Stocks Higher into Final Hour on China Bounce, Oil Gain, Bargain-Hunting, Tech/Financial Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: About Even
  

• Sector Performance: Mixed
  

• Volume: Around Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 20.83 -6.51%

• Euro/Yen Carry Return Index 140.92 -.51%

• Emerging Markets Currency Volatility(VXY) 11.86 +.42%

• S&P 500 Implied Correlation 65.29 +1.70%

• ISE Sentiment Index 152.0 +181.48%

• Total Put/Call 1.03 +8.85%

• NYSE Arms 1.01 -62.09% 

Credit Investor Angst:

• North American Investment Grade CDS Index 81.46 +3.82% (new series)

• America Energy Sector High-Yield CDS Index n/a

• European Financial Sector CDS Index 84.84 +8.77% (new series)

• Western Europe Sovereign Debt CDS Index 20.27 -.73%

• Asia Pacific Sovereign Debt CDS Index 76.50 -2.34%

• Emerging Market CDS Index 347.49 +2.79%
  

• iBoxx Offshore RMB China Corporates High Yield Index 119.42 +.25%

• 2-Year Swap Spread 11.75 -1.0 basis point

• TED Spread 33.50 +.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -26.0 -2.25 basis points

Economic Gauges:

• 3-Month T-Bill Yield -.02% -1.0 basis point

• Yield Curve 149.0 +3.0 basis points

• China Import Iron Ore Spot $57.30/Metric Tonne -.68%

• Citi US Economic Surprise Index -27.7 -.3 point

• Citi Eurozone Economic Surprise Index 11.7 -2.8 points

• Citi Emerging Markets Economic Surprise Index -22.6 +1.1 points

• 10-Year TIPS Spread 1.56 unch.
• # of Months to 1st Fed Rate Hike(Morgan Stanley) 5.54 +.5

Overseas Futures:

• Nikkei 225 Futures: Indicating -35 open in Japan 
• China A50 Futures: Indicating +6 open in China

• DAX Futures: Indicating -1 open in Germany

Portfolio: 

• Lower: On losses in my biotech sector longs and index hedges

• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges, took profits in some biotech sector longs

• Market Exposure: Moved to 50% Net Long

Today's Headlines

Bloomberg: 

• Merkel demands stamina to help refugees as U.S. admits Syrians. German Chancellor Angel Merkel told her European Union counterparts they face a long battle to help refugees flooding into the bloc as Secretary of State John Kerry said the United States will take in thousands more people fleeing the conflict in Syria. Divisions resurfaced in the European Union on Monday with Hungary and the Czech Republic reiterating their opposition to mandatory quotas that Germany and the European Commission want to set for distributing refugees. Leaders are trying to manage an unprecedented influx of people caused by the turmoil around their borders while assuaging the concerns of their voters.
• Empty Punchbowl Leaves Central Banks Powerless to Bolster Stocks. Central banks are past the point of having to worry about withdrawing the punch bowl before the party gets out of hand. It’s already running dry. Where once-continued easy money would have been a recipe for rising stocks, the Federal Reserve’s decision not to end its zero interest rate policy last week sent stocks tumbling. It’s not just the Fed. The Euro Stoxx 50 Index fell 2.75 percent the day after European Central Bank President Mario Draghi signaled more stimulus. Meantime, the Shanghai Composite Index dropped 1.27 percent the day after the People’s Bank of China delivered its fifth rate cut since November on Aug. 25. “Central bankers no longer enjoy the same power to reassure” markets, Michala Marcussen, head of global economics at Societe Generale SA, said in a report to clients on Sunday.
• Europe Stocks Rebound From Two-Day Drop Despite Volkswagen Slide. After their worst fall in two weeks, European stocks clawed back some losses today, helped by a broad-based rally. Equities are recovering after the Federal Reserve’s decision to keep rates unchanged last week raised questions about global growth. Three Fed officials argued over the weekend that a rate increase is still warranted for this year. Investors will get a clearer picture over the next few days, and those focused on the long term can find value in European shares after recent declines, according to MPPM EK’s Guillermo Hernandez Sampere. The Stoxx Europe 600 Index added 0.9 percent at the close of trading, reversing a drop of 0.2 percent. 
• Iron Ore Outlook Cut by ANZ After China Steel Demand Peaks. Steel consumption in China has peaked and economic growth is cooling, according to Australia & New Zealand Banking Group Ltd., which reduced price forecasts for iron ore and coal for next year and 2017. Iron ore may average about $52 a metric ton next year, 5.3 percent lower than previously forecast, and $54 in 2017, a reduction of 10.5 percent, Head of Commodity Research Mark Pervan said in a report on Monday. The outlook for coking coal was pared back by as much as 13.5 percent. “In iron ore in particular we see little upside in prices for the next few years,” Pervan wrote with analyst Anurag Soin. “Lower Chinese growth forecasts have prompted us to lower our steel-demand outlook.”
• Fed’s Lockhart Favors Interest-Rate Liftoff Later This Year. Federal Reserve Bank of Atlanta President Dennis Lockhart said while recent market volatility raised risks to the U.S. economic and inflation outlook, he remains confident the central bank will raise interest rates this year. “I put most of the decision weight on prudent risk management around recent and current market volatility,” Lockhart said in a speech in Atlanta Monday, referring to his vote backing the Fed’s decision last week to hold rates near zero. “As things settle down, I will be ready for the first policy move on the path to a more normal interest-rate environment. I am confident the much-used phrase ‘later this year’ is still operative.” 
• Top Strategist: Fed Mistake to Delay Rate Hike. (video)
• Hedge Funds Burned by Fed Set to Unwind Bearish Rate Positions. Hedge funds and other speculators were ready to profit last week if the Federal Reserve lifted interest rates. Their bets proved wrong-footed, leaving traders poised to reverse course, according to TD Securities. The net aggregate short position in all interest-rate contracts traded through CME Group Inc. was the largest since February as of Sept. 15. The wagers would’ve proven prescient if yields had spiked following the Fed’s Sept. 17 announcement. 
• Corporate Credit-Default Swap Indexes Rolling Into New Series. The latest series of benchmarks measuring the cost of insuring corporate debt against default started trading today. Gauges of credit-default swaps on companies in Europe, Asia and Australia rolled into their 24th series. The 25th version of the Markit CDX North America Investment-Grade Index also opens today and its high-yield measure starts trading on Sept. 28. The 24th series of the Markit iTraxx Japan starts on Thursday. The Markit iTraxx Crossover Index of swaps linked to 75 non investment-grade companies cost 309 basis points at 10 a.m. in London. That compares with 322 basis points for the previous series at the close of trading on Friday, according to data compiled by Bloomberg.
• The Rent Crisis Is About to Get a Lot Worse. Millions of households could join the ranks of those spending more than half their income on rent, Harvard study warns. The number of U.S. households that spend at least half their income on rent—the "severely cost-burdened," in the lingo of housing experts—could increase 25 percent to 14.8 million over the next decade. More than 1 million households headed by Hispanics and more than 1 million headed by the elderly could pass into those ranks. Households shouldn't spend more than 30 percent of income on housing, by the general rule of thumb.
  

Wall Street Journal:

• Hillary Clinton Tweet Sends Biotech Stocks Tumbling. Biotechnology stocks took a sharp dive Monday after Hillary Clinton said she would propose a plan to counteract “price gouging” by drug makers. Ms. Clinton, who is seeking the Democratic nomination for president, was responding to New York Times article published Sunday that told of a price increase for a drug used to treat a life-threatening parasitic infection. The cost of the drug was recently increase from $13.50 a tablet to $750, the story said.
• Brazil’s Real Continues Slump. Brazil’s currency weakens past 3.98 to the dollar for the first time since 2002.

CNBC:

• Start-up spending 'extremely wasteful': VC. (video)

Zero Hedge:

• The Mystery Of The "Missing Inflation" Solved, And Why The US Housing Crisis Is About To Get Much Worse. (graph)
• "Time's Up" - Government Shutdown Odds Spike To 75%.
• Economic Collapse Full Frontal: The Brazil Case Study.
• Why Merrill Is Urging Investors To "Sell The Rallies". (graph)
• When Doves Cry: Bedeviled By Dollar "Dilemma", Trapped Fed Faces FX Catch-22.
• Did Hillary Trump Yellen & Burst The Biotech Bubble? (graph)
• Fed Cred Dead!
• Kremlin Calls For "Action" After Russian Embassy In Syria Hit By Mortar Fire.
• Bailout World: Volkswagen "Cheating" Fine Is 20 Times Higher Than GM's For 'Killing 174 People'.
• 'Not' Monday Humor: Saudi Arabia Chosen To Head UN Human Rights Panel.
• What On Earth Is Going On With Caterpillar Sales? (graph)
• Bullard Slams "Unsavory" Jim Cramer's "Permanent Cheerleading," Admits "Fed Can't Support Stocks Forever". (video) When The Fed's own cheerleader-in-chief (see October 2014) slams you for cheerleading, you know it's gone too far.
• Housing "Brightspot" Burns Out - Existing Home Sales Plunge Most In 7 Months. (graph)
• "US Profit Growth Has Never Been This Weak Outside Of A Recession". (graph)
•  China's "Reverse QE" Could Top $1.2 Trillion, Barclays Says.

Business Insider:

• The Apple(AAPL) Car is coming in 2019.
• A former hedge fund manager jacked up the price of a crucial drug, and people are furious.
• The greatest failure of Obama's presidency continues to unfold.
• 'Developments abroad' are bad news for big US companies.
• Google(GOOG) expands self-driving car tests.
• HSBC WARNS: The stock market 'is putting in a bigger top than eight years ago'.

Financial Times:

• Hedge fund leader bets on emerging market rout. The world economy is locked on a course towards an emerging markets crisis and a renewed slowdown in the US, regardless of the Federal Reserve holding off on a rise in rates last week, according to one of 2015’s most successful hedge fund managers. John Burbank, whose Passport Capital has placed a raft of lucrative bets against commodities and emerging markets this year, forecast that the Fed would eventually be forced into a fourth round of quantitative easing to shore up the economy.

Telegraph:

• Independent Catalonia will be kicked out of the eurozone, warns central bank governor. Newly independent region would have its banks cut off from the eurosystem and its EU membership revoked, warns Spain's top monetary policy-maker. 
• Greece's new government 'doomed to fail' over flawed bail-out. Syriza's triumphalism set to be short-lived as economists warn threat of Grexit has not receded.

Bear Radar

Style Underperformer:

• Small-Cap Growth -.95%

Sector Underperformers:

• 1) Biotech -4.04% 2) Gaming -1.64% 3) Drugs -1.53%

Stocks Falling on Unusual Volume:

• QURE, MNK, AERI, MRTX, TCON, IMGN, RTRX, MRNS, TTPH, IBB, AMAG, PATK, ST, VRX, PTLA, BWA, RCKY, ABY, NEOG, TOT, XNCR, HZNP, BIB, APOG, NSTG, ZFGN, XON, ITCI, HALO, GKOS and IMGN

Stocks With Unusual Put Option Activity:

• 1) FOXA 2) GNW 3) LRCX 4) EWC 5) XBI
  

Stocks With Most Negative News Mentions:

• 1) GPRO 2) POT 3) TRN 4) PBR 5) IBB
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Small-Cap Value +.35%

Sector Outperformers:

• 1) Road & Rail +.89% 2) Alt Energy +.86% 3) Insurance +.77%
  

Stocks Rising on Unusual Volume:

• SWAY, P, VTAE, WLK, BIS and CYBR

Stocks With Unusual Call Option Activity:

• 1) SIRI 2) RTRX 3) PLUG 4) ALLY 5) P
  

Stocks With Most Positive News Mentions:

• 1) LULU 2) CYBR 3) HOG 4) PM 5) P
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Morning Market Internals

NYSE Composite Index:

• Volume Running 8.8% Below 100-Day Average
• 10 Sectors Rising, 0 Sectors Declining
• 73.7% of Issues Advancing, 24.4% Declining
• 20 New 52-Week Highs, 42 New Lows
• 23.4% of Issues Above 200-day Moving Average
• Average 14-Day RSI 40.1
• Vix 20.7
• Total Put/Call 1.27
• TRIN/Arms 1.0

Monday Watch

Today's Headlines 

Bloomberg:

• Tsipras Wins Big Again in Greece as Voters Ignore Euro Showdown. Alexis Tsipras will return to power in Greece following another emphatic election victory, securing a new mandate after he yielded to the demands of European leaders for more austerity in the crisis-hit country. The former prime minister’s Coalition of the Radical Left, or Syriza, received 35.5 percent of the vote, according to an official projection by the Interior Ministry based on more than half of votes counted. The center-right New Democracy, whose leader Evangelos Meimarakis conceded defeat, was expected to get 28 percent. With Syriza set to fall short of a majority in the 300-seat parliament, Tsipras, 41, will enter negotiations to build a viable government with the same coalition partner as before, scotching expectations he might do a deal with a more moderate party. In a year marked by the standoff between Greece and its European creditors, the difference now is that the new government will have little room to maneuver after Tsipras acceded to more spending cuts and tax increases in exchange for a new bailout.   
• China's ‘Sloppy’ Policy Irks Blankfein as Yellen Cites Xi Doubts. As China’s President Xi Jinping heads to the U.S. for his first state visit, he confronts a wall of skepticism from global money managers and policy makers. From New York to London to Tokyo, finance luminaries have criticized Xi’s administration for what they characterize as a series of clumsy -- and potentially damaging -- attempts to bolster the nation’s equities and the economy. Federal Reserve Chair Janet Yellen on Thursday referred to investor concerns over the "deftness" of China’s response, a day after Goldman Sachs Group Inc.’s Lloyd Blankfein called it "awfully sloppy." "If I wanted to invest in China, I wouldn’t invest now," Blankfein, Goldman’s chief executive, told a breakfast meeting in New York last week. “I’m not going to buy after the Chinese government may have intervened.”
• Macau Casino Analysts Capitulate on Idea of Second-Half Recovery. For Macau casinos analysts, this is what capitulation looks like. As revenue declined month after month this year, they have steadily cut their estimates for how the year will turn out. In January, they forecast a slight increase in overall casino revenue after the 2.6 percent decline in 2014, the first drop in the city’s history. That estimate kept sliding throughout the year until the median estimate from 12 analysts surveyed by Bloomberg is now for a 32 percent slump. They have given up on the idea of a second-half recovery, now assuming a $14 billion revenue decline in one year. 
• Citic Securities Slump Seen Deepening as Bulls Lose Faith. Analysts are too optimistic on Citic Securities Co. That’s the view of Hong Kong traders at Changjiang Securities Holdings (HK) Ltd. and Geo Securities Ltd., who predict analysts will cut their recommendations as a government campaign to stop the equity rout-- from a crackdown on speculative trading to suspending initial public offerings -- reduces profits and share prices across the industry. Brokerages are also being compelled to foot a 220 billion yuan ($35 billion) rescue bill for the stock market, while an investigation into the turmoil has ensnared Citic Securities’ president.
• New Home ‘Tsunami’ May Snap Sydney Romance With Exuberant Prices. A home-building frenzy that is shoring up Australia’s economy as the mining boom ends may also be what finally takes the steam out of one of the world’s most expensive property markets. The case in point: Green Square. Nearly 10,000 apartments will be built in one of Sydney’s newest suburbs in the next four years to satisfy investor demand, which has already sent property prices in the city to the highest ever. It will also add to the record 213,000 new home starts across the country amid slowing population and economic growth, prompting Goldman Sachs Group Inc. to warn of a supply glut by 2017. “There is a tsunami of home supply coming,” said Nigel Stapledon, head of real estate research at the University of New South Wales Business School and former chief economist at Westpac Banking Corp. “The market is going to be tested in accepting this sort of supply. It’s not like there is economic growth to support it. Income growth has gone from boom time to the lowest in a number of years and population growth has eased back.”
• Goldman Sachs Says Euro May Weaken Up to 10 Cents on ECB Easing. Goldman Sachs Group Inc. says the euro may fall up to 10 U.S. cents as the European Central Bank is set to increase currency weakening stimulus to meet its inflation target. The investment bank predicts the ECB will maintain quantitative easing at its current rate of 60 billion euros ($67.8 billion) a month through the end of 2016, an extension of the plan that was intended to run until September 2016, and only end it completely in mid-2017.
• Saudi Stocks Drop Most in Mideast as Fed Stirs Growth Concerns. Saudi Arabian equities fell the most in the Arab world after the Federal Reserve’s decision to keep interest rates unchanged sparked concern over global growth and the price of oil capped its third week of losses. The Tadawul All Share Index fell 1.4 percent to 7,365.98 at the close in Riyadh to the lowest in almost a month, marking a seventh day of losses. Banks made up four out of the top five contributors to the decline. Abu Dhabi’s ADX General Index advanced 0.6 percent. The Bloomberg GCC 200 Index, made up of the biggest and most liquid shares in the six-nation Gulf Cooperation Council, slipped 0.6 percent. That sent the premium it commands over MSCI Inc.’s emerging markets index on a future price-to-earnings basis to the lowest in almost five months.
• Asian Stocks Decline on Global Growth Concern After Fed Comments. Asian stocks declined after U.S. shares fell and Federal Reserve officials argued that an interest-rate increase is still warranted this year. Markets in Japan are closed. The MSCI Asia Pacific Excluding Japan Index lost 0.6 percent to 410.10 as of 10:01 a.m. in Sydney, before markets in China and Hong Kong opened.
• Saudi Arabia's Crude Stockpiles at Record High as Exports Fall. Saudi Arabia’s crude stockpiles rose to a record in July after exports by the world’s biggest oil shipper declined for the third time in four months. Commercial petroleum stockpiles increased to 320 million barrels, the highest since at least 2002, from 319.5 million barrels in June, according to data Sunday on the website of the Riyadh-based Joint Organisations Data Initiative. Crude exports slumped 1.2 percent to 7.28 million barrels a day after hitting a record 7.9 million barrels in March. Overseas shipments declined every month since then except in June. 
• Not Even Glencore Can Lift the Sagging Copper Market. The biggest cuts to copper production this year haven’t been enough to overcome the drumbeat of China’s slowdown.
  While copper is still up about 2 percent after Glencore Plc said it would reduce its output, the advance has stalled on renewed fears about consumption in the country that accounts for more than 40 percent of global demand. Even a 8.3-magnitude earthquake in Chile, the world’s largest copper miner, failed to send prices soaring.
• Wheat's Worst Plunge Since 1986 Isn't Steep Enough for Bears. Hedge funds are so down on wheat that even the worst price plunge in 29 years isn’t leaving them satisfied. Instead, a global glut has money managers ready for more losses and sticking with a net-bearish outlook for seven straight weeks. World inventories before the start of next year’s harvest are expected to climb to an all-time high as farmers reap bigger crops in the U.S., Russia and Ukraine. Wheat futures have tumbled 21 percent since the end of June, heading for the worst quarterly loss since 1986.
• Dialog Semiconductor to Buy Atmel(ATML) for About $4.6 Billion. Dialog Semiconductor Plc, which makes chips for Apple Inc.’s iPhone and iPad, agreed to buy Atmel Corp. for $4.6 billion in cash and shares to boost its offerings as more everyday objects become connected. Atmel holders will get $4.65 in cash and 0.112 of an American Depository Share in Dialog for each Atmel common share, Kirchheim, Germany-based Dialog said in a statement on the DGAP newswire. The price is equivalent to about $10.42 per Atmel share based on Dialog’s closing stock price on Sept. 18.

Wall Street Journal: 

• Putin’s Syria Tour de Force. Before: Russia is ‘doomed to fail.’ Now: Obama is happy to talk. Vladimir Putin doesn’t seem to share President Obama’s definition of “smarter.” Ten days ago Mr. Obama declared that the Russian President’s military deployments in Syria were “doomed to fail” and the Kremlin was “going to have to start getting a little smarter.” Mr. Putin then began sending fighter jets, and now it looks like Mr. Obama is the one who has been taken to school.

Fox News: 

• Pope Francis meets with Fidel Castro in Cuba. Pope Francis met with Fidel Castro on Sunday after urging thousands of Cubans to serve one another and not an ideology, delivering a subtle jab at the communist system during a Mass celebrated under the gaze of an image of Che Guevara in Havana's iconic Revolution Plaza.

MarketWatch.com: 

• Moody's downgrades France to Aa2 from Aa1 on concerns about weak growth.

Zero Hedge:

• "What Does The Fed Know That We Don't" - Bridgewater's Ray Dalio Answers. (graph)
• Global Stocks, EM FX Extend Losses Despite China Saying "No Collapse Is Nigh". (graph)
• Game Over.
• For Hedge Funds, The Real Pain Is Only Just Starting. (graph)
• The Fed's A "Joke," Saxobank CIO Prefers Gold Amid Increased Uncertainty.
• Martin Armstrong Warns "Hell Is About To Break Loose".
• FBI Opens Investigation Into Malaysian PM's Goldman-Financed Slush Fund.
• Obama Will "Accept" 100,000 Refugees In The US Starting 2017.
• Fed To Main Street: Screw You - Wall Street Matters More. (graph)
• Goldman Calls It: No Rate Hike Until Mid-2016.
• Rousseff Coup Could Sink Brazil, Emerging Markets.
• If You Live In These States You'll Soon Need A Passport For Domestic Flights.
• "Nope" & Change. (graph)
• Central Banks Have Shot Their Wad & The Market Deck Has Been Reshuffled.

Business Insider:

• Photos: Russia's forward operating base in Syria is growing at a rapid pace. (pic)
• An index that China's leaders use to measure economic growth looks horrible. (graph)
• China's president has been going to funerals lately — it's a sign of trouble. 
• The ISIS 'caliphate' is the wild card of Europe's refugee crisis.
• Iran's president on '60 Minutes': US-Iran enmity eased, but 'we cannot forget the past'.
• Donald Trump is slumping — and 2 new candidates are surging after the big GOP debate.
• Scientists are calling for a ban on beauty products that could be a threat to the planet.
• The party's over.
• One energy company is on the verge of a 'liquidity death spiral'.
• NYSE margin debt. (graph)
• Thousands pour into Austria as migrant crisis intensifies.
• FED'S BULLARD: Don't confuse a few rate hikes with tight monetary policy.

Financial Times:

• Plunging oil prices put question mark over $1.5tn of projects. Plunging oil prices have rendered more than a trillion dollars of future spending on energy projects uneconomic, according to a study that suggests that the impact on industry operators is worsening. A report published Monday says $1.5tn of potential investment globally — including in North America’s shale-producing heartlands — is “out of the money” at current oil prices close to $50 a barrel and unlikely to go ahead.

Telegraph:

• Greek elections: Alexis Tsipras emerges as clear winner in shock result. Syriza win resounding and unlikely victory as charismatic ex-PM Alexis Tsipras is re-elected.

Weekend Recommendations

Barron's:

• Bullish on (RL), (GM), (TAXI) and (VSI).
• Bearish on (BABA) and (GPRO).

Night Trading

• Asian indices are -2.0% to -.75% on average.

• Asia Ex-Japan Investment Grade CDS Index 148.25 +19.75 basis points.

• Asia Pacific Sovereign CDS Index 78.25 +.25 basis point.

• S&P 500 futures -.44%.

• NASDAQ 100 futures -.50%.

Morning Preview Links

Earnings of Note

Company/Estimate 

• (LEN)/.79
• (RHT)/.44
• (THO)/1.31

Economic Releases
10:00 am EST

• Existing Home Sales for August are estimated to fall to 5.5M versus 5.59M in July.

Upcoming Splits

• (JHX) 5-for-1

Other Potential Market Movers

• The Fed's Williams speaking, Fed's Bullard speaking, Fed's Lockhart speaking, German PPI report and the JMP Financial Services/Real Estate conference could also impact trading today.

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