Morning Market Internals

NYSE Composite Index:

• Volume Running +10.2% Above 100-Day Average
• 1 Sector Rising, 9 Sectors Declining
• 24.4% of Issues Advancing, 72.7% Declining
• 31 New 52-Week Highs, 87 New Lows
• 35.6% of Issues Above 200-day Moving Average
• Average 14-Day RSI 46.3
• Vix 15.5
• Total Put/Call 1.17
• TRIN/Arms .97

Tuesday Watch

Evening Headlines 

Bloomberg:

• China’s Stocks Drop on Concern Slowing Economy to Hurt Profits. China’s stocks fell for the first time in four days, led by material and technology shares, amid concern the slowing economy is curbing profit growth. The Shanghai Composite Index declined 1.1 percent to 3,390.79 at 9:38 a.m. local time, as eight stocks retreated for each one that rose. Anhui Conch Cement Co., China’s biggest cement maker, slid 1.1 percent after third-quarter net income fell 40 percent from a year earlier. Leshi Internet Information & Technology Corp., which has more than tripled this year, slumped 2 percent. Official data on Tuesday showed industrial companies’ profits fell 0.1 percent in September.

• Iran's Man in New York Is Hunting for Billions of Dollars. Iran, by its own admission, needs $150 billion of investment annually for many years ahead to repair the damage from a decade of isolation. That’s a tall order for a country that, even when sanctions are finally lifted, will still be an opaque and scary place to most foreign investors.Enter Hamid Biglari. 

• Yen Strength Returns as Central Bank Meetings Spur Global Gloom.

• Asia Stocks Slip From Two-Month High as Investors Await Fed, BOJ. Asian stocks fell, with the regional benchmark index retreating from its highest in two months, as energy shares led losses and investors awaited policy decisions by the Federal Reserve and the Bank of Japan later in the week. The MSCI Asia Pacific Index lost 0.1 percent to 136.31 as of 9:02 a.m. in Tokyo after closing Monday at the highest since Aug. 18.

• Could Oil Prices Hit $20 a Barrel? (video)

• Distillate Dilemma: Oil's Biggest Downside Risk. (video) The yen held its first daily advance in almost two weeks as investors remained sidelined before the U.S. Federal Reserve and the Bank of Japan set monetary policy in coming days. Japan’s currency strengthened against all of its 16 major peers after a rally in U.S. stocks stalled Monday ahead of the conclusion of the Fed’s meeting Wednesday, when it will release an economic assessment. The BOJ sets policy Friday. The New Zealand dollar dropped after the nation’s trade deficit widened to NZ$1.22 billion ($828 million) in September, exceeding NZ$825 million forecast in a Bloomberg survey. The Reserve Bank of New Zealand meets Thursday.

• Iron Ore Sinks Back Toward $50 as Supply Gains Meet Weak Demand. Iron ore prices are on the slide again, sinking back toward $50 a metric ton after six days of losses as expanding low-cost supplies and sputtering demand in China spur concern a global glut will persist into 2016. Ore with 62 percent content delivered to Qingdao lost 1.1 percent to $51.03 a dry ton on Monday, the lowest since July 16, according to Metal Bulletin Ltd. The raw material -- which bottomed at $44.59 on July 8, a record in daily price data dating back to May 2009 -- is headed for the first monthly loss since July. Miners’ shares declined in Australia, led by Fortescue Metals Group Ltd. 

Wall Street Journal:

• The Fed Strives for a Clear Signal on Interest Rates. As 2016 approaches, pressure is on the central bank and Janet Yellen to better manage market expectations. Federal Reserve officials are widely expected to announce Wednesday that short-term interest rates will remain near zero, leaving mid-December as the central bank’s last chance to raise rates this year. The timetable poses twin challenges for Fed Chairwoman Janet Yellen: Deciding whether the U.S. economy is ready for an interest-rate increase, and signaling central bank intentions without causing further market confusion.

• White House and Boehner Close In on Budget Deal. Congressional leaders are said to be nearing an agreement that would also raise debt limit. The White House and congressional leaders neared a deal Monday on a two-year budget plan that also would raise the federal debt limit, according to lawmakers and aides.

• Goldman(GS) in Talks on $50 Million Fine Over Release of New York Fed Secrets. A former employee allegedly shared sensitive supervisory materials.

• The Dangers Ahead if Tech Unicorns Get Gored. Some venture capitalists are sounding the alarm about mega-startups and the terms under which these tech companies are financed.

• Hillary Clinton Flunks Economics. She says we’re better off with Democrats in the White House. Is that so? There can be no doubt now: The U.S. economy is struggling, inequality is on the rise and too many Americans feel uncertain about their future.

• The Fed Has Hurt Business Investment. QE is partly to blame for record share buybacks and meager capital spending. On his recent book tour, former Federal Reserve Chairman Ben Bernanke stated that low long-term interest rates are not the Fed’s doing. Low rates result from a shortage of good capital projects. If there were good investment projects, he explained, capital would flow and interest rates would rise. Mr. Bernanke insists that the absence of compelling investment opportunities in the real economy justifies continued, highly accommodative monetary policy. 

Fox News:

• US Navy to send warship near disputed islands claimed by China. The U.S. Navy plans to send a ship to within 12 nautical miles of disputed islands in the South China Sea, a U.S. official confirmed to Fox News -- in an apparent challenge to Beijing's territorial claims. Reuters first reported that the Navy planned within 24 hours to send a destroyer near the Spratly Islands, an archipelago that China aggressively has laid claim to by building airstrips and other features on top of reefs.

MarketWatch.com:

• What to watch for in Apple’s earnings. Apple Inc. is set to report fourth-quarter earnings after the market’s close on Tuesday. 

• Cheesecake Factory(CAKE) falls after earnings miss. Cheesecake Factory Inc.'s third-quarter earnings rose 8% as the company's namesake chain posted its 23rd consecutive quarter of positive same-store sales. However, total revenue was slightly below Wall Street estimates. The company's shares fell 5.7% to $49.02 in after-hours trading.

Zero Hedge:

• New Drone Footage Captures Scope Of EU's Migrant Crisis As Brussels Plans Refugee "Holding Camps". (pic)

• Is The Yield Curve Still A Dependable Signal? (graph)

• Greek Creditors Refuse To Make Next Loan Payment - German Press. 

• Meet The "Million Dollar Shack": Documentary Lays Bare California's Housing Bubble. (video)

• In Latest Obamacare Fiasco, Most Low-Income Workers Can't Afford "Affordable Care Act".

• Complacency Reigns At Epic Levels: "Few Are Ready For What Is Coming".

• Peak Housing 2.0: Sam Zell Dumps 23,000 Apartments In 2007 Deja Vu. (graph)

• The Inherent Problem Of Eternal Bullishness. (graph)

• Operational & Financial Stress Unavoidable For Energy Names, Goldman Warns Distillate Storage "Too Full For Comfort". (graph)

• What Recovery? Record Number Of Americans Become Blood Plasma "Sellers" To Make Ends Meet. (graph)

• US Stock Market Breadth Is Collapsing Again. (graph)

• Traders Confused By Lack Of Central Planner Direction: Pump Bonds & VIX, Dump Oil & Gas. (graph)

Business Insider:

• Marvell Technology's(MRVL) auditor resigned and now the stock is crashing.

• The first politician has come out and said she's not done with Valeant(VRX).

• China must significantly devalue its currency to remain competitive.

Digitimes:

• Apple(AAPL) Suppliers Expect 4Q IPad Shipments to Decline. 4Q iPad shipments will probably drop y/y, citing officials in the supply chain. Initial orders for iPad Pro weaker-than-expected; shipments likely to be fewer than 2.5m units by end of 2015.

Evening Recommendations 

• None of note

Night Trading

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

• Asia Ex-Japan Investment Grade CDS Index 133.75 +2.0 basis points.

• Asia Pacific Sovereign CDS Index 71.75 +.5 basis point.

• Bloomberg Emerging Markets Currency Index 72.09 -.07%. 

• S&P 500 futures -.22%.

• NASDAQ 100 futures -.26%.

Morning Preview Links

Earnings of Note

Company/Estimate

• (ARG)/1.29

• (AKS)/-.05

• (BABA)/.54

• (BAX)/.29

• (BP)/.07

• (BMY)/.35

• (COH)/.40

• (CMCSA)/.40

• (GLW)/.35

• (CMI)/2.59

• (DD)/.10

• (F)/.46

• (HCA)/1.19

• (IR)/1.16

• (LXK)/.57

• (MDC)/.43

• (MRK)/.92

• (PCAR)/1.16

• (PFE)/.51

• (SCHN)/.31

• (SEE)/.57

• (AMTD)/.40

• (TXT)/.61

• (UPS)/1.37

• (WYN)/1.68

• (AFL)/1.48

• (AKAM)/.58

• (APC)-.74

• (AAPL)/1.87

• (CBG)/.46

• (ETH)/.46

• (ESRX)/1.44

• (GILD)/2.87

• (NBR)/-.13

• (OI)/.56

• (PNRA)/1.31

• (SKYW)/.66

• (TWTR)/.05

Economic Releases

8:30 am EST

• Durable Goods Orders for September are estimated to fall -1.5% versus a -2.0% decline in August.

• Durables Ex Transports for September are estimated unch. versus unch. in August.

• Cap Goods Orders Non-Defense Ex Air for September are estimated to rise +.2% versus a -.2% decline in August.  

9:00 am EST

• The S&P/CS 20 City MoM SA for August is estimated to rise +.1% versus a -.2% decline in July.

9:45 am EST

• Preliminary Markit US Services PMI for October is estimated to rise to 55.5 versus 55.1 in September.

10:00 am EST

• Consumer Confidence for October is estimated at 103.0 versus 103.0 in September.

• The Richmond Fed Manufacturing Index for October is estimated to rise to -3.0 versus -5.0 in September.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The Australia CPI, UK GDP, weekly US retail sales, (PFE) analyst call, (SCHW) business update, (KR) investor conference and the (KMX) analyst day could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by real estate and technology 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, Earnings Outlook Concerns, Oil Decline, Commodity/Bank Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Lower
  

• Sector Performance: Mixed
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 15.19 +5.05%

• Euro/Yen Carry Return Index 139.71 -.07%

• Emerging Markets Currency Volatility(VXY) 10.93 +.55%

• S&P 500 Implied Correlation 58.81 -1.94%

• ISE Sentiment Index 141.0 +29.36%

• Total Put/Call .99 +28.57%

• NYSE Arms 1.34 +38.05% 

Credit Investor Angst:

• North American Investment Grade CDS Index 77.86 +.66%

• America Energy Sector High-Yield CDS Index 1,067.0 -.67%

• European Financial Sector CDS Index 69.0 +1.94%

• Western Europe Sovereign Debt CDS Index 18.81 -.08%

• Asia Pacific Sovereign Debt CDS Index 72.22 +1.38%

• Emerging Market CDS Index 321.11 -1.05%
  

• iBoxx Offshore RMB China Corporates High Yield Index 122.28 +.23%

• 2-Year Swap Spread 11.25 -1.25 basis points

• TED Spread 31.75 -.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -29.5 -.5 basis point

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 72.12 -.01%
• 3-Month T-Bill Yield .01% +1.0 basis point

• Yield Curve 142.0 -2.0 basis points

• China Import Iron Ore Spot $51.03/Metric Tonne -1.14%

• Citi US Economic Surprise Index -7.70 -7.6 points

• Citi Eurozone Economic Surprise Index 20.3 -1.9 points

• Citi Emerging Markets Economic Surprise Index -13.30 +.1 point

• 10-Year TIPS Spread 1.49 -3.0 basis points
• # of Months to 1st Fed Rate Hike(Morgan Stanley) 5.45 -1.23

Overseas Futures:

• Nikkei 225 Futures: Indicating +133 open in Japan 
• China A50 Futures: Indicating -2 open in China

• DAX Futures: Indicating +5 open in Germany

Portfolio: 

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

• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges, added to my emerging markets shorts

• Market Exposure: 50% Net Long

Today's Headlines

Bloomberg: 

• Refugee Influx ‘Absolutely Unbearable,’ Slovenia Says. The influx of refugees into Slovenia is “absolutely unbearable,” Prime Minister Miro Cerar said, warning that the surge in migrants risked tearing apart the European Union. Slovenia “has received more than 60,000 migrants in the last 10 days, 13,000 in one day,” Cerar said at a meeting on Sunday in Brussels to seek ways to deal with the increasing flow of refugees through the Western Balkans. The government last week called on the army to help control the situation at its border. “If we do not deliver some immediate and concrete actions on the ground in the next few days and weeks, I do believe that the European Union and Europe as a whole will start falling apart,” Cerar said. 

• German Business Confidence Falls as Global Risks Take Toll. German business confidence fell for the first time in four months in October, signaling that a slowdown in global demand is taking its toll on Europe’s largest economy. The Ifo institute’s business climate index declined to 108.2 from 108.5 in September. The median estimate was for a drop to 107.8, according to a Bloomberg survey of economists.

• Marc Faber: China Has Credit Bubble of Epic Proportions. (video)

• Korean Shipyards -- Afloat, But Taking On Water. Things had been looking more hopeful for Korea's three largest shipbuilders, until today. After seven consecutive quarters of losses, analysts reckoned that earnings before interest and tax at the world's biggest shipyard -- Hyundai Heavy -- were going to turn positive in the three months to Sept. 30. Um, that didn't happen.

• MidEast’s ‘Grossly Mispriced’ Bonds Warn of Shifting Sentiment. Corporate bonds aren't reflecting the effect of low oil prices on regional budget deficits. Middle East corporate bonds are mispricing the effects plunging oil prices are having on the region’s finances, leaving borrowers vulnerable to a deterioration in market sentiment. The average premium investors require to hold bonds from the Middle East and North Africa was 159 basis points on Friday, two points lower than this year’s high in June, JPMorgan Chase & Co. indexes show. That compares with 165 basis points on US investment-grade debt, according to the Bloomberg US Corporate Bond Index. 

• Real Drops With Brazil's Woes Offsetting Emerging-Markets Rally. Brazil’s real declined as concern that the nation’s fiscal picture is worsening outweighed investors’ optimism over emerging markets. Brazil’s government, which previously targeted a so-called primary surplus, may announce by Tuesday a budget deficit excluding interest payments of as much as 50 billion reais ($13 billion) this year, O Globo newspaper reported, without saying where it got the information. That would be the widest on record. The pessimism overwhelmed optimism on global growth generated by China’s move to cut interest rates and signals from the European Central Bank that it could act to stoke the economy. The currency dropped 0.2 percent to 3.8820 per dollar at 2:37 p.m. in Sao Paulo after gaining as much as 1.3 percent.

• Aussie Weakness Signals Diminishing Returns of Chinese Stimulus. If the Australian dollar’s performance is any guide, Chinese monetary stimulus faces an uphill battle to reverse the economic slump that’s driven down the prices of commodities and the currencies of nations that export them. The Aussie, used by some to express their outlook for the world’s second-largest economy, weakened immediately after the People’s Bank of China on Friday reduced its benchmark lending rate and had failed to recoup those losses by late afternoon on Monday in Sydney. It has dropped 16 percent since the PBOC began its current easing cycle in November 2014, compared with a 3.6 percent advance during the previous stretch of rate cuts.

• The Dollar Ate Our Profit Is Lament of Delta(DAL), Mattel(MAT), Whirlpool(WHR). U.S. companies that blamed billions of dollars of lost revenue in the first half of the year on the greenback’s meteoric rise are signaling that the trend isn’t getting any better. Delta Air Lines Inc. said this month that losses on revenue denominated in yen cost the company $55 million. Toymaker Mattel Inc. said foreign-exchange headwinds were the primary cause of its weak third-quarter earnings. And Whirlpool Corp. said Oct. 23 that the stronger dollar will reduce 2015 revenue by more than $2.5 billion. Two out of three companies in the Standard & Poor’s 500 Index that reported earnings through Oct. 22 mentioned the strong dollar or currency-related woes in conference calls with analysts and investors. 

• European Stocks Take a Breather, Falling From a Two-Month High. (video) European stocks halted their rally as investors assessed the implications of central-bank stimulus. The Stoxx Europe 600 Index lost 0.4 percent to 375.89 at the close in London, sliding after a three-week jump, its longest stretch since March.

• Oil Speculators Make `Easy' Bearish Call at 85-Year Supply High. Hedge funds placed the most bets on falling oil prices since July as rising piles of crude dashed hopes of a near-term recovery. Money managers’ short position in West Texas Intermediate crude jumped by 18 percent in the week ended Oct. 20, the largest surge since July 21, according to data from the Commodity Futures Trading Commission. That pulled their net-long position down by more than 16,000 contracts of futures and options. 

• Hurt by Energy, Einhorn's Greenlight Re Hedges Oil, Natural Gas. David Einhorn is revisiting page one of the hedge fund playbook: he’s hedging. In the midst of his worst year since the financial crisis, the money manager added derivatives positions that would protect against a further decline in natural gas and an increase in the price of oil. The contracts were disclosed in a filing on Oct. 23 by Greenlight Capital Re Ltd., after the reinsurer said its third-quarter net loss quadrupled from a year earlier.

Wall Street Journal:

• Sam Zell Edges Out of Apartments. Equity Residential(EQR) agrees to sell some apartments for $5.4 billion to Starwood Capital. The transaction, announced Monday, represents about a quarter of the units in Equity Residential’s portfolio of apartments and would be one of the largest since the recession.

Zero Hedge:

• Everyone Is Asking: "If Chinese Consumption Is Rising, Why Are Its Malls Empty?" - Here Is The Answer.

• The Fed Can’t Raise Rates, But Must Pretend It Will. (graph) 

• Why The Fate Of Syria's Christians Should Concern Us All. Here is one significant minority that faces total annihilation if the radical factions prevail: Syria’s Christian community.

• $19.6 Trillion Debt Ceiling: Done Deal?

• 2 Years Of Pain Trades Amid Faltering Faith In The 3 Big Bull Beliefs.

• Marc Faber Fears No Soft-Landing Of China's "Credit Bubble Of Epic Proportions". (video)

• Globo CEO Admits He "Falsified Data" After Short-Seller Report, Resigns; But First Sells 40 Million Shares. (graph)

• "Our Data Is Not Good" - US Companies Warn That A Recession Is Coming. (graph)

• NatGas Crashes To April 2012 Lows On Weather, Inventories. (graph)

• Russia's Mid-East Takeover Continues As Afghanistan Requests Military Assistance From Moscow.

• Another Recession Alarm After Dallas Fed Outlook Deteriorates For 10th Consecutive Month. (graph)

• Housing Recovery Horror: New Home Sales Crash Most Since 2013 As Median Price Soars. (graph)

• "Smaller Suppliers Will Go Out Of Business": Hail Mary Time For Wal-Mart(WMT), As Vendors Pushed To Brink.

• WTI Crude Slumps To $43 Handle As Contango Collapses To 5-Month Lows Amid Growing "Over-Supply" Concerns. (graph)

Business Insider:

• The most important question Valeant ignored on its investor call.

• Electrolux CEO describes trends in Brazil as 'wicked' and 'horrendous'.

• Things are only going to get more difficult from here.

• DONALD TRUMP: 'My father gave me a small loan of a million dollars'.

• Ben Carson is crushing Donald Trump by double digits in Iowa.

• Another influential VC says tech 'is clearly in a bubble' and 'we’re doomed to repeat history'.

NY Times:

• Russian Ships Near Data Cables Are Too Close for U.S. Comfort. Russian submarines and spy ships are aggressively operating near the vital undersea cables that carry almost all global Internet communications, raising concerns among some American military and intelligence officials that the Russians might be planning to attack those lines in times of tension or conflict.

Seeking Alpha:

• Apple(AAPL) down 3% as chip supplier plunges following Q3 report. Dialog Semiconductor (OTC:DLGNF), which supplies power management chips for the iPhone/iPad and counts Apple (NASDAQ:AAPL) as its largest customer, is down 18.4% in Frankfurt after posting Q3 results.

The Economist:

• Debt in China. Deleveraging delayed. Credit growth is still outstripping economic growth. Bank loans increased by 15.4% in the third quarter compared with the same period in 2014. Having released a torrent of credit to buoy the economy during the financial crisis, China was supposed to have started deleveraging by now. Instead, banks are continuing to pump debt into the economy, while the authorities, apparently worried about the damage a contraction in credit might do, coax them on.

Reuters:

• Bridgestone to buy U.S. auto parts retailer Pep Boys(PBY). Japanese tire maker Bridgestone Corp (5108.T) said it would buy auto parts retailer Pep Boys-Manny, Moe & Jack (PBY.N) for $835 million to expand its retail presence in the United States. The deal will boost Bridgestone's retail network by more than a third in the United States, the company said.

• ICE(ICE) to buy market data firm Interactive Data in $5.2 billion deal. Intercontinental Exchange Inc (ICE.N) said on Monday it would buy financial data firm Interactive Data Corp (IDC) from investment firms Silver Lake and Warburg Pincus LLC in a deal valued at about $5.2 billion.

Telegraph:

• Why Portugal's constitutional crisis threatens all of Europe's democracies. A fresh political maelstrom is brewing in southern Europe. It may not be a repeat of Greece or Italy, but it represents another nadir in the eurozone's shaky democratic foundations.

Bear Radar

Style Underperformer:

• Small-Cap Value -.62%

Sector Underperformers:

• 1) Coal -3.78% 2) Oil Service -2.54% 3) Computer Hardware -2.36%

Stocks Falling on Unusual Volume:

• PGTI, KODK, NNBR, ATHN, GIL, NTGR, MD, SAVE, FLOW, SYF, SPLK, OPB, BKD, GLRE, GIII, DSW, CRUS, SWNC, BRCM, NHTC, CRR, SFM, GIMO, ORI, KMI, CALM, ATHN, CRUS and PGTI

Stocks With Unusual Put Option Activity:

• 1) VFC 2) JWN 3) BRCM 4) HIG 5) UNG
  

Stocks With Most Negative News Mentions:

• 1) AKS 2) WFM 3) TSN 4) C 5) AXP
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Large-Cap Growth +.12%

Sector Outperformers:

• 1) Biotech +1.33% 2) Hospitals +1.28% 3) Restaurants +1.16%
  

Stocks Rising on Unusual Volume:

• PBY, PNY, QUNR, CTRP, GGAL, TREE, NTI, MMSI, EROS, VFC, WUBA, RLYP, YPF, P and YELP

Stocks With Unusual Call Option Activity:

• 1) MW 2) EMR 3) DYN 4) GRUB 5) ACI
  

Stocks With Most Positive News Mentions:

• 1) P 2) WHR 3) BMY 4) LMT 5) TWTR
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume