -.25%.

• FTSE 100 futures n/a.

• S&P 500 futures -1.16%.

• NASDAQ 100 futures -1.37%.

Morning Preview Links

Earnings of Note

Company/Estimate

Before the Open:

• (OSIS)/1.06

After the Close:

• None of note

Economic Releases
8:30 am EST

• The Chicago Fed National Activity Index for July.

• Preliminary Durable Goods Orders for July is estimated to rise +1.1% versus a +1.9% gain in June.

• Preliminary Durables Ex Transports for July is estimated unch. versus a +1.0% gain in June.

• Preliminary Cap Goods Orders Non-Defense Ex-Air for July is estimated unch. versus a +1.5% gain in June. 
  

10:30 am EST

• The Dallas Fed Manufacturing Activity Index for August is estimated to rise to -1.0 versus -6.3 in July.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Germany IFO Business Climate Index and the Jefferies Semi/IT Hardware/Communications Infrastructure Conference  could also impact trading today.

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

Weekly Outlook

• Wall St. Week Ahead by Reuters. 
• Weekly Market Outlook by Yahoo. (video)
• Global Economy Week by Bloomberg.
• Stocks to Watch Next Week by Seeking Alpha.
• Weekly Economic Calendar by Briefing.com.

BOTTOM LINE: I expect US stocks to finish the week modestly lower on European/Emerging Markets/US High-Yield Debt Angst, technical selling, China trade deal fears, oil weakness, global growth concerns and US dollar strength. My intermediate-term trading indicators are giving neutral signals and the Portfolio is 25% net long heading into the week.

Today's Headlines

Bloomberg:       

• Trump Raises Tariffs on China as Frustration Mounts.

• French Riot Police Fire Tear Gas on Protesters: G-7 Update.

• Johnson Issues Veiled Warning to Trump on Trade: G-7 Update.    

• Hong Kong's Lam Meets Ex-Officials, Pleads for End to Deadlock.

• Amazon(AMZN) Joins Walmart(WMT) in Saying Tesla(TSLA) Solar Panel Caught Fire.  

• Drama in Biarritz, Biden’s Weak Spot, Dead Bees: Weekend Reads.

• Your Weekend Reading: Trump Brings Trade War to France.

• Oil Short-Sellers Make a Wrong-Way Bet as China Blindsides the Market.

• Several Small Cities Offer Big Tech Employment Opportunities.

Wall Street Journal:

• World Leaders Meet Amid Divisions Over Trade, Environment.

• Your Next Home Might be Appraised by a Robot.

• Amazon(AMZN) Has Ceded Control of Its Site. The Result: Thousands of Banned, Unsafe or Mislabeled Products.

• Powell Issues Warning Over Trade, Signals More Rate Cuts Are Possible.

• Hong Kong Erupts in Fresh Violence as Protesters, Police Brawl.

• Cities Are Saying ‘No’ to 5G, Citing Health, Aesthetics—and FCC Bullying.

Barron's:

• Had bullish commentary on  (DIS), (FOXA), (ULTA), (CMCSA), (CBS), (JPM), (AXP) and (DFS).

• Had bearish commentary on (BK) and (STT).

MarketWatch.com:

• Cloudflare IPO: 5 things to know about the cloud-network platform.

Fox News:

• Furious residents demand changes after homeless crisis spirals in city.

• Bill Maher rejoices in David Koch’s passing: ‘F--- him’.

CNBC:

• China’s enormous debt ‘no longer can be ignored,’ analyst says.

• 
  Shares of companies that manufacture in China plunge after Trump orders them to move.
  

• Japan coastguard says it detected North Korean ballistic missile launch.

• Here’s a list of American products targeted by China’s new tariffs.

• Fed Vice Chair Clarida says the global economic outlook has worsened since July meeting.

• Trump will raise tariff rates on Chinese goods in response to trade war retaliation.

• Dow plummets more than 600 points after Trump orders US manufacturers to leave China.

Zero Hedge:

• Here's What To Expect From This Weekend's "Nightmare" G-7 Summit.

• US Slams China's Escalating Oil & Gas 'Interference' In Vietnam Recognized Waters.

• Trump Hikes Tariffs On Chinese Goods In Retaliation To Trade War Escalation.

• In Unprecedented, Shocking Proposal, BOE's Mark Carney Urges Replacing Dollar With Libra-Like Reserve Currency.

• Stocks Plunge After Trump Vows To Retaliate To China "This Afternoon", Orders US Companies To Find "An Alternative To China".

• Japan Requests US Marines Deploy F-35s On Its Largest Warships Over China Incursion Fears.

• Hong Kong Riot Police Beat Protesters; 'Smart Lampposts' Destroyed.

• China Responds To Trump's "Barbaric" Tariffs: Vows To Fight "Until The End" And Have "The Last Laugh".

• Biden Asks Town Hall: What If Obama Had Been Assassinated?

• California Governor Blames Texas For California's Policies That Caused The Homeless Crisis.

• Iranian Tanker Showdown Heads To Turkey.

• More Wildfires Are Burning In Angola & Congo Than Brazil.

• 'This Is An Appalling Kowtow To Beijing' - Hong Kong Workers Fired For Supporting Protests.

• Desperate DNC Chair Set to Hold Fundraisers … In Mexico.

• DoJ: 64% Of All Federal Arrests In 2018 Were Non-Citizens.

• Will Europe Punish China If Xi Crushes Hong Kong?

• Stocks, Dollar, Yields Crash; Gold Explodes As Stunned Traders React To Series Of Surreal Events. 

Business Insider:

• 'Like you've been fired from your job': YouTubers have lost thousands of dollars after their channels were mistakenly demonetized for months.

The Telegraph:

• Tencent: the Chinese tech giant snapping up chunks of Hollywood. But what exactly does it want?

• Is it any longer possible for Western companies to conduct meaningful business in China?