Bear Radar

Style Underperformer:

• Mid-Cap Growth +.66%

Sector Underperformers:

• 1) Networking -.76% 2) Airlines -.20% 3) Internet +.28%

Stocks Falling on Unusual Volume:

• BLOX, NMM, BNNY, QLYS, DF, CBM, RAX, ZTS, WPX, WBMD, CAG, ECHO, ECOM, AMAG, WPP, NSP, INSM, GTS, CMP, CGEN, CYOU, ACAS, MOH, ATO, LIN, OVTI, AYR, DY, NGL, NUAN, WPP, EHTH, MOH, GRPN and GTAT

Stocks With Unusual Put Option Activity:

• 1) CAG 2) RAX 3) RAI 4) GTAT 5) LNG
  

Stocks With Most Negative News Mentions:

• 1) OVTI 2) BNNY 3) APA 4) SOHU 5) KBH
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Large-Cap Value +.43%

Sector Outperformers:

• 1) Gold & Silver +3.49% 2) Steel +2.06% 3) Oil Service +1.12%
  

Stocks Rising on Unusual Volume:

• CADX, BWP, MNK, SCOR, CALL, TTI, SODA, INVN, DWRE, IRBT, WLT, GWR, GMCR, TDC, STLD and SLCA

Stocks With Unusual Call Option Activity:

• 1) MHFI 2) TQNT 3) CAG 4) S 5) INSM

Stocks With Most Positive News Mentions:

• 1) CVS 2) BA 3) TXN 4) GMCR 5) GOOG
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Tuesday Watch

Evening Headlines 
Bloomberg:   

• SEC Faces China Auditor Appeal as Ban Imperils Diplomacy. Chinese affiliates of the four largest accounting firms plan to file an appeal to U.S. regulators as soon as today to reverse an administrative judge’s decision to bar them for six months after they stymied investigations of possible accounting fraud. The Securities and Exchange Commission will have to weigh the punishment just as U.S. and Chinese regulators make strides in overcoming some of the legal conflicts that the auditors say prevented them from cooperating with probes of China-based companies listed on U.S. exchanges. China has signaled that the diplomatic progress could be derailed if the SEC upholds the judge’s Jan. 22 decision. The firms said that day they will submit an appeal, which must be filed by Feb. 12.

• Chinese Coal Firms’ Debt Concerns Sink Shares: Chart of the Day. Shares of China’s biggest listed coal producers have dropped to their lowest valuations on record as falling fuel prices make it harder to repay debt.

• Visa(V) CEO Says China Delays Opening Card-Payments Market. Visa Inc. (V) Chief Executive Officer Charlie Scharf said China isn’t opening as quickly as expected to foreign payment processors and must be viewed as a five- to 15-year opportunity. “It’s going to take a long time for the market to actually open up in a way that we actually do have that level playing field,” Scharf told analysts today in New York during an industry conference sponsored by Keefe, Bruyette & Woods Inc.

• Goldman(GS) Fund Manager Bracing for Australia Yield Surge. Goldman Sachs Asset Management is avoiding Australia’s sovereign bonds and favoring floating-rate debt as it predicts 10-year yields may rise as much as one percentage point this year.

• Asian Stocks Outside Japan Gain Fourth Day Before Yellen Speech. A gauge of Asian stocks outside Japan rose, extending gains into a fourth day and heading for a two-week high, before Federal Reserve Chairman Janet Yellen delivers her first testimony on monetary policy. Zijin Mining Group Co. (2899), China’s biggest gold producer, jumped 5.6 percent in Hong Kong as the bullion’s price in Shanghai rallied to the highest this year. Australia & New Zealand Banking Group Ltd., Australia’s third-largest bank by market value, rose 2.4 percent after posting a 13 percent jump in first-quarter cash profit. Cochlear Ltd. sank 10 percent in Sydney after reporting first-half results and a second-half estimate that suggest the maker of hearing implants will miss its full-year profit forecast. The MSCI Asia Pacific excluding Japan Index advanced 0.9 percent to 448.46 as of 11:08 a.m. in Hong Kong.

• Gold Climbs to 2014 High to Head for Longest Rally Since August. Gold jumped to the highest level since November as investors assessed further cuts to U.S. monetary stimulus and Chinese buyers resumed purchases to extend last year’s record consumption. Silver was set for the longest rally since August. Bullion for immediate delivery rose as much as 0.8 percent to $1,284.34 an ounce, the highest price since Nov. 18, and traded at $1,284.08 by 10:29 a.m. in Singapore. A fifth day of gains would be the longest such run since August. Silver added 0.7 percent to $20.213 an ounce, advancing for an eighth day.

• Rebar Trades Near Lowest in 17 Months as China Inventory Climbs. Steel reinforcement-bar futures traded near the lowest level in more than 17 months as stockpiles of the building material climbed amid weak demand after Lunar New Year holidays. Rebar for May delivery on the Shanghai Futures Exchange fell as much as 0.3 percent to 3,411 yuan ($563) a metric ton before trading at 3,418 yuan at 10:08 a.m. local time. Futures touched 3,380 yuan yesterday, the lowest intraday level for a most-active contract since September 2012.

Wall Street Journal:  

• Health-Law Mandate Put Off Again. No Fines for Most Employers Until 2016 as Firms Pressure White House in Wake of Troubled Rollout. Most employers won't face a fine next year if they fail to offer workers health insurance, the Obama administration said Monday, in the latest big delay of the health-law rollout. The Treasury Department, in regulations outlining the Affordable Care Act, said employers with 50 to 99 full-time workers won't have to comply with the law's requirement to provide insurance or pay a fee until 2016. Companies with more workers could avoid some penalties in 2015 if they showed they were offering coverage to at least 70% of full-time workers.

• Frustrated by Karzai, U.S. Shifts Exit Plans. New Military Approach Would Give Obama Flexibility on Afghan Troop Decision.

• Syrian Regime Loyalists Seethe Over U.N. Aid Operation for Rebel Area. Assad Supporters Accuse Relief Workers of Bias in Helping Deliver Food and Evacuating Civilians.

• What to Watch for in Yellen’s Testimony.

• Obama Rewrites ObamaCare. Another day, another lawless exemption, once again for business. 'ObamaCare" is useful shorthand for the Affordable Care Act not least because the law increasingly means whatever President Obama says it does on any given day. His latest lawless rewrite arrived on Monday as the White House decided to delay the law's employer mandate for another year and in some cases maybe forever.

Fox News: 

• US government reportedly ordering drone strikes based on cell phone location. The U.S. government reportedly is ordering some drone strikes based on the location of terror suspects' cell phones -- without necessarily confirming the location of the suspects themselves -- raising concerns about missiles hitting unintended targets.

CNBC: 

• Google(GOG) strikes big ad measurement deal with comScore. Google signed a major advertising deal with comScore to help the world's largest Internet search provider win more business from big brands like Kellogg. 

• Behind the massive bet against Caterpillar. (video) Caterpillar has had a nice run this year, rising nearly 4 percent, which is enough to make it the second-best performing Dow component. But one giant player appears to think the run is over.

Zero Hedge: 

• Will Austrian Bank Woes Be Again the Catalyst For A European Kondratieff Winter?

• 2014's Best And Worst Performing Hedge Funds.

• BofAML: "Equities Are Set To Top And Roll". (graph)

• The US Macro Cycle (It's Not Different Or Sustainable This Time). (graph)

• What Would Chinese Hegemony Look Like?

• Another Conspiracy Theory Becomes Fact: Meet The Men With The Plan Behind Italy's Bloodless Coup.

Business Insider: 

• The Red-Hot Biotech Sector Has Experts Screaming Bubble. 

Washington Post: 

• Obamacare’s $70 billion pay cut. In his State of the Union address, President Obama urged Congress to “give America a raise.” Well, it turns out that Obama is giving America a $70 billion annual pay cut, courtesy of Obamacare.

Reuters:

• Commodity groups launch next attack on U.S. position limits rule. A group of commodity firms came out against a new U.S. rule to curb market speculation in a letter on Monday, after banks successfully shot down an earlier version of the position limits rule in court. The new rule by the Commodity Futures Trading Commission attracted well over 100 comment letters by industry participants after the agency - which regulates swaps and futures - launched it in November.

• Debt limit rise should be tied to budget cuts -U.S. Senator Cruz. U.S. Senator Ted Cruz, the Tea Party firebrand who egged on Republicans in the House of Representatives during last year's government shutdown battle, said on Monday it would be "irresponsible" for Congress to grant President Barack Obama a debt limit increase without spending reforms.

Obama takes on coal with first-ever carbon limits
Read more at http://www.philly.com/philly/news/politics/20130919_ap_0f857b20e0c144a5a1e1b9dddc9f9d72.html#YRThyDOhArykUeYy.99

Financial Times:

• Investors turn to ‘shadow’ bond market. The shadows are growing in the corporate bond market as investors turn to derivatives to buy and sell. An increasingly illiquid cash bond market is behind the shift, with banks starting to withdraw from market making.

Telegraph:

• ECB paralysed by German court decision as deflation threatens. The ‘thunderbolt’ ruling on eurozone rescue policies by Germany’s top court marks a serious escalation of Europe’s governance crisis.

China Securities Journal:

• China's Economy Will Be 'Very Difficult' This Year. China's economic operation will continue to be "very difficult" this year as it has accumulated problems that it needs to solve, citing Wu Jinglian, researcher at State Council's Development Research Center. Wu warns about the handling of "dead" cos. as a large number of state cos. with high debt ratio are still depending on subsides for survival.

Evening Recommendations

• None of note

Night Trading

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

• Asia Ex-Japan Investment Grade CDS Index 144.0 unch.

• Asia Pacific Sovereign CDS Index 108.5 -2.5 basis points.

• FTSE-100 futures +.38%.

• S&P 500 futures +.25%.

• NASDAQ 100 futures +.22%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (RAI)/.80

• (HCP)/.74

• (REGN)/2.09

• (ZTS)/.34

• (CVS)/1.11

• (ICE)/1.95

• (DF)/.18

• (OMC)/1.13

• (S)/-.36

• (MOS)/.43

• (FEYE)/-.37

• (FOSL)/2.43

Economic Releases
7:30 am EST

• NFIB Small Business Optimism for January is estimated at 93.9 versus 93.9 in December.

10:00 am EST

• JOLTs Job Openings for December are estimated to fall to 3980 versus 4001 in November. 

• Wholesale Inventories for December are estimated to rise +.5% versus a +.5% gain in November.

Upcoming Splits

• (LIVE) 3-for-1

Other Potential Market Movers

• The Fed's Yellen speaking, Fed's Plosser speaking, Fed's Lacker speaking, $30B 3Y T-Note auction, weekly retail sales reports, Goldman Tech/Internet Conference, Stifel Transport/Logistics Conference and the (XLNX) investor day could also impact trading today.

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

Stocks Slightly Higher into Final Hour on Asian Gains, Short-Covering, Biotech/REIT Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Slightly Higher
  

• Sector Performance: Mixed
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 15.11 -1.18%

• Euro/Yen Carry Return Index 145.37 -.13%

• Emerging Markets Currency Volatility(VXY) 9.32 -.43%

• S&P 500 Implied Correlation 52.53 -.42%

• ISE Sentiment Index 131.0 unch.

• Total Put/Call .89 +9.88%

• NYSE Arms 1.51 +108.01% 

Credit Investor Angst:

• North American Investment Grade CDS Index 67.75 +.15%

• European Financial Sector CDS Index 94.0 +.21%

• Western Europe Sovereign Debt CDS Index 53.0 unch.
• Asia Pacific Sovereign Debt CDS Index 108.61 -2.19%

• Emerging Market CDS Index 327.53 +2.03%

• China Blended Corporate Spread Index 362.29 +.11%
• 2-Year Swap Spread 12.0 -.25 basis point

• TED Spread 17.75 +2.0 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -4.0 +.75 basis point

Economic Gauges:

• 3-Month T-Bill Yield .06% -2.0 basis points

• Yield Curve 237.0 unch.

• China Import Iron Ore Spot $120.80/Metric Tonne -.08%

• Citi US Economic Surprise Index 24.60 +1.0 point

• Citi Emerging Markets Economic Surprise Index 12.40 +1.5 points

• 10-Year TIPS Spread 2.18 +1.0 basis point

Overseas Futures:

• Nikkei Futures: Indicating -73 open in Japan

• DAX Futures: Indicating +11 open in Germany

Portfolio: 

• Slightly Higher: On gains in my tech/medical/biotech sector longs and emerging markets shorts

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

• Market Exposure: Moved to 50% Net Long

Today's Headlines

Bloomberg: 

• China Watchdog Said to Tell Small Banks to Set Aside Fund. China’s banking regulator ordered some of the nation’s smaller lenders to set aside more funds to avoid a cash shortfall, three people with knowledge of the matter said, signaling rising concern that defaults may climb. China Banking Regulatory Commission branches asked some city commercial banks and rural lenders to strengthen liquidity management this year, the people said, asking not to be identified because the matter is confidential. Different requirements are being instituted by province, such as quarterly stress tests, after CBRC studies last year showed increasing risks at those lenders, the people said.

• Junk Yield Premiums Soar on China’s Looming First Default. The extra cost to borrow for China’s riskiest companies is at the highest in 20 months as soaring interest rates heighten concern the nation will experience its first onshore bond default. The yield gap on five-year AA- notes over AAA debt jumped 27 basis points last month to 224, the most since June 2012, Chinabond indexes show. Ratings of AA- or below are equivalent to non-investment grades globally, according to Haitong Securities Co., the nation’s second-biggest brokerage. The similar spread in the U.S. is 403 basis points, Bank of America Merrill Lynch data show. 

• EU Struggles With One Ukraine Policy Amid Default Warning. European Union leaders are struggling to come up with a united policy toward Ukraine as anti-government protesters warn that President Viktor Yanukovych is leading the nation toward default. 

• European Stocks Are Little Changed as L’Oreal, Nokia Rise. European stocks were little changed as L’Oreal SA and Nokia Oyj rallied, offsetting worse-than-forecast reports on industrial production in France and Italy. L’Oreal jumped the most since May 2010 as Nestle SA (NESN) was said to explore ways to reduce its 29 percent stake in the biggest cosmetics maker. Nokia advanced 2.8 percent after HTC Corp. agreed to pay it royalties as part of a patent-row settlement. Securitas (SECUB) AB fell 1.5 percent after reporting quarterly profit that missed projections. The Stoxx Europe 600 Index gained less than 0.1 percent to 325.3 at the close in London.

• Gold, Silver Futures Head for Longest Rally Since August. Gold has climbed 6 percent this year amid currency turmoil in emerging markets, while about $1.63 trillion has been erased from the value of global equity markets. The metal rose 70 percent from December 2008 to June 2011 as the Fed pumped more than $2 trillion into the financial system. Janet Yellen, the new chairman, will deliver her first testimony to Congress tomorrow. “The safe-haven premium is back with growth concerns re-emerging,” Bart Melek, an analyst at TD Securities in Toronto, said in a telephone interview. “Tomorrow, people will be watching Yellen’s determination to continue with tapering.” Gold futures for April delivery rose 1 percent to $1,275 an ounce at 11:30 a.m. on the Comex in New York. The price has climbed for the fourth straight session, the longest rally since Aug. 12. Silver futures March delivery advanced 0.8 percent to $20.095 an ounce. The metal climbed for the sixth straight session, the longest rally since Aug. 16. 

• U.S. Winter Storm Seen Spreading Snow, Sleet Across South. Georgia’s governor declared a state of emergency for 45 counties and Atlanta canceled classes for tomorrow and the next day as a winter storm neared, less than two weeks after a system stranded thousands of people in cars, buses and schools. The region may get 1 to 3 inches (2.5 to 7.5 centimeters) of snow and ice over the next three days as the storm moves from Texas to the Atlantic Ocean, according to the U.S. National Weather Service. Sleet and snow will begin falling late today or early tomorrow, the agency said.

• VIX Traders Pile Into S&P 500 Rebound Bets as Puts Jump: Options. Traders are making unprecedented use of the options market to bet on a rebound in U.S. stocks. Ownership of puts on the Chicago Board Options Exchange Volatility Index reached a record 3.2 million on Feb. 6, according to data compiled by Bloomberg. Money poured into the bets against the VIX (VIX) after the gauge, used by investors as insurance against share losses because it rises when equities fall, climbed to a 13-month high of 21.44 last week before collapsing to 15.29 by Feb. 7. The trading shows some investors have been unconvinced that turmoil in emerging markets and signs of slowing growth in the U.S. and China would spur lasting declines in the Standard & Poor’s 500 Index.

• 'Doc Shock' Reaches the Masses. In December, I predicted that “doc shock” was going to be a major problem for the U.S. health-care overhaul, as people found out that the narrow networks insurers use to keep premiums low often don’t cover the top-notch doctors you’d like to see if you get really sick:

Wall Street Journal: 

• Rising Borrowing Costs Pose Risks in China. Borrowing costs for Chinese companies are rising strongly, a shift that could herald weaker corporate profits, slower economic growth and even the first defaults by increasingly indebted corporations on the mainland. Driven by a surge in borrowing in recent years, Chinese companies amassed an estimated $12.1 trillion worth of debt at the end of last year, according to Standard & Poor's. That compares with an estimated $12.9 trillion for U.S. businesses, now the world's most indebted. The ratings company estimates that debt at Chinese companies is poised to exceed the U.S. total this year or next. "The leverage in the corporate sector is already very high and does pose a latent risk to the entire economy," said Shuang Ding, an economist at Citigroup Inc. C -0.18% Challenges for companies are mounting as the government tightens credit and investors demand higher yields to fund borrowers.

MarketWatch: 

• What’s unnerving about the S&P 500′s pullback this year.

CNBC: 

• US takes India to task—and court—over solar subsidies. The United States plans to take India to the World Trade Organisation over subsidies New Delhi gives to its solar power industry, an Indian government source said on Monday, a step that could further strain relations between the countries.

• What Congress is likely to hear from Yellen.

ZeroHedge:

• Bitcoin Flash Crashes, Drops By 80% In Seconds.

• America's Make-Work Sectors (Healthcare & Higher Education) Have Run Out of Oxygen. (graph)

• On The Lessons 'Economists' Fail To Learn.

• "Breathtaking" Corruption In Europe.

• TSLA(TSLA) Surges To Record High; Two-Thirds Of GM's Enterprise Value. 

• JPMorgan(JPM) Sued For Crony Justice - Presenting "A Decade of Illegal Conduct by JP Morgan Chase".

Business Insider:

• America's Policy Disaster In Syria: We Can Stop Pretending Now.

• The Rise Of Foreign Assets In US Portfolios Since 1945. (graph)

• RBS CEO: We Sold Customers Things They Didn't Need, And We 'Literally And Metaphorically' Put Them At The Back Of The Line.

• 'Selfies With Homeless People' Is The Latest Vile Teen Trend To Get Its Own Tumblr.

• Carl Icahn Gives Up On Apple(AAPL) Buyback Plan.

CNN:

• Source: U.S. debating targeted killing of American terror suspect overseas. The Obama administration is in high-level discussions about staging an operation to kill an American citizen involved with al Qaeda and suspected of plotting attacks against the United States, a senior U.S. official tells CNN.

Reuters: 

• Mexico auto production rose 2.7 pct in Jan, exports down 0.4 pct. Mexican auto production rose while exports fell in January, the Mexican Auto Industry Association (AMIA) said on Monday. Production rose 2.7 percent to 249,400 vehicles while exports dropped 0.4 percent to reach 177,928 units during the month, AMIA said.

• Europe, China help McDonald's offset soft U.S. sales in January. McDonald's Corp on Monday reported better-than-expected global sales at established restaurants for January as gains in Europe and China helped the company offset weak numbers in United States, where customers remained cautious in their spending.

Great Wisdom:

• China CBRC to Curb LGFV Non-Standardized Loans. China Banking Regulatory Commission told lenders to rein in "non-standardized loans" to local government financing vehicles this year at a regulatory meeting after Chinese lunar New Year, citing a person familiar with the matter.

Bear Radar

Style Underperformer:

• Small-Cap Value -.45%

Sector Underperformers:

• 1) Education -2.45% 2) Homebuiders -2.014% 3) Steel -1.50%

Stocks Falling on Unusual Volume:

• BWP, CYOU, MDCO, SOHU, BYI, CLFD, CIB, L, SFUN, NKA, TYL, DGLD, NSP, MWIV, ACIW, SNA, CI, PDFS, LIN, MTCN, AMG, MCY, GM, TDW, RYL, EGOV, TTI, CZR, L, LQDT, MDCO, ACIW and EHTH

Stocks With Unusual Put Option Activity:

• 1) IGT 2) BKS 3) JWN 4) Z 5) HES
  

Stocks With Most Negative News Mentions:

• 1) MCD 2) MO 3) AIG 4) COH 5) JLL
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume