Bull Radar

Style Outperformer:

• Small-Cap Value +.27%

Sector Outperformers:

• 1) Gold & Silver +3.98% 2) Homebuilders +1.76% 3) Construction +1.05%
  

Stocks Rising on Unusual Volume:

• WTW, TMH, TTS, SNDK, SONC, ETSY, FLEX, DOV and MNST

Stocks With Unusual Call Option Activity:

• 1) WTW 2) SVU 3) SYF 4) TASR 5) HZNP
  

Stocks With Most Positive News Mentions:

• 1) AEP 2) BKS 3) SONC 4) TRV 5) YUM
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Morning Market Internals

NYSE Composite Index:

• Volume Running -1.0% Below 100-Day Average
• 5 Sectors Rising, 5 Sectors Declining
• 62.4% of Issues Advancing, 34.4% Declining
• 54 New 52-Week Highs, 12 New Lows
• 34.1% of Issues Above 200-day Moving Average
• Average 14-Day RSI 46.8
• Vix 15.31
• Total Put/Call 1.22
• TRIN/Arms .99

Tuesday Watch

Evening Headlines 

Bloomberg:

• U.S. Softens Criticism of Yuan Level Amid Currency Pressures. The U.S. Treasury dropped its view that China’s currency is “significantly undervalued” while saying that the forces driving appreciation in the longer term remain and China needs to allow such strengthening eventually. The yuan remains “below its appropriate medium-term valuation,” the department said Monday in its semiannual report on foreign-exchange policies. The “core factors” that have driven the appreciation of the yuan in recent years remain in place, such as a large and growing current-account surplus, and net inflows of foreign direct investment, the Treasury said.  
• Asia Stocks Drop, Led by Material Shares, as October Rally Halts. Asian stocks fell, paring the benchmark regional equities gauge’s biggest monthly rally in five years, as material shares led losses. The MSCI Asia Pacific Index slipped less than 0.1 percent to 134.01 as of 9:08 a.m. in Tokyo.
• OPEC Brings Oil Price War Home in Pursuit of Asia's Cash. When it comes to deciding how much to charge Asian oil buyers, OPEC members are showing little regard for tradition. Suppliers from the Organization of Petroleum Exporting Countries have long moved in lockstep, raising or lowering prices in tandem. Now, Kuwait is undercutting Saudi Arabia by the most on record and Iraq is also selling its oil more cheaply than the group’s biggest member. Qatar is pricing cargoes at the biggest discount in 27 months to competing crude from the U.A.E.’s Abu Dhabi.
• Fed's Williams Sees Reasons to Increase Rates Soon and Slowly. The Federal Reserve is progressing toward its dual mandate of stable prices and maximum employment and should raise interest rates in the near future, said John Williams, president of the Federal Reserve Bank of San Francisco. "We always have to be looking through the front window” in setting monetary policy since it works on the economy with a lag, Williams said, speaking on Bloomberg Television with Michael McKee on Monday. "My own view is that the economy is still on a good trajectory.”
• Illinois Downgraded by Fitch as State Budget Crisis Worsens. Illinois was lowered to three steps above junk by Fitch Ratings amid a political stalemate that has left the state without a budget for nearly four months, worsening a financial crisis that has already triggered credit downgrades to cities and local agencies. The one-step downgrade to BBB+ from A- affects $26.8 billion of general-obligation bonds. Fitch said in a statement that its outlook is now stable. Illinois is already the worst-rated state with an A3 by Moody’s Investors Service, four steps above junk, and an equivalent A- by Standard & Poor’s.

Wall Street Journal: 

• Voters in Canada Head to Ballot Box in Tight Race. Early results in Atlantic Canada put the centrist Liberal Party in the lead. Early results from Canada’s national election put the centrist Liberal Party in the lead in Atlantic Canada, based on tallies from that region of the country, as voters waited for the majority of polls to close and ultimately decide the fate of the incumbent Conservative government.
• As Conservation Cuts Electricity Use, Utilities Turn to Fees. Double-digit percentage increases for distribution, maintenance anger power consumers. Electric utilities across the country are trying to change the way they charge customers, shifting more of their fixed costs to monthly fees, raising the hackles of consumer watchdogs and conservation advocates.
• Radiation Sensors in Major U.S. Cities Turned Off Because They Don’t Work. Most stations run by EPA can’t monitor for beta particles in real time, prompting criticism; agency says monitoring for gamma rays is enough.
• Obama Takes the Military Hostage. He’ll veto a bipartisan defense bill to coerce more domestic spending. President Obama is determined to end his second term in another blaze of spending glory, and toward that end he’s taking the U.S. military hostage. That’s the way to understand his threat to veto the National Defense Authorization Act. 

Fox News: 

• Top California official pushes ammo background checks. (video) Gun control advocates are launching a new regulatory push in California to impose first-in-the-nation instant background checks for ammunition sales, a move that comes as gun violence surfaces as a lightning rod issue in the 2016 presidential race.

CNBC:

• Earnings 'recession' worries could be a drag.

Zero Hedge: 

• Chinese Economists Have No Faith In 7% Growth "Target". (graph)
• Chinese Officials Say "Unnecessary To Be Anxious" About Economy As Margin Debt Rises Most Since June Bubble Peak. (graph)
• Deflation = Debt + Demographics + Disruption... But Mostly Debt.
• "Shadow Convexity" Means The Death Of Modern Portfolio Theory.
• Martin Armstrong Rages Against Socialism: "Government Has Replaced God".
• IBM(IBM) Reports Terrible Q3 Earnings: Worst Revenue Since 2002; Slashes Guidance. (graph)
• VIX Tumbles To 2-Month Lows But Commodites Crumble After China "Good News". (graph)

Business Insider:

• The US government is finally taking soaring drug prices seriously.
• A Democratic candidate is considering dropping his run as a Democrat and running as an Independent.
• Insanely clear video shows a Syrian army offensive in a rebel stronghold of Damascus.
• The outlook for coal has gone from bad to worse.
• 3 worrying recession signs to keep an eye on.

Reuters:

• Cheap imports, high inventories hurt Steel Dynamics' profit. U.S. steelmaker Steel Dynamics Inc on Monday reported a lower quarterly net profit, which it blamed on a glut of lower-priced imports and higher customer inventories but said that it expects improvement in domestic U.S. steel production in 2016. Western steel producers have been hit by a global slump in steel prices and record exports from China, which produces half the world's steel. As China's economy has lost steam, critics say it has been dumping steel at low prices, exacerbating existing over-capacity around the world.

Financial Times: 

• US Treasury: capital outflows from China top $500bn. Capital outflows from China topped $500bn in the first eight months of this year, according to new calculations by the US Treasury that highlight the shifting fortunes in the global economy. The outflows, which peaked at some $200bn during the turbulent month of August according to the new estimates released on Monday, have also contributed to a shift by Washington in its assessment of the valuation of China's currency, the renminbi, Shawn Donnan, trade editor, reports in Washington. 
• China still hacking US companies, cyber group warns.

Shanghai Securities News: 

• China Power Growth May Slow to 1% in 2015. China Electricity Council cut estimate on power consumption growth from prior 2% after 3Q usage didn't meet expectation, citing Ouyang Changyu, deputy secretary general at the council.

Evening Recommendations 

• None of note

Night Trading

• Asian equity indices are -.50% to +.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 139.25 +.75 basis point.

• Asia Pacific Sovereign CDS Index 75.0 -.25 basis point.
• Bloomberg Emerging Markets Currency Index 72.81 -.15%. 

• S&P 500 futures -.15%.

• NASDAQ 100 futures -.16%.

Morning Preview Links

Earnings of Note

Company/Estimate

• (ATI)/-.36
• (BK)/.71
• (EAT)/.55
• (CP)/2.68
• (HOG)/.78
• (LMT)/2.72
• (NVR)/26.91
• (PNR)/.89
• (RF)/.20
• (UTX)/1.56
• (VZ)/1.02
• (WWW)/.48
• (CMG)/4.63
• (CB)/2.01
• (CREE)/.20
• (ILMN)/.79
• (ISRG)/4.22
• (IRBT)/.25
• (TEX)/.62
• (VMW)/1.00
• (WERN)/.43
• (YHOO)/.16

Economic Releases

8:30 am EST

• Housing Starts for September are estimated to rise to 1142K versus 1126K in August.
• Building Permits for September are estimated at 1170K versus 1170K in August.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Yellen speaking, Fed's Dudley speaking, Fed's Powell speaking, Japan Trade Balance report, weekly US retail sales reports, BIO Investor Forum, (SJM) investor day and the (GPN) investor conference could also impact trading today.

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

Stocks Slightly Lower into Final Hour on Global Growth Fears, Emerging Markets Debt Angst, Oil Decline, Commodity/Gaming Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Slightly Lower
  

• Sector Performance: Mixed
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 15.07 +.13%

• Euro/Yen Carry Return Index 141.33 -.26%

• Emerging Markets Currency Volatility(VXY) 11.23 +2.09%

• S&P 500 Implied Correlation 60.63 -1.16%

• ISE Sentiment Index 119.0 +32.22%

• Total Put/Call .91 +7.06%

• NYSE Arms 1.41 +10.92% 

Credit Investor Angst:

• North American Investment Grade CDS Index 81.15 -.71%

• America Energy Sector High-Yield CDS Index 1,054.0 +.44%

• European Financial Sector CDS Index 75.25 -3.22%

• Western Europe Sovereign Debt CDS Index 21.11 -.61%

• Asia Pacific Sovereign Debt CDS Index 74.80 -.37%

• Emerging Market CDS Index 330.19 +.82%
  

• iBoxx Offshore RMB China Corporates High Yield Index 121.54 +.02%

• 2-Year Swap Spread 11.75 -.25 basis point

• TED Spread 32.25 unch.

• 3-Month EUR/USD Cross-Currency Basis Swap -24.25 -.75 basis point

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 72.91 -.44%
• 3-Month T-Bill Yield -.01% unch.

• Yield Curve 143.0 +1.0 basis point

• China Import Iron Ore Spot $53.74/Metric Tonne n/a

• Citi US Economic Surprise Index -11.30 +3.5 points

• Citi Eurozone Economic Surprise Index 6.8 +.7 point

• Citi Emerging Markets Economic Surprise Index -18.10 -1.4 points

• 10-Year TIPS Spread 1.46 -3.0 basis points
• # of Months to 1st Fed Rate Hike(Morgan Stanley) 6.50 -.39

Overseas Futures:

• Nikkei 225 Futures: Indicating +179 open in Japan 
• China A50 Futures: Indicating -5 open in China

• DAX Futures: Indicating -10 open in Germany

Portfolio: 

• Higher: On gains in my retail/medical/biotech/tech sector longs and emerging markets shorts 

• Disclosed Trades: Added to my (IWM)/(QQQ) hedges, then covered some of them

• Market Exposure: 50% Net Long

Today's Headlines

Bloomberg:

• Putin Officials Said to Admit Real Syria Goal Is Far Broader. As Russia’s air war in Syria nears its fourth week, officials now admit that Moscow’s aim is far broader than the publicly announced fight against terrorist groups. The Kremlin’s real goal is to help Syrian President Bashar al-Assad retake as much as possible of the territory his forces have lost to opponents, including U.S.-backed rebels, Russian officials told Bloomberg News. Moscow’s deployment of several dozen planes, as well as ships in the Black and Caspian Seas, could last a year or more, one official said. President Vladimir Putin is willing to run the risk of falling into the kind of quagmire that helped sink the Soviet Union a generation ago for the chance to roll back U.S. influence and demonstrate he can dictate terms to Washington.

• Assad's march on Aleppo raises fears of new refugee exodus. With Russian warplanes in the air and Iranian special forces on the ground, an emboldened Syrian President Bashar al-Assad is turning back to the biggest trophy in his country's civil war, and this time Europe is also on the front line. As his troops head toward Aleppo, Syria's former commercial hub and largest city, helicopters are dropping warnings to residents to vacate areas. Should Aleppo and other Sunni towns fall to Assad's forces, the potential for another, larger, wave of refugees would be nightmarish, according to one official in a European government.   

• The Great Ball of China Money Rolls Into Bonds. Bringing leverage and distortion in its wake. China's markets resemble nothing if not a great rolling ball of money that moves from asset class to asset class, constantly searching for the next source of sizable returns. After shifting away from stocks this summer, when the value of the Shanghai Composite Index almost halved in a dramatic market selloff, the Great Ball of China seems to have found a new home: bonds sold by Chinese corporates.

• China's New Economy Won't Pack the Same Punch for Global Growth. The data showed President Xi Jinping’s government is making headway transforming the $10 trillion-plus economy from one driven by debt-fueled investment and exports into a more sustainable one led by consumer spending and services. The not-so-great news: policy makers and investors hoping a resurgent China will revert back to its role as global-growth turbocharger are set to be disappointed.

• Is China Disguising a Hard Landing? (video)

• Brazil's Economy Is Under Pressure. (video)

• Radicals gaining ground in Catalonia send warning to bond market. After failing to win a majority in the region's assembly with a mainstream separatist alliance on Sept. 27, acting President Artur Mas is trying to keep his position as leader of the drive for independence from Spain by bringing the more radical CUP into the process. The party is demanding Mas pursues "non-reversible acts of disobedience" toward Spain before starting talks on whether to support him remaining president. At stake is the future of a region that makes up a fifth of Spain's economy, and Mas's post-electoral strategy is doing nothing to assuage concerns. In the run-up to last month's vote, Catalan bonds maturing in February 2020 dropped, with the yield jumping to a level four times that of Spanish debt of a similar maturity. Tension between Madrid and Barcelona was among the reasons cited by Standard & Poor's to cut Catalonia's debt rating on Oct. 9 to BB-, three steps below investment grade.

• Dubai Property Seen too Expensive to Get Iran Sanctions Bounce. Dubai homes are 4.4 times more expensive for Iranians using local currency than they were five years ago, meaning a lifting of sanctions against the Islamic republic would have little short-term effect on the emirate’s slumping real estate market, according to Phidar Advisory. “This is simply a matter of economics,” Phidar Managing Director Jesse Downs said by phone Monday. “The rial will take time to appreciate and until that happens, Dubai property will be very expensive for Iranian buyers.” 

• Currency Rally Sows Seeds of Own Destruction in Policy Paradox. This month’s rally in higher-yielding currencies is in danger of snuffing itself out. The Australian dollar to the South African rand have strengthened in the past three weeks after the Federal Reserve held off raising interest rates in September, citing global market turmoil. The decision preserved their yield advantage over the U.S., fueling the currencies’ recoveries from this year’s lows. Here’s the catch: Those gains are starting to contribute to the sort of calm policy makers would like to see before they act. That may rekindle the threat of a Fed liftoff. And such a prospect risks derailing the recovery, whipping up volatility, and starting the cycle afresh.

• Europe Stocks Rise on Earnings as Deutsche Bank Up on Reshuffle. A gain in Deutsche Bank AG and positive earnings reports helped push European stocks to a two-month high. The German lender rose 3.7 percent as it’s undertaking the biggest management reshuffle in more than a decade and splitting up its investment bank. Danone and Metro AG advanced after earnings, while miners fell as data showed China’s economy expanded at the slowest pace since 2009. The Stoxx Europe 600 Index added 0.3 percent to 364.25 at the close of trading in London, with the volume of shares changing hands 34 percent below the 30-day average.

• Iran Sees No OPEC Output Change as Country Seeks $70-$80 Oil. Iran’s oil minister sees no imminent change in OPEC’s output strategy even as he urged fellow members of the group to cut their collective production to buoy crude to a range of $70 to $80 a barrel. Iran is preparing to ramp up its own output once world powers remove sanctions on its economy, regardless of any decisions by the Organization of Petroleum Exporting Countries, Oil Minister Bijan Namdar Zanganeh told reporters Monday at an industry conference in Tehran.

• Halliburton(HAL) Cuts More Jobs as Fracking Hit Worst in Oil Downturn. Halliburton Co. cut another 2,000 jobs in the past month as the worst oil market slump in decades saps demand for work at the world’s largest provider of fracking services. The Houston-based company said the first quarter of next year may represent the lowest point for its North American profit margin as customers start fresh with new spending budgets for 2016 and tap Halliburton’s pressure-pumping expertise to start new wells. The comments came after the company reported a third-quarter loss of $54 million.

• Copper Sags Most in Three Weeks as China Woes Dim Demand Outlook. Copper declined the most in more than three weeks as signs of slowing manufacturing added to demand concerns in China, the world’s biggest metals consumer. China’s industrial output in September climbed 5.7 percent from a year earlier, compared with a 6.1 percent gain in August and economists’ median estimate of 6 percent, government data showed. A separate report showed the slowest quarterly growth in the economy since 2009. Shares of mining companies fell, with Anglo American Plc dropping the most this month in London trading.

• Morgan Stanley(MS) Misses Estimates on Drop in Bond Trading Revenue. (video) Morgan Stanley reported profit that missed analysts’ estimates as fixed-income trading revenue tumbled and investment-management fees dropped by more than half on an Asian private-equity loss. The stock dropped 5.7 percent in early trading. Third-quarter net income fell to $1.02 billion, or 48 cents a share, from $1.69 billion, or 83 cents, a year earlier, the New York-based company said Monday in a statement. Excluding an accounting gain and legal expenses, profit was 42 cents a share, missing the 63-cent average estimate of 23 analysts surveyed by Bloomberg.

MarketWatch.com:

• China’s GDP at 6.9%? Try 3%: Analysts react to latest growth figures. “We don’t believe them at all. It’s not just that they come in suspiciously close to the target, which is pre-set. They’re produced remarkably quickly and rarely revised. And our own estimate — which is based on Premier Li’s advice, which is that the GDP data are untrustworthy, that we should use alternative measures to gauge the level of activity in China like electricity use, credit growth and other domestic indicators — we combine those and we get a number closer to 3%. Not 7.3 – three!” —Danny Gabay, co-director at Fathom Consulting, in an interview with BBC Radio 4 (starting around the 17:00 mark)

Zero Hedge:

• WalMart(WMT) Suppliers Brace For The Coming Storm: "Now We Know Why They Have Been Pushing So Hard".

• "The Squeeze Has Run Its Course" - According To BofA "The Rally Needs Central Bank Action To Continue". (graph)

• Freddie Mac Launches "Three Percent Down" Mortgages To Lure Millennials.

• VIX Plunges To 14 Handle - Erases Post-China-Devaluation "Fear". (graph)

• Oil Market Showdown: Can Russia Outlast The Saudis?

• The Truth Behind China's GDP Mirage: Economic Growth Slows To 1999 Levels. (graph) 

• Homebuilder Sentiment Surges To Highest In 10 Years On "Hope" Of Future Sales. (graph)

• WTI Crude Tumbles To $45 Handle. (graph)

• China's Glencore: State-Owner Miner And Steel Trader Avoids Default With Last Minute Bailout. (graph)

Business Insider:

• Steve Wynn got a lashing from the Macau government, and his stock is getting creamed.

• Deutsche Bank(DB) handed a hedge fund $6 billion on a 'fat finger' error.

• We're flirting with another recession.

• Britain's steel industry is in meltdown.

• Bernie Sanders is surging in a fresh batch of new polls.

Wolf Street:

• Pummeled by Lousy Global Demand and Rampant Overcapacity, China Containerized Freight Index Collapses to Worst Level Ever. (graph) The CCFI, operated by the Shanghai Shipping Exchange and sponsored by the Chinese Ministry of Communications, is not being beautified in the manner that more publicly visible statistics, such as GDP growth, are subject to. It is allowed to get very ugly. And it got very ugly. The index plunged below 800 in early July for the first time in its history (it was set at 1,000 in 1998). It then recovered to a smidgen above 800, but now re-collapsed to even lower levels. The latest weekly reading dropped another 2.3% from the prior week to 764.84, a new all-time low:

Daily Caller:

• Democratic Congressman Says Joe Biden Is Running For President.

Reuters:

• Exclusive: Clinton urges U.S. regulators to examine Daraprim price hike. Democratic presidential candidate Hillary Clinton on Monday urged U.S. regulators to determine how to bring lower-cost generic drugs to market more swiftly and combat anticompetitive practices in the pharmaceutical industry. Clinton's requests to the Food and Drug Administration and the Federal Trade Commission were prompted by what she called the "egregious actions of Turing Pharmaceuticals," according to letters reviewed by Reuters.

• China Sept power output falls 3.1 pct on yr -stats bureau. China generated 454.8 billion kilowatt-hours (kWh) of power in September, down 3.1 percent from the same month last year, the country's statistics bureau said on Monday, with industrial demand still under pressure as the economy slows.

Bear Radar

Style Underperformer:

• Large-Cap Value -.62%

Sector Underperformers:

• 1) Gaming -5.22% 2) Coal -4.65% 3) Steel -3.22%

Stocks Falling on Unusual Volume:

• BLUE, NTRI, ATTU, HAS, MS, CRS, VRX, MSCC, ASCMA, PN, KMPH, STRP, MYRG, KSU, FPRX, GWW, HBI, MTB, MSM, SCTY, BIB, NGL, STLD, PTCT, BOFI, WYNN and PTCT

Stocks With Unusual Put Option Activity:

• 1) PPC 2) IYR 3) GE 4) EWW 5) MS
  

Stocks With Most Negative News Mentions:

• 1) VRX 2) VALE 3) STX 4) SCTY 5) MS
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume