“Happy Holiday”

1. “Smart Money Indicator” Hits Most Bearish Reading in History — the “Smart Money Indicator” which tracks the number of bearish put options vs the number of call options shows the Bear Option traders open put contracts now exceed call contracts by 3:1 for the first time ever. It also gave a false warning , like it did in 2003 and 2012 and last fall, when we first went over the 2:1 line.

2. Average Stock in the S&P 500 is 20% BELOW it’s 52-week High — according to Bespoke, below is a chart that shows how far stocks in the S&P 500 and each sector are trading below their 52-week highs. In the S&P 500 as a whole, the average stock is currently 19.4% below its 52-week high. Four sectors have readings below this level — Telecom (-22%), Consumer Discretionary (-22.2%), Materials (-24.5%) and Energy (-42.5%).

3. WTI, Brent Crude Reach Parity — the West Texas Intermediate settled at a premium to its global counterpart Brent crude for the first time in more than five years, and the spread between the two benchmarks is now nonexistent.

The week ahead — Economic data from Econoday.com:

“First ask yourself: What is the worst that can happen? Then prepare to accept it. Then proceed to improve on the worst.” — Dale Carnegie

1. Saudi Arabia Forms Coalition Against Terrorist Group — Saudi Arabia has announced the formation of a 34-state Islamic military coalition to combat terrorism, according to a joint statement published on state news agency SPA. A long list of countries including Egypt, Qatar, and the United Arab Emirates were mentioned, although Iran was absent from the participants.
2. Disney’s StarWar ‘The Force Awakens’ to open in 4,100+ theaters this Past Weekend — the Force Awakens, the first film from Disney (NYSE:DIS) in the Star Wars series, will debut in more than 4,100 theaters this past weekend, a record number for a December opening. BoxOffice.com is forecasting $223M in U.S. and Canadian ticket sales in the first weekend, topping Jurassic World from Universal Pictures (NASDAQ:CMCSA), which brought in $208.8M in its debut weekend in June.
3. Junk Bonds Sell-Off Pickup Steam — after junk-bond prices posted their largest drop since 2011, investors say they are bracing for another difficult week, likely featuring hectic trading and large splits between buy and sell orders. Hedge-fund and mutual-fund managers feel that gaps as wide as 10% between the price bondholders are willing to accept and buyers are willing to pay are likely to be commonplace until at least the conclusion of the Fed’s two-day meeting.
4. Fed Hikes Interest Rates — the central bank raised rates for the first time in nearly a decade. Policymakers signaled that they ‘ll hike 4 times in 2016. Fed chief Janet Yellen said wage gains seem to be strengthening, but isn’t ready to call that a “firm trend”. She also said policymakers are aware of “important spillovers into emerging markets”.
5. Congress Extends Solar Tax Credits and Ends Oil Export Ban — congressional leaders backed a 5-year solar investment tax credit extension as part of a $1.15 tril spending deal that also ends the oil export ban. Projects set to start by 2019 will get the current 30% subsidy, with incremental cuts until 2024. Companies effected are Solarcity (SCTY), FirstSolar (FSLR), SundEdison(SUNE) and SunPower(SPWR).

The week ahead — Economic data from Econoday.com:

“I have been trading for decades and I am still standing. I have seen a lot of traders come and go. They have a system or a program that works in some specific environments and fails in others. In contrast, my strategy is dynamic and ever evolving. I constantly learn and change.” – Thomas Busby

1. Kinder Morgan (KMI) Fears Crushing Entire MLP Sector — the Kinder Morgan (NYSE:KMI) contagion triggered a selloff throughout the entire MLP space late last week as fears of a wave of yield cuts have spread throughout the market. Moody’s changed its outlook on PAA to Negative from Stable while affirming the company’s Baa2 rating, saying it is concerned about PAA’s 5.4x debt-to-EBITDA ratio and sub-1x distribution coverage ratio. The continuing slide in crude oil prices obviously is weighing on MLP prices, but year-end selling also may be playing a major role – not just tax-loss harvesting, but the “year-end liquidation of a losing trade,” says Michael Shaoul of Marketfield Asset Management. Furthermore, Kinder Morgan has slashed its 2016 quarterly dividend to $0.125/share from the current $0.51, marking the company’s first-ever dividend cut. The company said the move will enable it to use a significant portion of its cash flow to fund the equity portion of its expansion capital requirements, eliminate any need to access the equity market for the foreseeable future, and maintain a solid investment grade credit rating.
2. Carl Icahn Ups Cheniere Stake Again — activist investor Carl Icahn has raised his stake in struggling Cheniere Energy (NYSEMKT:LNG), marking the eighth time he upped his holdings in the company since taking an initial 8.2% position in August. According to a Dow Jones report, the billionaire boosted his stake to 13.8% from 12.7% previously.
3. Apple Suspends TV Service Plans as Big Media Resists — Bloomberg reported Apple (NASDAQ:AAPL) has suspended plans to offer an online TV service, and will focus for now on helping media companies directly sell content via the App Store. The news service adds that Apple (NASDAQ:AAPL) isn’t completely giving up on providing a live TV service, but notes its original plan to sell 14 or so channels for $30-$40/month has “run into resistance from media companies that want more money for their programming.” Media executives have said they expect Apple and other new entrants to pay more per channel than pay-TV incumbents.
4. Chipotle Store (CMG) in Seattle Closed Due to Health Violations — Health officials in Seattle closed down a Chipotle (NYSE:CMG) store due to “repeated” food safety violations. The store has recently re-opened after being shut down following the E. coli outbreak which impacted some Chipotle stores in the Pacific Northwest. Separately, the toll of students at Boston College who became sick after eating at a Chipotle store has risen to 141.
5. Baker Hughes Deal Will Likely Close in 2016 — Halliburton’s proposed $35B acquisition of rival Baker Hughes (NYSE:BHI) will likely close in 2016 instead of this year as talks with U.S. regulators continue, Halliburton (NYSE:HAL) CFO Christian Garcia told a Wells Fargo Energy Symposium. Both companies have already agreed to divest $5.2B in overlapping businesses to quell concerns that the merger, which would create the second-largest oilfield services company, would lead to higher prices and less innovation.

The week ahead — Economic data from Econoday.com:

FOMC Meeting Week

“Nothing created by the mind of man has ever equaled the stock market in terms of its sheer ability to frustrate people. Why is this? The answer is that the stock market frustrates because millions of traders and investors across the face of the U.S. and the world are trying to make money out of the market. Now when millions of people are trying to make money out of the market, you know right off the bat that it can’t be done. A majority of people are not fated to make money doing anything, much less beat the stock market. ‘It’s not fair’ you complain, ‘why can’t all those nice, well-meaning people make money with their trading and investing?’ There’s one simple fact that makes it difficult. And that fact is that throughout history there have always been a small number of financial winners and an army of financial losers. So when we state that the stock market is frustrating, we must qualify the statement by asking, ‘frustrating for whom?’ And the answer again is that the stock market is frustrating to the great majority of participant-losers but highly rewarding to the small minority of informed, hard-working, intelligent winners.” — Richard Russell

1. Puerto Rico Debt Payment Comes Due –Puerto Rico makes a $354M debt payment owed to creditors late last week, while a U.S. congressional hearing about the island’s fiscal crisis takes place in Washington. Analysts have warned that the debt owed by the Government Development Bank could be the first major payment skipped by the San Juan government as part of a strategy to preserve cash and force creditors to negotiate.
2. China’s Renminbi Is Approved by I.M.F. as a Main World Currency — NYTimes, the IMF added the yuan to its Special Drawing Rights basket. Effective Oct. 1, 2016, the renminbi will officially be recognized as a reserve currency, meaning central banks will have an alternative for foreign exchange reserves. The yuan also meets criteria of being “freely usable,” or widely used for international payments and in foreign exchange markets, boosting China’s influence in the global economy. The move will help pave the way for broader use of the renminbi in trade and finance, securing China’s standing as a global economic power. Just four other currencies — the dollar, the euro, the pound and the yen — have the I.M.F. designation.
3. ECB Cuts Deposit Rate, Launches Fresh Stimulus — ECB President Mario Draghi said the bank would cut the deposit rate to -0.30% from -0.20%. Mr. Draghi noted the success of the bank’s existing QE program, and said it would be extended until March 2017 or “beyond if necessary.” The Frankfurt-based ECB will also extend quantitative easing by six months until at least March 2017 at the current rate of 60 billion euros a month and broaden the assets purchased to include local and regional debt, ECB President Mario Draghi said last Thursday.
4. FOMC Chairwoman Eager to Raise Rates — Fed Chair Janet Yellen said she’s “looking forward” to the first interest rate hike in nearly 10-years. She stated data since the Oct. gathering have been “consistent” with improving labor market, which should lead to 2% inflation.
5. American Association of Individual Investor (AAII) bullish sentiment — courtesy of BIG, In this week’s report, bullish sentiment dropped from 32.36% down to 29.49% for the first sub 30% reading in bullish sentiment since the early October lows. The latest survey shows investors are increasingly less willing to take a stand on the market in one way or the other.

The week ahead — Economic data from Econoday.com: