Stocks Slightly Lower into Final Hour on Diminished Healthcare/Tax Reform Hopes, Earnings Concerns, Yen Strength, Tobacco/Restaurant Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Lower
  

• Sector Performance: Mixed
  

• Volume: Around Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 10.82 +7.0%

• Euro/Yen Carry Return Index 135.84 +.21%

• Emerging Markets Currency Volatility(VXY) 7.52 +.4%

• S&P 500 Implied Correlation 29.29 +4.5%

• ISE Sentiment Index 99.0 +16.47%
  

• Total Put/Call .78 -16.1%

• NYSE Arms 1.64 +96.06%

Credit Investor Angst:

• North American Investment Grade CDS Index 57.5 +1.17%
  

• America Energy Sector High-Yield CDS Index 430.0 -.99%

• European Financial Sector CDS Index 50.49 +1.25%

• Western Europe Sovereign Debt CDS Index 4.52 +5.37%

• Asia Pacific Sovereign Debt CDS Index 20.0 +.48%

• Emerging Market CDS Index 191.39 -.18%
  

• iBoxx Offshore RMB China Corporate High Yield Index 140.49 +.01%

• 2-Year Swap Spread 24.5 unch.

• TED Spread 23.5 +2.0 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -28.50 +.5 basis point

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 73.91 +.04%
• 3-Month T-Bill Yield 1.08% -2.0 basis points
  

• Yield Curve 94.0 -1.0 basis point

• China Import Iron Ore Spot $68.73/Metric Tonne -2.09%

• Citi US Economic Surprise Index -44.50 -.7 points

• Citi Eurozone Economic Surprise Index 16.10 unch.

• Citi Emerging Markets Economic Surprise Index 15.70 +1.2 basis points

• 10-Year TIPS Spread 1.82 unch.
  
• 19.5% chance of Fed rate hike at Nov. 1 meeting, 48.4% chance at Dec. 13 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating +76 open in Japan 
• China A50 Futures: Indicating +46 open in China

• DAX Futures: Indicating -5 open in Germany

Portfolio: 

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

• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges

• Market Exposure: Moved to 75% Net Long

Bear Radar

Style Underperformer:

• Small-Cap Value -.5%

Sector Underperformers:

• 1) Tobacco -3.7% 2) Restaurants -3.1% 3) Papers -1.8%

Stocks Falling on Unusual Volume: 

• ELLI, NUVA, MO, BOJA, X, MAT, GNC, WDC, POWI, MSTR, BTI, CYBE, ECHO, GT, PDFS, EROS, EGHT, SBUX, MULE, VGR, OZRK, WIX, EHTH, IMPV, HRC, FLS and ENVA

Stocks With Unusual Put Option Activity:

• 1) MO 2) P 3) SBUX 4) PM 5) FSLR

Stocks With Most Negative News Mentions:

• 1) MSTR 2) BOJA 3) ECHO 4) OZRK 5) EGHT

Charts:

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

Bull Radar

Style Outperformer:

• Mid-Cap Growth -.1%

Sector Outperformers:

• 1) Gold &Silver +1.7% 2) HMOs +1.1% 3) Alt Energy +.9%

Stocks Rising on Unusual Volume:

• SAM, OMCL, BIDU, AAN, LMAT, BOFI, RUSHA, GNBC, FSLR, TACO, AZN, ARCB, ATRC, SPSC, LOGM, DEO, ACHC, MHK, SAIA, ADP, SKYW, NX, ALGN, CRAY, IRWD, AAN, ACHC, BOFI, SHLM, LAD, TACO, EXPE, SPWR, HIG and TVTY

Stocks With Unusual Call Option Activity:

• 1) MAC 2) RCL 3) ALXN 4) MAT 5) DRI

Stocks With Most Positive News Mentions:

• 1) BIDU 2) LMAT 3) ALGN 4) FSLR 5) COLM

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running +8.1% Above 100-Day Average
• 2 Sectors Rising, 8 Sectors Declining
• 49.5% of Issues Advancing, 45.6% Declining
• 47 New 52-Week Highs, 13 New Lows
• 47.6% of Issues Above 200-day Moving Average
• Average 14-Day RSI 37.5%
• Vix 11.1 +10.0%
• Total Put/Call .84 -9.7%
• TRIN/Arms 1.01 +21.1%

Friday Watch

Evening Headlines

Bloomberg:

• China Bond Opening Fails to Inspire Asian Funds Wary of Policy. Investors who were granted a new gateway to China’s $10 trillion bond market this month say accessibility was the least of their worries. Tokyo-based Mitsubishi UFJ Kokusai Asset Management says it’s avoiding Chinese corporate notes now because of uncertainties about the nation’s policy outlook. Japan’s Fukokushinrai Life Insurance Co. is reluctant unless China improves its debt market infrastructure such as credit ratings. Samsung Asset Management in Seoul says it would need to invest in lower-rated Chinese debt to earn sufficient yields when currency hedging costs are considered, but it’s uncomfortable doing so because of a lack of transparency in the market.

• Asia Stocks Face Mixed Start; Dollar Rebounds. Stocks in Asia looked set for a mixed end to the week as the dollar recovered losses and investors digested a raft of earnings from Amazon.com Inc. to Baidu Inc. The American equity session was dominated by a bout of volatility that sent the Nasdaq 100 Index lower and pushed up the CBOE Volatility Index, though that eased late in the day. The dollar rebounded as data showed U.S. durable-goods orders climbed more than expected, while Treasuries fell. Japan’s Topix index fell 0.2 percent and Australia’s S&P/ASX 200 Index sank 0.9 percent. South Korea’s Kospi index declined 0.6 percent.

Wall Street Journal:

• GOP Senators Demand House Assurance on ‘Skinny Repeal’ Health Bill. A number of Republicans say they will vote for measure to repeal Affordable Care Act only if it serves as a vehicle for negotiation.

• Mnuchin: Volcker Rule, ‘Too Big to Fail’ Set for Changes. Treasury secretary says he will discuss potential moves at Friday’s FSOC meeting.

• Boy Scout Leader Apologizes for ‘Political Rhetoric’ in Speech by President Trump. White House spokeswoman defends remarks, saying ‘they were pretty excited he was there’.

• China’s Next Target: U.S. Microchip Hegemony. The semiconductor industry, a stalwart of the global economy, is succumbing to fierce nationalistic competition.

Fox News:

• Anthony Scaramucci uses vulgar language to lash out at Priebus, make fun of Bannon in interview. (video)

• Obama official made 'hundreds of unmasking requests,' GOP chairman says. (vdeo)

CNBC:

• Amazon(AMZN) shares fall after big earnings miss. (video)

• Starbucks(SBUX) earnings in-line with Street estimates, closing all Teavana stores. (video)

• Top eSports gamer talks 'explosion' in billion-dollar gaming industry with Logitech CEO.

• Here’s why the GDP report could have a ‘massive effect’ on markets.

• The FDA did a good thing for digital health today -- even skeptics agree.

• Jeff Gundlach buys S&P 500 puts, eyeing gold.

• Intel(INTC) shares rise then settle after earnings beat estimates. (video)

• Failure to pass tax reform would be ‘catastrophic’ for the GOP.

Zero Hedge:

• Mark Hanson Reveals "The Next Housing Bubble". (video)

• Scaramucci Wants To "Kill" Leakers.

• "Digital Currencies Are Nothing But An Unfounded Fad" Howard Marks Calls Bitcoin "A Pyramid Scheme".

• "The Lost Generation": Goldman Unemployment Charts Explain Just How Spoiled Millennials Are.

• Total Government And Personal Debt In The U.S. Has Hit 41 Trillion Dollars ($329,961.34 Per Household).

• 15 Million Americans Would Opt-Out Of Obamacare.. If They Could.

• Rents Across The US Hit A New All Time High. (graph)

• NASA Confirms Falling Sea Levels For Two Years Amidst Media Blackout.

• Gold Surges To 6-Week Highs As Stocks Get De-FANGed, Trannies Worst Day Since Brexit. (graph)

Business Insider:

• Amazon(AMZN) wants to continue testing grocery stores without human cashiers when it owns Whole Foods.

Night Trading 

• Asian equity indices are -1.0% to -.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 81.50 -.5 basis point. 

• Asia Pacific Sovereign CDS Index 20.0 -.25 basis point.

• Bloomberg Emerging Markets Currency Index 73.85 -.04%.

• S&P 500 futures -.36%.

• NASDAQ 100 futures -.52%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (ABBV)/1.40

• (AXL)/.83

• (BHGE)/-.12

• (B)/.68

• (CVX)/.87

• (XOM)/.86

• (GT)/.73

• (MRK)/.87 

• (COL)/1.58

• (WFT)/-.28

• (WY)/.27

Economic Releases  
8:30 am EST

• 2014-16 GDP revisions.

• 2Q GDP is estimated to rise +2.6% versus a +1.4% gain in 1Q.

• 2Q Personal Consumption is estimated to rise +2.8% versus a +1.1% gain in 1Q.

• The 2Q GDP Price Index is estimated to rise +1.3% versus a +1.9% gain in 1Q.

• The 2Q Core PCE is estimated to rise +.7% versus a +2.0% gain in 1Q.

• The 2Q Employment Cost Index is estimated to rise +.6% versus a +.8% gain in 1Q.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Kashkari speaking, Canada GDP report and the (CRUS) annual meeting could also impact trading today.

BOTTOM LINE:  Asian indices are mostly lower, weighed down by commodity and technology shares in the region. I expect US stocks to open modestly lower and to maintain losses into the afternoon.  The Portfolio is 50% net long heading into the day.

Stocks Mostly Lower into Final Hour on Profit-Taking, Technical Selling, Earnings Disappointments, Transport/Biotech Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Lower
  

• Sector Performance: Most Sectors Declining
  

• Volume: Above Average

• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• Volatility(VIX) 10.76 +12.4%

• Euro/Yen Carry Return Index 135.35 -.57%

• Emerging Markets Currency Volatility(VXY) 7.50 +.4%

• S&P 500 Implied Correlation 28.70 +2.1%

• ISE Sentiment Index 84.0 +25.4%
  

• Total Put/Call .94 +27.0%

• NYSE Arms .88 -33.3%

Credit Investor Angst:

• North American Investment Grade CDS Index 57.29 +1.78%
  

• America Energy Sector High-Yield CDS Index 434.0 +.49%

• European Financial Sector CDS Index 49.58 -1.1%

• Western Europe Sovereign Debt CDS Index 4.29 -12.99%

• Asia Pacific Sovereign Debt CDS Index 19.86 -2.46%

• Emerging Market CDS Index 193.14 +.69%
  

• iBoxx Offshore RMB China Corporate High Yield Index 140.48 +.07%

• 2-Year Swap Spread 24.5 +.75 basis point

• TED Spread 21.5 +2.25 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -29.0 -2.0 basis points

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 73.85 -.18%
• 3-Month T-Bill Yield 1.10% -2.0 basis points
  

• Yield Curve 95.0 +2.0 basis points

• China Import Iron Ore Spot $70.20/Metric Tonne -.33%

• Citi US Economic Surprise Index -43.80 +.6 points

• Citi Eurozone Economic Surprise Index 16.10 +2.5 points

• Citi Emerging Markets Economic Surprise Index 16.90 +1.3 basis points

• 10-Year TIPS Spread 1.82 +2.0 basis points
  
• 17.7% chance of Fed rate hike at Nov. 1 meeting, 47.3% chance at Dec. 13 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -59 open in Japan 
• China A50 Futures: Indicating +20 open in China

• DAX Futures: Indicating -39 open in Germany

Portfolio: 

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

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

• Market Exposure: Moved to 75% Net Long