Stocks Falling into Final Hour on China Trade Tensions, Global Growth Fears, Oil Decline, Biotech/Retail Sector Weakness

 Broad Equity Market Tone:

• Advance/Decline Line: Substantially Lower
  

• Sector Performance: Almost Every Sector Rising
  

• Volume: Around Average

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• Volatility(VIX) 20.3 +7.0%

• Euro/Yen Carry Return Index 120.72 -.16%

• Emerging Markets Currency Volatility(VXY) 8.85 unch.

• S&P 500 Implied Correlation 47.11 +4.8%

• ISE Sentiment Index 72.0 +18.0%
  

• Total Put/Call 1.14 -6.6%

• NYSE Arms 1.30 +54.8%

Credit Investor Angst:

• North American Investment Grade CDS Index 55.34 +2.22%
  

• America Energy Sector High-Yield CDS Index 425.0 +1.89%

• European Financial Sector CDS Index 64.19 +2.83%

• Italian/German 10Y Yld Spread 158.25 -8.75 basis points
  

• Asia Ex-Japan Investment Grade CDS Index 64.28 -.2%
  

• Emerging Market CDS Index 214.27 -1.68%
  

• iBoxx Offshore RMB China Corporate High Yield Index 165.11 +.08%

• 2-Year Swap Spread -.75 -.5 basis point

• TED Spread 15.0 +1.25 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -15.25 -1.5 basis points

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 64.94 +.18%
• 3-Month T-Bill Yield 1.95% -3.0 basis points

• Yield Curve .01 +2.0 basis points

• China Iron Ore Spot 86.20 USD/Metric Tonne +.55%

• Citi US Economic Surprise Index -9.4 -5.2 points

• Citi Eurozone Economic Surprise Index -36.40 +1.2 points

• Citi Emerging Markets Economic Surprise Index -15.1 -1.5 points

• 10-Year TIPS Spread 1.51 -3.0 basis points
• 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 -75 open in Japan 
• China A50 Futures: Indicating -15 open in China

• DAX Futures: Indicating -5 open in Germany

Portfolio:

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

• Disclosed Trades: Added to my (IWM)/(QQQ) hedges and to my emerging market shorts

• Market Exposure: Moved to 25% Net Long

Bear Radar

Style Underperformer:

• Small-Cap Growth -1.6%

Sector Underperformers:

• 1) Gaming -2.8% 2) Semis -2.1% 3) Banks -2.1%

Stocks Falling on Unusual Volume: 

• SWAV, DSLV, NSSC, CXO, I, SY, ESTC, PAM, MOV, WSBC, AGYS, DGLD, USAC, SAM, TOT, ALXN, CP, RXN, TBK, MRNA, GNRC, MOV, ANF and SWA

Stocks With Unusual Put Option Activity:

• 1) CXO 2) SLCA 3) DOCU 4) HES 5) EWH

Stocks With Most Negative News Mentions:

• 1) MNK 2) PUMP 3) SAM 4) KPTI 5) VNTR

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Value -.8%

Sector Outperformers:

• 1) Gold & Silver +2.1% 2) Utilities +1.4% 3) REITs +.7%

Stocks Rising on Unusual Volume:

• CONN, AJX, MDCO, INMD, EBS, AMBA, HRTG, USLV, WB, YEXT, MAG, UVE, AG, SNY, PAAS and PTGX

Stocks With Unusual Call Option Activity:

• 1) MPLX 2) CLF 3) NOC 4) MDCO 5)RSX

Stocks With Most Positive News Mentions:

• 1) MDCO 2) CONN 3) EBS 4) ARDX 5) NEM

Charts:

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

Mid-Day Market Internals

NYSE Composite Index:

• Volume Running +.3% Above 100-Day Average
• 3 Sectors Rising, 8 Sectors Declining
• 33.7% of Issues Advancing, 63.7% Declining
• 124 New 52-Week Highs, 77 New Lows
• 49.0% of Issues Above 200-day Moving Average
• Average 14-Day RSI 45.6%
• Vix 19.8 +4.4%
• Total Put/Call 1.23 +.8%
• TRIN/Arms 1.41 +69.1%

Tuesday Watch

Today's Headlines

Bloomberg:

• Johnson Threatens Oct. 14 Election Over No-Deal: Brexit Update.

• China, U.S. Struggle to Set Meeting as Tariffs Erode Trust.  

• Top Chinese Developers Shrink Workforce in Sign of Tough Times.

• Asian Stocks Mixed on Trade Doubts; Treasuries Dip. Asian stocks were mixed in thin trading as Chinese and American officials struggled to schedule a planned meeting this month to continue trade talks. Treasury yields ticked higher. Shares were little changed in Tokyo, Sydney and Seoul. U.S. futures dropped as Bloomberg reported the difficulties the two countries were having in arranging the talks, following Washington’s rejection of Beijing’s request to delay tariffs that took effect over the weekend. Cash markets for both U.S. stocks and bonds were closed for the Labor Day holiday. The dollar was steady near its highest in more than two years. The pound held losses with the U.K. facing a showdown in Parliament over delaying Brexit again. Japan’s Topix index dipped 0.1% as of 9:06 a.m. in Tokyo. Australia’s S&P/ASX 200 Index was little changed. South Korea’s Kospi index slipped 0.1%. Hong Kong’s Hang Seng Index contracts lost 0.6%. Futures on the S&P 500 Index declined 0.7%.

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

• Oil Extends Slide as Trade War, Hurricane Dorian Hit Confidence.   

• JPMorgan Says It’s Finally Time to Buy Stocks Despite Trade Woes.

Wall Street Journal:

• U.K.’s Johnson Brandishes Election in Bid to Stop Parliament From Foiling Brexit.

• Mobile Sports Betting Is the Moneymaker as More States Legalize.

• The Market Forces That Propelled a Massive Rally in Long Bonds.

• Cost of Infrastructure Fixes Is Going Up.

• Iran Curbs U.N. Probe Into Tehran Nuclear Site.

• Argentina’s Pro-Business President Pulls a U-Turn, Imposes Capital Controls.

MarketWatch.com:

• New delays could keep Boeing 737 MAX grounded into holiday travel season.

• ECB official calls Facebook’s Libra ‘treacherous’.

Fox News:

• Hurricane Dorian kills least 5 in Bahamas as powerful storm hinders emergency response.

CNBC:

• British Prime Minister Boris Johnson says Brexit deal chances are rising.

• Here’s a list of recession signals that are flashing red.

• Hurricane Dorian could cost insurers $25 billion, UBS says.

• Beyond Meat uses climate change to market fake meat substitutes. Scientists are cautious.

Zero Hedge: 

• Bahamian Official Filmed Cat-5 Dorian As It Swallowed His Home.

• 34 Reported Dead In Ventura County Dive-Boat Fire.

• "Please, Somebody Help Us!": Eye Of Slow-Moving Dorian Reaches Grand Bahama; Storm Recorded Gusts As High As 220 MPH.

• Why Has The U.S. CEO-To-Worker Pay Ratio Increased So Much?

• HK Security Chief Says Police Battling "Elements Of Terror" - For First Time Echoing Mainland.

• 'Anguished' Hong Kong Leader Wants To Quit - Says Ability To Resolve Crisis 'Very Limited'.

• Rebel MPs Reportedly Attempting To Force Another Brexit Delay.

• Investors Panic-Sell Emerging Market Funds, On Pace For Worst-Ever Outflow.

• These Were The Best And Worst Performing Assets In Rollercoaster August.

Night Trading

• Asian indices are -.5% to +.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 64.5 unch.

• China Sovereign CDS 47.0 +1.0 basis point.

• Bloomberg Emerging Markets Currency Index 64.78 -.07%.

• FTSE 100 futures -.04%.

• S&P 500 futures -.62%.

• NASDAQ 100 futures -.72%.

Morning Preview Links

Earnings of Note

Company/Estimate

Before the Open:

• (CONN)/.51

After the Close:

• (COUP)/-.11

• (HQY)/.35

Economic Releases

10:00 am EST

• ISM Manufacturing for August is estimated at 51.2 versus 51.2 in July.

• ISM Prices Paid for August is estimated to rise to 46.8 versus 45.1 in July.

• Construction Spending MoM for July is estimated to rise +.3% versus a -1.3% decline in June.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Eurozone PPI report, Australia Retail Sales report, UBS Chemicals Conference, Barclays Consumer Staples Conference and the Barclays Energy/Power Conference could also impact trading today.

BOTTOM LINE: Asian indices are mostly 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 50% net long heading into the week.

Weekly Outlook

• Wall St. Week Ahead by Reuters.
• 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 tensions, oil weakness, global growth concerns and US dollar strength. My intermediate-term trading indicators are giving neutral signals and the Portfolio is 50% net long heading into the week.

Today's Headlines

Bloomberg:         

• Trump Heaps More Tariffs on China, Still No Deal in Sight.

• Pressure Grows on Asia’s Factories as Tariff Escalation Bites.

• Hong Kong Property, Casino Stocks Slump After Violent Protests.

• India’s Shock GDP Slump Prompts Growth, Rate-Cut Revisions.

• Stocks Slip as Latest Tariffs Kick In; Yuan Lower: Markets Wrap.

• U.S.-China Trade Risk Keeps Emerging-Market Investors on Edge.

• U.S. Stock Index Futures Drop After Trump China Tariffs Kick In.  

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

• Recession-Risk Signals, Tariffs Kick In, Capital Clamps: Eco Day.

• Oil Extends Losses as Deepening Trade War Stokes Growth Concerns.  

• What to Dread and Love in Stocks as ‘Bad News’ September Arrives.

Wall Street Journal:

• U.S. Goes Ahead With New Tariffs on Chinese Products.

• A Famine of Fact at U.N. Climate Panel.

• Venture-Capital Stalwart Fights Crypto Crackdown.

• Truck Makers Apply the Brakes.

• Hong Kong Students Go Back to School, but Protests Won’t Cool. 
  

• German Anti-Immigration Party Appears Headed for Gains in Elections.

MarketWatch.com:

•   Home-improvement stocks mixed as hurricane expected to both help and hurt.

•   Brexit foes may seek another extension as U.K. Parliament gears up for fight.

Fox News: 

• Monster Cat. 5 hurricane slams Bahamas, triggering dangerous flooding, severely damaging homes.

CNBC:

• China’s factory activity unexpectedly expands in August, a private survey shows.

• A ‘fear bubble’ is creating a huge buying opportunity, long-time market bull Jim Paulsen says.

• ‘Catastrophic’ Hurricane Dorian becomes strongest on record for northwestern Bahamas.

• President Trump ordered US firms to ditch China, but many already have and more are on the way.

Zero Hedge:

• Gold Spikes, Yuan & Futures Plunge As Asia Opens After Trade War Tit-For-Tat.

• Watch As Cat-5 Dorian Devastates Bahamas In Historic Landfall.

• US Slaps New Tariffs On China; One Minute Later China Retaliates.

• Is China Backing Away From Xi's "Made In China, 2025" Plan?

• "Demand For EV Cars Now A Problem:" Global Lithium Bust Underway As Prices Collapse.

• Why The 100-Year Bond Is Unethical.

• Argentina Imposes Currency Controls.

• "Burn With Us" - Protesters Clash With Riot Police At Hong Kong Airport Amid Surge Of Violence.

• "Scariest Thing You'll Read All Day": Report Sounds Alarm Over Brain-Reading Technology & Neurocapitalism.

• Walmart's Creepy Robots Are Here.

• Dershowitz: The Dangerous Stalinism Of The "Woke" Hard-Left.