Stocks Reversing Lower into Afternoon on Global Growth Fears, Political Worries, Earnings Outlook Concerns, Homebuilding/Financial Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Modestly Lower
  

• Sector Performance: Mixed
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 17.99 +1.75%

• Euro/Yen Carry Return Index 142.28 -.06%

• Emerging Markets Currency Volatility(VXY) 11.33 -.53%

• S&P 500 Implied Correlation 64.78 +1.89%

• ISE Sentiment Index 85.0 -5.56%

• Total Put/Call .92 +3.37%

• NYSE Arms .80 -53.86% 

Credit Investor Angst:

• North American Investment Grade CDS Index 84.72 +1.60%

• America Energy Sector High-Yield CDS Index 1,043.0 +4.36%

• European Financial Sector CDS Index 80.96 +2.16%

• Western Europe Sovereign Debt CDS Index 21.06 +5.25%

• Asia Pacific Sovereign Debt CDS Index 80.44 -1.12%

• Emerging Market CDS Index 342.83 -.81%
  

• iBoxx Offshore RMB China Corporates High Yield Index 121.0 +.05%

• 2-Year Swap Spread 11.50 -.5 basis point

• TED Spread 32.0 +.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -21.75 +2.25 basis points

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 73.02 +.66%
• 3-Month T-Bill Yield -.01% -1.0 basis point

• Yield Curve 143.0 unch.

• China Import Iron Ore Spot $55.12/Metric Tonne +.27%

• Citi US Economic Surprise Index -26.70 -2.6 points

• Citi Eurozone Economic Surprise Index 6.0 unch.

• Citi Emerging Markets Economic Surprise Index -17.40 -.2 point

• 10-Year TIPS Spread 1.50 -2.0 basis points
• # of Months to 1st Fed Rate Hike(Morgan Stanley) 5.78 +.38

Overseas Futures:

• Nikkei 225 Futures: Indicating +2 open in Japan 
• China A50 Futures: Indicating +1 open in China

• DAX Futures: Indicating +7 open in Germany

Portfolio: 

• Slightly Lower: On losses in my retail sector longs and emerging market shorts

• Disclosed Trades: None

• Market Exposure: 25% Net Long

Bear Radar

Style Underperformer:

• Large-Cap Growth -.23%

Sector Underperformers:

• 1) Homebuilders -2.67% 2) Restaurants -1.53% 3) Banks -1.38%

Stocks Falling on Unusual Volume:

• BOFI, HASI, DOC, CPHD, BCOR, WMT, CFX, SRPT, HAWK, TGT, FLOW, ADTN, EROS, MPG, VMW, EXPE, CAB, YDKN, BIS, BANR, GPN, BPT, IDT, NVRO, MDSO, OZRK, CMG, KBH, LGIH, DXCM, CFX and BCOR

Stocks With Unusual Put Option Activity:

• 1) FSLR 2) XOM 3) WMT 4) TGT 5) CMG
  

Stocks With Most Negative News Mentions:

• 1) CPHD 2) CAB 3) BOFI 4) JPM 5) RIG
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Small-Cap Growth +.08%

Sector Outperformers:

• 1) Gold & Silver +4.86% 2) Semis +3.18% 3) Gaming +1.83%
  

Stocks Rising on Unusual Volume:

• TRIP, LTRPA, SNDK, CHU, RDUS, HTWR, LLTC, FCS, VRX and FMC

Stocks With Unusual Call Option Activity:

• 1) SRPT 2) WMT 3) DXCM 4) RDUS 5) KR
  

Stocks With Most Positive News Mentions:

• 1) ADI 2) CF 3) INTC 4) MU 5) DAL
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Morning Market Internals

NYSE Composite Index:

• Volume Running -.7% Below 100-Day Average
• 5 Sectors Rising, 5 Sectors Declining
• 44.2% of Issues Advancing, 52.6% Declining
• 12 New 52-Week Highs, 21 New Lows
• 30.8% of Issues Above 200-day Moving Average
• Average 14-Day RSI 45.4
• Vix 18.54
• Total Put/Call .92
• TRIN/Arms .93

Wednesday Watch

Evening Headlines 

Bloomberg:  

• China's Island Moves Draw Neighbors Closer to U.S., Carter Says. China’s island-building in the South China Sea is driving Asian nations to seek closer cooperation with the U.S., Defense Secretary Ashton Carter said. The American defense chief made the comment Tuesday in response to a question -- which he didn’t answer -- about plans being weighed by the Obama administration to sail U.S. Navy ships inside the 12 nautical miles that China claims around man-made islands it created in the sea north of Australia. “Uncertainty in the South China Sea is having the effect of increasing our interaction with other partners in the area,” Carter said at a Boston news conference with Secretary of State John Kerry and their Australian counterparts. "It’s having the effect of increasing the desire to cooperate with the United States.”

• Brazil's Next Big Crisis Is Scaring Bankers and Wiping Out Jobs. In the smog-filled, run-down industrial hubs that ring the southern end of Sao Paulo, Brazil’s next big crisis is taking root. The labor market, long the country’s lone economic bright spot as growth stagnated, is suddenly deteriorating rapidly, driving unemployment all the way up to 7.6 percent from 4.3 percent at the end of 2014. Nowhere are the layoffs that are fueling that surge more acute than here, in this gritty complex of steel, auto and auto-parts factories built decades ago by the likes of Ford Motor Co. and Volkswagen AG. Sao Paulo is now losing almost 20,000 jobs each and every month, the state’s industrial federation estimates.

• Brazil’s Political Impact on Economy. (video)

• Singapore Central Bank Eases Policy by Adjusting Currency Band. Singapore’s central bank eased monetary policy for the second time in 2015 in an effort to revive growth. The local dollar strengthened. The Monetary Authority of Singapore, which uses the currency rather than interest rates to guide the economy, said in a statement Wednesday it will reduce the slope of its currency band, lessening the rate at which its dollar will appreciate. It kept both the width of the band and the center unchanged. 

• Oversupply and Tighter Lending Threaten Korea's Property Market. South Korea’s brisk property market has been a bright spot in an economy that has struggled for much of this year. Now, an oversupply of new homes and tougher lending rules may signal an end to the boom. Real estate has been the biggest beneficiary of record-low interest rates, with construction investment growing more than five times as fast as the nation’s economy in the April-June quarter. There were more housing transactions in the first eight months of 2015 than in any year since 2006. Further, pre-sales of new apartments have soared.

• Westpac to Raise A$3.5 Billion Amid Tighter Capital Rules. Westpac Banking Corp. will seek to raise A$3.5 billion ($2.5 billion) in a rights offering as it joins Australia’s other major lenders in shoring up capital to meet stricter regulations. The Sydney-based lender is offering shares at A$25.50 each, 16 percent lower than Tuesday’s closing price, in the fully-underwritten offering, it said in a statement to the ASX on Wednesday. Unaudited full-year cash earnings rose 3 percent to A$7.82 billion.

• Dollar Rises for Second Day as China Concerns Spur Haven Demand. The dollar strengthened for a second day as a decline in oil prices and concerns about an economic slowdown in China spurred demand for safer assets. The greenback gained against most of its 16 major peers on Tuesday after data showed Chinese imports declined more than economists forecast. Australia’s dollar dropped Wednesday after a decision by the nation’s second-largest lender to raise its home-loan rates prompted speculation the central bank will respond by easing policy as soon as next month. The kiwi fell the most in three weeks after Reserve Bank Governor Graeme Wheeler said interest-rate cuts seem likely even as recent economic indicators have been more encouraging.

• Asia Stocks Follow U.S. Shares Lower Before China Inflation Data. Asian stocks dropped for a second day, tracking a decline in U.S. equities, as investors awaited Chinese inflation data amid renewed concern about the slowdown in the world’s second-largest economy. The MSCI Asia Pacific Index fell 0.4 percent to 132.35 as of 9:00 a.m. in Tokyo.

• Copper Drops With Zinc, Aluminum Before China's Inflation Data. Copper fell for a second day as investors awaited Chinese inflation data amid renewed concern about the slowdown in the world’s biggest consuming country. The metal lost as much as 0.7 percent to $5,236.5 a metric ton before trading at $5,245 at 8:54 a.m. Shanghai time. Most metals retreated. Chinese consumer prices may have risen 1.8 percent in September from a year earlier, according to a Bloomberg survey of economists and analysts, against a 2 percent increase in August. Producer prices may have dropped 5.9 percent, the same as the previous month, the survey showed.

• VIX Charts Show How Unsettled the U.S. Stock Market Still Is. Even after the best weekly rally of 2015, the U.S. stock market is a place fraught with peril. Lingering anxiety is visible in various measures of option costs and volatility expectations, including in the enormous market for exchange-traded funds tied to future stock swings. The Chicago Board Options Exchange Volatility Index may have just staged its most sustained retreat in history, but other measures of investor nervousness remain elevated.

• Goldman Said Struggling to Sell Concordia Debt Amid Pharma Rout. Goldman Sachs Group Inc. is facing an uphill battle in selling almost $2.8 billion of debt for Concordia Healthcare Corp. amid a drug-pricing controversy in the pharmaceutical industry, according to people with knowledge of the matter.  

• Fortress, Bain Lead Hedge Funds Liquidating in Market Volatility. Fortress Investment Group LLC and Bain Capital are leading the list of big-name money managers liquidating hedge funds this year as volatility roils global markets. Hedge funds with more than $16 billion have announced shutdowns so far in 2015, according to data compiled by Bloomberg. Fortress said Tuesday it’s closing its $2.3 billion macro business run by Michael Novogratz after posting losses for almost two years. Bain said last week it’s shuttering its macro fund, which sustained more than three years of declines.

• SanDisk(SNDK) Said to Be Working With Bank to Explore a Sale. Chipmaker SanDisk Corp. hired a bank to explore a potential sale of the business and has received interest from two of its rivals, people with knowledge of the matter said. Micron Technology Inc. and Western Digital Corp. are in talks with SanDisk about a possible acquisition, said the people, who asked not to be identified because the process is private. SanDisk, based in Milpitas, California, operates flash-memory plants with Toshiba Corp. in Japan, and would likely need Toshiba’s blessing for a deal.

Wall Street Journal: 

• White House Sees Signs Iran Missile Test Violated U.N. Resolution. Iranian move isn’t expected to complicate efforts to implement nuclear deal, press secretary says. The White House said Tuesday that the U.S. has “strong indications” that Iran violated United Nations Security Council resolutions with its ballistic missile test over the weekend.

• Debt-Fueled Bond Buying in China Raises Concerns. More investors are using bonds as collateral for loans to buy additional bonds; echoes of margin trading in stocks. Debt-fueled trading drove the boom and bust in Chinese stocks. Now the strategy has shifted to the Chinese bond market, where investors are borrowing record amounts of money using bonds as collateral. Many Chinese investors are using these bond-backed loans to buy more bonds, analysts

• At U.S. Ports, Exports Are Coming Up Empty. Major gateways say more ocean containers are shipping out empty, a sign of weak demand in troubled global markets and the tough sell American exporters face abroad. One of the fastest-growing U.S. exports right now is air. Shipments of empty containers out of the U.S. are surging this year, highlighting the impact the economic slowdown in China is having on U.S. exporters. The U.S. imports more from China than it sends back, but certain American industries—including those that supply scrap metal and wastepaper—feed China’s industrial production.

• Intel(INTC) Profits Slide Amid PC Slump. Company’s biggest business remains chips that power computers. Intel Corp. revealed more pain from the shrinking personal-computer business in the latest quarter, but higher chip prices and demand for larger computers helped soften the blow. The Santa Clara, Calif., company on Tuesday said its third-quarter profit fell 6.3% from the year-earlier period on a small revenue decline. Intel, whose results exceeded analysts’ forecasts, issued an outlook for the current quarter that was in line with Wall Street estimates.

• In a Shift, Islamic State Tries to Show It Can Govern. Terrorist group’s media machine steps up positive propaganda in its sales pitch describing a utopian state to Muslims. In a bustling Iraqi city, road crews fill potholes, while hundreds of miles away in Syria administrators prepare for the new school year and bureaucrats implement a new crop-watering regimen.

• ObamaCare Bear Market. The co-ops collapse and enrollment falls as people stop paying. By liberal and media acclamation, ObamaCare is a glorious success, the political opposition is fading and the entitlement state has gained another permanent annex. The reality, for anyone who cares to look, is different and suggests that ObamaCare is far more vulnerable than this conventional wisdom.

• The New Democratic Coalition. The party has moved to 41% liberal from 21% since 2000, but seeks a unifying candidate. The Republican presidential hopefuls aren’t the only candidates facing transformations in their party and in the country that have reshaped the political battlefield. The Democratic contenders for 2016 are dealing with a party that has shifted left in the 14 years since the end of Bill Clinton’s presidency. In 2000, according to an October report from the Pew Research Center, 43% of Democrats identified themselves as moderate, 27% as liberal and 24% as conservative. In 2015, 41% of Democrats think of themselves as...

Fox News:

• Clinton defends flip-flops at Dem debate, swipes at Sanders. (video) Hillary Clinton emerged as the clear lightning rod at Tuesday night’s Democratic primary debate, as she was challenged early and often on her policy flip-flops – while also swiping at rival Bernie Sanders for his stance on gun laws, and staunchly defending her foreign policy record. The former secretary of state was put on the defensive in the opening moments of the debate, when asked by the moderator if she will say anything to get elected.

• Fox News Poll: Carson giving Trump a run for his money in GOP race.

MarketWatch.com: 

• Bearish ‘hanging man’ pattern warns don’t buy the dip in the Dow transports. (graph)

CNBC: 

• Black swan risk rises to highest level ever.

• How China's military buildup threatens the US.

Zero Hedge:

• China Devalues Yuan By Most In 2 Months, "Boosts Reforms" Of Corporate Bond Bubble. (graph)

• CLSA Just Stumbled On The Neutron Bomb In China's Banking System. (graph)

• And So It Begins - Managed High Yield Bond Fund Liquidates After 17 Years. (graph)

• HSBC Is Now "Highly Risk Averse" Amid Growth Worries, Loss Of Central Bank Put. (graph)

• The Fukushima Wasteland: "Terrifying" Drone Footage Of Japan's Abandoned Nuclear Exclusion Zone. (pic)

• Bond Market Breaking Bad - Credit Downgrades Highest Since 2009. (graph)

• Is This 2000, 2007 Or 2011? (graph)

• JPMorgan(JPM) Misses Across The Board On Disappointing Earnings, Outlook; Stealthy Deleveraging Continues.

• These Are The 50 "Most Hated" NYSE And Nasdaq Stocks.

• Biotechs Bruised & Trannies Trounced As VIX 'Losing' Streak Comes To An End. (graph)

Business Insider:

• Anderson Cooper grills Hillary Clinton: 'Will you say anything to get elected?'

• The housing-market bulls could have the story wrong.

• DIMON: JPMorgan is prepared for $30 oil.

• JPMORGAN(JPM) CFO: Markets are tough and Q4 is going to disappoint.

• 'Like inviting spies over to dinner': Cyber experts are stunned by the companies Hillary Clinton hired.

• Thousands of Iranian troops are now in Syria for ground offensives against insurgents.

• Anyone who claims stocks aren't overvalued is either 'tragically myopic or completely disingenuous'.

Telegraph:

• Russia abandons hope of oil price recovery and turns to the plough. The Kremlin has launched an incredible volte-face in economic policy and turned to traditional industries like farming in the face of tumbling oil prices.

• Global fund managers turn gloomy on Europe's economic outlook. Market Report: Only 25pc of global fund managers now expect the European economy to strengthen over the next 12 months - down from 62pc in September.

Evening Recommendations 

Piper:

• Cut (GPRO) to Neutral, target $25.
• Raised (VFC) to Overweight, target $81.

• Cut (UA) to Neutral, target $113.

Night Trading

• Asian equity indices are -1.0% to unch. on average.

• Asia Ex-Japan Investment Grade CDS Index 144.25 +3.25 basis points.

• Asia Pacific Sovereign CDS Index 81.25 +2.25 basis points.

• S&P 500 futures -.18%.

• NASDAQ 100 futures -.27%.

Morning Preview Links

Earnings of Note

Company/Estimate

• (ASML)/.73

• (BAC)/.33

• (BLK)/4.60

• (DAL)/1.71

• (JBHT)/.97

• (PNC)/1.76

• (WFC)/1.04

• (NFLX)/.08

• (XLNX)/.46 

Economic Releases

8:30 am EST

• Retail Sales Advance MoM for September are estimated to rise +.2% versus a +.2% gain in August.

• Retail Sales Ex Autos MoM for September are estimated to fall -.1% versus a +.1% gain in August.

• Retail Sales Ex Autos and Gas MoM for September are estimated to rise +.3% versus a +.3% gain in August.

• PPI Final Demand MoM for September is estimated to fall -.2% versus unch. in August.

• PPI Ex Food & Energy MoM for September is estimated to rise +.1% versus a +.3% gain in August.
  

10:00 am EST

• Business Inventories for August are estimated to rise +.1% versus a +.1% gain in July.
  

2:00 pm EST

• US Federal Reserve releases Beige Book Report.

Upcoming Splits

• (SKX) 3-for-1

Other Potential Market Movers

• The Australia employment report, UK unemployment rate, weekly MBA mortgage applications report, (NKE) investor day, (WMT) investment community meeting, (PDCO) investor day and the (IRM) investor day 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 mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 25% net long heading into the day.

Stocks Lower into Final Hour on Global Growth Fears, Emerging Markets/US High-Yield Debt Angst, Earnings Outlook Worries, Biotech/Transport Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Lower
  

• Sector Performance: Most Sectors Declining
  

• Volume: Below Average

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• Volatility(VIX) 17.3 +6.99%

• Euro/Yen Carry Return Index 142.48 +.02%

• Emerging Markets Currency Volatility(VXY) 11.32 +1.98%

• S&P 500 Implied Correlation 62.46 +3.98%

• ISE Sentiment Index 105.0 -11.02%

• Total Put/Call .84 -8.7%

• NYSE Arms 1.75 -5.43% 

Credit Investor Angst:

• North American Investment Grade CDS Index 81.24 +2.64%

• America Energy Sector High-Yield CDS Index 1,014.0 +1.55%

• European Financial Sector CDS Index 79.25 +1.60%

• Western Europe Sovereign Debt CDS Index 20.01 -2.72%

• Asia Pacific Sovereign Debt CDS Index 81.32 +3.09%

• Emerging Market CDS Index 341.22 +3.19%
  

• iBoxx Offshore RMB China Corporates High Yield Index 120.94 +.19%

• 2-Year Swap Spread 12.0 -.75 basis point

• TED Spread 31.5 -.25 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -24.0 -1.25 basis points

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 72.64 -.90%
• 3-Month T-Bill Yield .00% unch.

• Yield Curve 143.0 -2.0 basis points

• China Import Iron Ore Spot $54.97/Metric Tonne -2.90%

• Citi US Economic Surprise Index -24.10 +.2 point

• Citi Eurozone Economic Surprise Index 6.0 -2.7 points

• Citi Emerging Markets Economic Surprise Index -17.20 +1.6 points

• 10-Year TIPS Spread 1.52 -1.0 basis point
• # of Months to 1st Fed Rate Hike(Morgan Stanley) 5.40 unch.

Overseas Futures:

• Nikkei 225 Futures: Indicating -8 open in Japan 
• China A50 Futures: Indicating -23 open in China

• DAX Futures: Indicating -32 open in Germany

Portfolio: 

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

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

• Market Exposure: Moved to 25% Net Long