Stocks Reversing Lower into Final Hour on Oil Decline, Yen Strength, Technical Selling, Energy/Hospital Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Around Even
  

• Sector Performance: Mixed
  

• Volume: Slightly Above Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 17.48 -2.07%

• Euro/Yen Carry Return Index 120.26 +.08%

• Emerging Markets Currency Volatility(VXY) 10.91 +2.73%

• S&P 500 Implied Correlation 54.75 -2.3%

• ISE Sentiment Index 108.0 +80.0%
  

• Total Put/Call 1.05 +5.0%

• NYSE Arms 1.44 -51.51% 

Credit Investor Angst:

• North American Investment Grade CDS Index 77.66 +.82%
  

• America Energy Sector High-Yield CDS Index 682.0 +1.89%

• European Financial Sector CDS Index 91.18 -1.61%

• Western Europe Sovereign Debt CDS Index 24.97 -.32%

• Asia Pacific Sovereign Debt CDS Index 38.45 -2.98%

• Emerging Market CDS Index 254.12 +2.34%
  

• iBoxx Offshore RMB China Corporate High Yield Index 131.62 -.05%

• 2-Year Swap Spread 25.5 +.75 basis point

• TED Spread 50.5 +1.75 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -28.75 unch.
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 72.22 +.20%
• 3-Month T-Bill Yield .33% -2.0 basis points

• Yield Curve 93.0 unch.
  

• China Import Iron Ore Spot $55.97/Metric Tonne -.21%

• Citi US Economic Surprise Index -6.0 -.2 point

• Citi Eurozone Economic Surprise Index -20.5 +.3 point

• Citi Emerging Markets Economic Surprise Index -15.4 -.3 point

• 10-Year TIPS Spread 1.50% -1.0 basis point
• 28.6% chance of Fed rate hike at Nov. 2 meeting, 52.3% chance at Dec. 14 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -190 open in Japan 
• China A50 Futures: Indicating -22 open in China

• DAX Futures: Indicating -10 open in Germany

Portfolio: 

• Slightly Higher: On gains in my biotech/tech sector longs

• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges, then added them back

• Market Exposure: 25% Net Long

Today's Headlines

Bloomberg:

• Gloom Descends on Luxury-Goods Industry. The crisis in the global luxury-goods industry deepened after Hermes International SCA abandoned a long-standing forecast and Richemont predicted a profit plunge that Chairman Johann Rupert deemed unacceptable. Richemont, the maker of Cartier jewelry, said first-half operating profit will probably decline about 45 percent and warned it may have to deepen cost cuts. Kelly bag maker Hermes, traditionally among the industry’s most resilient companies, scrapped a target for 8 percent annual sales growth, replacing it with what it described as “an ambitious goal.”
• How Donald Trump Could Wipe $420 Billion Off China's Exports.
• China’s Stocks Fall to One-Month Low on Monetary Policy Concern. (video) Chinese stocks dropped to their lowest level in a month on the last trading day of this week amid speculation the central bank won’t add to stimulus. The Shanghai Composite Index fell 0.7 percent at the close. The gauge has lost 2.5 percent this week, the most since May, after plunging on Monday amid a jump in the cost of borrowing the yuan in Hong Kong. Commodity producers paced a retreat in Shanghai after U.S. oil prices slumped. The Hang Seng China Enterprises Index dropped for a third day.
• Global Oil Glut Set to Worsen as Nigeria, Libya Fields Restart. Amid the most enduring global oil glut in decades, two OPEC crude producers whose supplies have been crushed by domestic conflicts are preparing to add hundreds of thousands of barrels to world markets within weeks. Libya’s state oil company on Wednesday lifted curbs on crude sales from the ports of Ras Lanuf, Es Sider and Zueitina, potentially unlocking 300,000 barrels a day of supply. In Nigeria, Exxon Mobil Corp. was said to be ready to resume shipments of Qua Iboe crude, the country’s biggest export grade, which averaged about 340,000 barrels a day in shipments last year, according to Bloomberg estimates. On top of that, a second Nigerian grade operated by Royal Dutch Shell Plc is scheduled to restart about 200,000 barrels a day of flow within days.
• IPhone 7 Preorders Normal at Verizon Despite T-Mobile’s Surge. Preorders for the iPhone 7 have come in at the normal range for Apple Inc. device introductions, Verizon Communications Inc. said, putting a damper on speculation that the new product is off to a faster start than usual. While T-Mobile US Inc. and Sprint Corp. said they’d received four times as many orders for the iPhone 7 as previous models, Verizon has a much larger base of iPhone subscribers so its numbers are less dramatic, Marni Walden, an executive vice president, said at an investor conference Wednesday.

Wall Street Journal:

• Bayer-Monsanto(MON) Deal Faces Heavy Regulatory Scrutiny. Combining two of the world’s largest farm suppliers will test politicians wary of consolidation in the $100 billion global market.
• President Obama to Increase Refugees Admitted to U.S. by 30%. Of the 110,000 goal, 40,000 refugees would be from the Near East/South Asia, which includes Syria.

CNBC:

• Leaked Colin Powell emails reveal Clinton's apparent disdain for Obama.

Zero Hedge:

• Leaked Emails Show Colin Powell Was Worried About Hillary's Health Over A Year Ago.
• Riot Police Begin Mass-Arrests At Dakota Access Pipeline; Facebook(FB) Censors Video.
• Venezuela's "Death Spiral" - A Dozen Eggs Cost $150 As Hyperinflation Horrors Hit Socialist Utopia.
• VIX ETF Smashes All Records.
• The Bank Of Japan Unleashes Chaos.
• Germany Shuts Embassies, Schools In Turkey After "Acute Terror Attack" Indications.
• Why A JPM Trader Just Said "This Is The Most Uncomfortable I’ve Felt Investing In 35 Years".
• Oil Pumps'n'Dumps As Algos Fight Over Distillates/Gasoline Inventories Surge & Surprise Crude Draw. (graph)
• The Last Time This Happened, Stocks Crashed. (graph)
• The Chilling Thing CEOs Of Corporate America Said About Jobs.
• US Import Prices Tumble For 25th Month In A Row As China's Deflationary Impulse Hits Fresh 6 Year Lows. (graph)
• Trump Soars In Latest Polls: Sees 5 Point Lead In Ohio And Latest LA Times National Poll.

Business Insider:

• There's a 'black gold rush' happening in America.
• Americans' out-of-pocket healthcare costs are skyrocketing.
• China's housing market is going nuts again.

Bear Radar

Style Underperformer:

• Small-Cap Value -.2%

Sector Underperformers:

• 1) Hospitals -1.7% 2) Alt Energy -1.4% 3) Energy -1.3%

Stocks Falling on Unusual Volume: 

• PENN, CBRL, SEDG, BANR, MCK, NAP, VRTX, BKS, CAH, UEIC, NICE, RETA, APC, SWNC, COH, THS, ABC, CCRN, DQ, INGR, APD, DPLO, BECN and FSLR

Stocks With Unusual Put Option Activity:

• 1) GT 2) MON 3) XLB 4) APA 5) EEM

Stocks With Most Negative News Mentions:

• 1) COH 2) FNMA 3) ATW 4) ALGT 5) UNFI

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Growth +.3%

Sector Outperformers:

• 1) Gaming +2.5% 2) Disk Drives +1.1% 3) Computer Hardware +1.0%

Stocks Rising on Unusual Volume:

• VTAE, SRPT, GBT, AERI, SOHU, AAPL, GIMO, ARIA, AVXS, HOME and AAOI

Stocks With Unusual Call Option Activity:

• 1) AMJ 2) RPTP 3) TJX 4) ARIA 5) SIG

Stocks With Most Positive News Mentions:

• 1) CAT 2) WTW 3) SUNE 4) VSLR 5) GWR

Charts:

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

Morning Market Internas

NYSE Composite Index:

• Volume Running +8.% Above 100-Day Average
• 8 Sectors Rising, 2 Sectors Declining
• 54.1% of Issues Advancing, 42.9% Declining
• 7 New 52-Week Highs, 18 New Lows
• 58.1% of Issues Above 200-day Moving Average
• Average 14-Day RSI 35.3%
• Vix 17.3 -3.0%
• Total Put/Call .81 -19.0%
• TRIN/Arms 1.44 -51.4%

Wednesday Watch

Evening Headlines

Bloomberg:

• Asian Junk's House of Cards. 
• Goldman Says Dollar Surge Far From Over as Traders Misprice Fed. Goldman Sachs Group Inc. is holding fast to its bullish-dollar call, undeterred by plunging expectations for a Federal Reserve interest-rate increase. A gauge of the U.S. currency held near the strongest closing level since August reached Tuesday as higher U.S. yields bolstered the greenback’s allure versus major peers even as futures showed reduced odds of a Fed rate hike next week. The dollar’s advance was supported by waning demand for currencies of natural-resource-exporting nations, which fell amid a rout in commodities prices and as investors’ appetite for riskier assets diminished.
• Asian Stocks Extend Global Slide as Volatility Measures Soar. Asian stocks extended a global slump and volatility soared after a report showed fund managers are hoarding more money in cash amid uncertainty over the trajectory of central bank stimulus globally. The MSCI Asia Pacific Index lost 0.6 percent to 136.36 as of 9:13 a.m. in Tokyo. The measure is on course for a fifth day of declines after valuations this month climbed to the highest in more than a year and investors adjusted portfolios and forecasts to reflect prospects of less monetary stimulus globally. In Tokyo, the Topix index fell 0.7 percent after the Nikkei newspaper said the Bank of Japan is considering delving deeper into negative interest rates, a controversial move that hurt bank shares earlier this year.
• Buffett Loses $1.4 Billion as Wells Fargo Tumbles on Scandal. Warren Buffett had $1.4 billion wiped from his fortune Tuesday after Wells Fargo & Co. fell 3.3 percent as the fallout continued from revelations that bank employees had opened more than 2 million accounts without clients’ approval. Berkshire Hathaway Inc., the lender’s biggest shareholder, fell 2 percent, causing the 86-year-old’s fortune to drop more than anyone else’s on the Bloomberg Billionaires Index. The U.S. investor is the world’s fourth-richest person with a net worth of $65.8 billion.

Wall Street Journal:

• Clinton’s Stealthy Single-Payer Gambit. The ‘public option’ could be implemented around the country—without congressional approval. It looks like 2017 will be ObamaCare’s worst year yet. The three major insurers, along with many smaller plans, are largely exiting the health-insurance exchanges, leaving more than half of U.S. counties with only one or two health-plan choices, according to the Kaiser Family Foundation. Nearly 36% of ObamaCare regions may have only one participating insurance carrier offering plans for 2017, according to health-care analytics firm Avalere Health. Data from analysts at Barclays and Credit Suisse project that health-insurance...

Fox News:

• Obama hits campaign trail for Clinton amid rough patch, calls her 'fit’ to lead. (video) President Obama returned Tuesday to the campaign trail to help fellow Democrat Hillary Clinton through arguably the rockiest stretch of her White House campaign, brushing aside the controversies that have dogged her candidacy and assuring voters she's “fit” for office -- as she spends a second day off the trail on doctor's orders.
  

CNBC:

• Next couple of months could be very dangerous for investors, expert says. (video)
• Black Swan investor warns of central bank bubble. (video)

Zero Hedge:

• CBS Caught Editing Clip, Transcript In Which Bill Clinton Says Hillary Fainted "Frequently".
• "Rampant Fraud" Exposed In Obamacare Exchanges: 100% Of Fictitious Enrollees Obtained Subsidies. 
• Doctor Explains Why Hillary's 9/11 "Medical Episode" Is More Consistent With Parkinson's Than Pneumonia.
• European Civil War Looms: French Professor Fears Growing "Jihad Generation" Among Unemployed Muslims.
• A Disturbing Development: Interactive Brokers Implements Price Caps.
• Crude Chaos Strikes On Disappointing Post-Hurricane Rebound In Inventories.
• Bond Bloodbath Bashes Brainard Bounce As 'BillionBears' Slam Stocks. (graph)

Business Insider:

• 'Political retaliation': North Carolina governor fires back over NCAA decision to pull events out of the state.
• WESTON: Here's why markets have suddenly gone haywire.
• The farm bubble has burst.
• A hedge fund manager who shut down his fund following a government raid is now lashing out.

Washington Post:

• Democrats ask for investigation of Trump Foundation donation.

Telegraph:

• Draghi: EU must redistribute wealth and strengthen borders to save the union.

Night Trading 

• Asian equity indices are -.75% to -.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 112.5 +6.0 basis points.
• Asia Pacific Sovereign CDS Index 39.75+1.5 basis points.
• Bloomberg Emerging Markets Currency Index 72.04 -.06%. 
• S&P 500 futures +.16%. 
• NASDAQ 100 futures +.10%.

Morning Preview Links

Earnings of Note
Company/Estimate 

• (CBRL)/2.13
• (HAIN)/.57
• (APOG)/.67
• (LAKE)/.10 

Economic Releases
8:30 am EST

• The Import Price Index MoM for August is estimated to fall -.1% versus a +.1% gain in July.
  

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory gain of +2,767,820 barrels versus a -14,513,000 barrel decline the prior week. Gasoline supplies are estimated to fall by -604,550 barrels versus a -4,211,000 barrel decline the prior week. Distillate Inventories are estimated to rise by +1,292,640 barrels versus a +3,382,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to fall by -.39% versus a +.9% gain prior.

Upcoming Splits 

• (BIP) 3-for-2
• (BMI) 2-for-1

Other Potential Market Movers

• The Australia Unemployment report, weekly MBA mortgage applications report, BofA Healthcare conference, CSFB Small/Mid-Cap Conference, (F) investor day and the (LEG) investor day 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 mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 25% net long heading into the day.