Bull Radar

Style Outperformer:

• Large-Cap Growth +.6%

Sector Outperformers:

• 1) Airlines +1.7% 2) Internet +1.3% 3) Semis +1.3%

Stocks Rising on Unusual Volume:

• KITE, BITA, JUNO, YRD, ERII, BOFI, SNX and RMP
  

Stocks With Unusual Call Option Activity:

• 1) HTZ 2) ARRY 3) KITE 4) KO 5) JUNO

Stocks With Most Positive News Mentions:

• 1) PII 2) CVX 3) DLTR 4) DISCA 5) LEN

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running -7.3% Below 100-Day Average
• 6 Sectors Rising, 4 Sectors Declining
• 48.2% of Issues Advancing, 48.8% Declining
• 38 New 52-Week Highs, 18 New Lows
• 60.6% of Issues Above 200-day Moving Average
• Average 14-Day RSI 39.4%
• Vix 13.94 -3.9%
• Total Put/Call 1.0 -11.3%
• TRIN/Arms 1.42 +18.7%

Tuesday Watch

Evening Headlines

Bloomberg:

• Asian Stocks Fall as Investors Shun Risk Ahead of U.S. Debate. Asian stocks fell, tracking declines in European and U.S. stocks, as financial shares tumbled and the first U.S. presidential debate raised risks for global investors. MSCI Asia Pacific Index dropped 0.4 percent to 140.27 as of 9:01 a.m. in Tokyo, retreating for the third day after closing at a 14-month high on Thursday. The Topix index slipped 1.1 percent as the yen traded at 100.34 per dollar. European stocks fell the most in two months as Deutsche Bank AG sank to a record low on speculation that Germany’s biggest bank will need to raise capital, dragging global financial shares lower. Investors also became more risk averse ahead of the first U.S. presidential debate Monday, with Democratic candidate Hillary Clinton and Republican Donald Trump tied in a close contest. A gauge of Asian finance companies fell 0.4 percent.
• Iran Now Has the Edge in the Fight Over Oil Prices With Saudi Arabia. Suddenly the tables have been turned on Saudi Arabia. The biggest oil exporter has swapped its traditional role as price dove with regional foe Iran, for years OPEC price hawk. The government in Riyadh is now offering a deal -- including its first output cut in eight years -- to boost prices; Tehran is dragging its feet. At the center of the reversal is their contrasting thresholds for enduring economic pain. "Both countries are coming from different positions," said Jason Tuvey, Middle East economist at consulting firm Capital Economics. "Iran has been under sanctions until recently, so it’s getting an economic boost as investment returns and oil output rises. Meanwhile, Saudi Arabia is facing steep fiscal cuts."
• Two 2017 Fed Voters Differ on Rate Hike After Latest Decision. Two Federal Reserve officials who will vote on monetary policy next year offered different views on whether to raise interest rates now, highlighting both sides of a debate that drew a rare three hawkish dissents from policy makers last week. Dallas Fed President Robert Kaplan said he would have been comfortable with a rate hike this month, while Minneapolis Fed chief Neel Kashkari, speaking at a separate event, questioned whether the global economy can sustain such a move. Both presidents will rotate into voting slots on the Federal Open Market Committee for the first time in 2017. Their comments followed remarks by Richmond’s Jeffrey Lacker in an Fox News interview, in which he said that “I think we need to get on with it.”

Wall Street Journal:

• Deutsche Bank(DB) Shares Drop on Fears of Capital Raising. Investors are concerned about a potentially hefty U.S. fine related to mortgage-securities probes.

Fox News:

• Turning Point? Tightening polls give 1st Trump-Clinton debate added importance. (video) Donald Trump will enter his first official presidential debate Monday night with something few pundits would have granted him even a month ago: a respectable shot at winning the White House. The tightening of the polls in the run-up to this historic face-off between the Republican nominee and Democrat Hillary Clinton has injected added drama into the forum, already expected to draw record audiences thanks in no small part to the personalities on stage. With the race a virtual dead heat nationally and seemingly in flux in key battlegrounds, though, what happens on the Hofstra University stage Monday has the potential to decidedly tilt the race.
• Presidential Debate: Live Blog.

Zero Hedge:

• Germany "Other" Bank: Commerzbank To Fire 9,000, 18% Of Its Entire Workforce.
• Stunning University Of Kansas 'Safe Space' Vs. 'Free Speech' Meeting Caught On Tape.
• Perry Capital Shutting Down His Iconic Flagship Fund.
• Stocks Wipe Out Post-Fed Gains As Deutsche Dread Batters US Banks. (graph)

Business Insider:

• More than just 'sound and fury': Anger over Russian 'war crimes' in Syria is reaching a tipping point.
• Canada is going to be in trouble when rates rise.
• Miami is overloaded with condos, and things are only going to get worse.

Xinhua:

• China Should End Economic Growth Targets, IMF Says. IMF China representative Alfred Schipke suggested the nation should eventually stop setting economic growth targets to allow room for policy adjustments.

Night Trading 

• Asian equity indices are -1.25% to -.5% on average.
• Asia Ex-Japan Investment Grade CDS Index 122.5 +3.75 basis points. 
• Asia Pacific Sovereign CDS Index 32.5 +1.5 basis points.
• Bloomberg Emerging Markets Currency Index 72.77 -.05%. 
• S&P 500 futures -.20%. 
• NASDAQ 100 futures -.18%.

Morning Preview Links

Earnings of Note
Company/Estimate 

• (FDS)/1.70
• (CTAS)/1.08
• (NKE)/.56

Economic Releases
9:00 am EST

• The S&P CoreLogic CS 20-City Home Price Index MoM for July is estimated unch. versus a -.07% decline in June. 

9:45 am EST

• The Preliminary Markit US Services PMI for September is estimated to rise to 51.2 versus 51.0 in August.

10:00 am EST

• Consumer Confidence for September is estimated to fall to 99.0 versus 101.1 in August.
• The Richmond Fed Manufacturing Index for September is estimated to rise to -2.0 versus -11.0 in August. 

Upcoming Splits 

• None of note

Other Potential Market Movers

• The Fed's Fischer speaking, Fed's Evans speaking, OPEC meeting, weekly US retail sales reports, Australia Mid-Year Economic Outlook, $34B 5Y T-Note auction, Ladenburg Healthcare Conference, (KMX) analyst day, (JBL) investor meeting and the (WDAY) analyst meeting could also impact trading today.

BOTTOM LINE:  Asian indices are lower, weighed down by commodity 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 25% net long heading into the day.

Stocks Falling into Final Hour on Surging European/Emerging Markets/US High-Yield Debt Angst, Rising Political Uncertainty, Yen Strength, Financial/Drug Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Lower
  

• Sector Performance: Most Sectors Declining
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 14.37 +16.92%

• Euro/Yen Carry Return Index 117.98 -.31%

• Emerging Markets Currency Volatility(VXY) 10.53 +1.25%

• S&P 500 Implied Correlation 49.17 +10.4%

• ISE Sentiment Index 47.0 -45.98%
  

• Total Put/Call 1.12 +7.69%

• NYSE Arms 1.01 -9.32% 

Credit Investor Angst:

• North American Investment Grade CDS Index 78.16 +1.72%
  

• America Energy Sector High-Yield CDS Index 683.0 +.79%

• European Financial Sector CDS Index 99.46 +2.85%

• Western Europe Sovereign Debt CDS Index 24.04 +1.82%

• Asia Pacific Sovereign Debt CDS Index 32.25 +4.1%

• Emerging Market CDS Index 239.05 +2.80%
  

• iBoxx Offshore RMB China Corporate High Yield Index 132.03 +.03%

• 2-Year Swap Spread 25.75 -.75 basis point

• TED Spread 68.5 -1.0 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -37.25 -4.5 basis points
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 72.81 -.01%
• 3-Month T-Bill Yield .18% +1.0 basis point

• Yield Curve 85.0 -1.0 basis point
  

• China Import Iron Ore Spot $56.77/Metric Tonne -.04%

• Citi US Economic Surprise Index -5.40 -1.0 point

• Citi Eurozone Economic Surprise Index -9.50 +9.8 points

• Citi Emerging Markets Economic Surprise Index -13.8 +.9 point

• 10-Year TIPS Spread 1.56% -3.0 basis points
• 50.5% chance of Fed rate hike at Dec. 14 meeting, 53.6% chance at Feb. 1 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -240 open in Japan 
• China A50 Futures: Indicating -45 open in China

• DAX Futures: Indicating -22 open in Germany

Portfolio: 

• Slightly Higher: On gains in my index hedges and emerging markets shorts

• Disclosed Trades: None

• Market Exposure: 25% Net Long

Today's Headlines

Bloomberg:

• Germany Sees ‘No Grounds’ for Speculation Over Deutsche Bank Aid. (video) Chancellor Angela Merkel’s government sees “no grounds” for speculation over state funding for Deutsche Bank AG, her chief spokesman said, pushing back against a magazine report that the German leader has ruled out any such aid. “There are no grounds for such speculation,’’ German government spokesman Steffen Seibert told reporters in Berlin on Monday when asked about the report. “The government won’t participate in any such speculation.’’ 
• Deutsche Bank's(DB) Pain in Germany's Too. 
• Why Deutsche Bank’s Shares Are at a Record Low: QuickTake Q&A.
• Shorts Waded Into Financials Just in Time for Deutsche Bank Rout. (video) Even before Deutsche Bank AG’s drop to a record low dragged down U.S. financial shares on Monday, investors were braced for the worst. Blame the Federal Reserve’s decision to hold interest rates steady last week, prolonging the wait for higher yields on cash holdings for financial firms. Traders responded by pushing short interest on an exchange-traded fund tracking the industry to a seven-month high, according to data compiled by Bloomberg and IHS Markit Ltd. That proven prescient as concerns over Deutsche Bank’s weakened finances sent an index of financial companies in the S&P 500 Index down 1.2 percent at 12:37 p.m. in New York, while the benchmark index lost 0.6 percent. It marked the latest hiccup for a sector already maligned by an 11 percent plunge this month for scandal-plagued Wells Fargo & Co., formerly the biggest U.S. bank by market value.
• Draghi Says U.K. Shouldn’t Get Any Favors in Brexit Deal. (video) Mario Draghi said the U.K. shouldn’t be granted any special favors on single-market access during negotiations over its exit from the European Union. “Any outcome should ensure that all participants are subject to the same rules,” the European Central Bank president told European Parliament lawmakers on Monday. “It is very hard to imagine that any agreement that will be perceived as discriminatory against some subjects or in favor of other subjects could be a source of stability for the future of our EU.”
• Moody’s Cut Spurs Worst Rout for Turkey Assets Since Failed Coup. (video) Turkish assets plummeted the most since an attempted coup in July and credit risk climbed after Moody’s Investors Service cut the country’s sovereign rating to junk. The currency was headed for the the lowest level in two weeks as of 4:23 p.m. in Istanbul, the Borsa Istanbul 100 Index posted the steepest decline among about 90 gauges tracked by Bloomberg globally, and the nation’s dollar debt due 2026 sank the most since July. Moody’s lowered Turkey’s sovereign rating one level to Ba1 late Friday, the highest non-investment grade, citing rising risks due to its external financing needs and slowing economic growth. 
• China Stocks Decline Most in Two Weeks as Volatility Resurfaces. (video) Chinese stocks slumped the most in two weeks as volatility returned before the start of a week-long holiday. The Shanghai Composite Index dropped 1.8 percent to close below the 3,000 level, with 13 stocks declining for each that rose. A gauge of 10-day volatility jumped to the highest in a month. Hong Kong’s Hang Seng Index retreated 1.6 percent, paring Asia’s best quarterly performance. The sudden drop came after turnover on China’s equity exchanges fell to the lowest level in two years as a booming housing market and an equity rally across the border in Hong Kong lured mainland investors. Margin traders cut bullish bets on the nation’s shares to the lowest level in more than a month on Friday. The Shanghai Composite is one of the world’s worst performing stock gauges this year after last summer’s $5 trillion rout. Holidays will close China’s financial markets for the whole of next week.
• Emerging-Market Assets Drop as Turkey Highlights Political Risk. Emerging-market assets fell for a second day, led by a plunge in Turkish stocks after Moody’s Investors Service cut the country’s credit rating to junk, underscoring political risks in developing nations. The MSCI Emerging Markets Index dropped 1.2 percent to 906.37 at 11:10 a.m. in New York. The decline reduced the benchmark’s rally since the end of June to 8.6 percent. It posted a 3.6 percent rally last week, the most since mid-July, as pledges from global central banks to sustain stimulus rekindled demand for riskier assets in developing nations.
• Europe Stocks Tumble as Deutsche Bank Sinks to Fresh Record Low. (video) A plunge in banks put a halt to the optimism that lifted European equities last week, sending them to their biggest slumps since early July. Growing worries over Deutsche Bank AG’s capital buffers dragged the stock to a fresh all-time low and cast a pall on its peers. A gauge tracking the firms trades at 0.66 times book value, less than any other industry group in the region and near a record low relative to the Stoxx Europe 600 Index. The benchmark measure lost 1.6 percent, erasing about two-thirds of the gains it posted last week, while banks traded at their lowest prices in more than a month. A measure of volatility for euro-area shares jumped the most since January after closing at the lowest level since 2014.
• Banks to Need Billions More Capital in Tests Under Fed Proposal. (video) Wall Street would have to come up with billions of dollars in additional capital in a proposed revamp of the Federal Reserve’s stress tests that would also scrap some parts of the annual exercise that lenders have criticized. As the Fed has previously signaled, it is considering changes that would raise the minimum capital targets that each bank has to have to receive a passing grade, Fed Governor Daniel Tarullo said Monday. But the Fed is also mulling concessions that Wall Street has sought, such as eliminating its assumption that lenders would continue to pay out the same level of dividends and buy back shares during periods of severe financial duress, Tarullo said.

CNBC:

• The hedge fund fee structure just took another blow. The heat on hedge fund fees is getting turned up, and one major player has made a significant capitulation. Facing investor redemptions and faltering performance, Brevan Howard, the London-based firm with a $14.5 billion flagship fund, is telling existing clients that it is waiving its management fee, CNBC has confirmed. Clients still will be charged a 20 percent performance fee. The change will not apply to new investors and will take effect Dec. 1. Brevan Howard's Master fund reportedly had declined 2.5 percent through August.
• Forget the OPEC oil freeze — worry about the thaw in output. (video)

Zero Hedge:

• "It All Has A Very 2008 Feel To It" - For Deutsche Bank, The News Just Keeps Getting Worse. (graph)
• 26 Incredible Facts About The Economy That Every American Should Know Before The Trump-Clinton Debate.
• The "Nightmare Scenario" For The Bank Of Japan Is Starting To Come True. (graph)
• US Bank Stocks Slide After New Fed Tests Suggest Need For "Significant Increase In Capital". (graph)
• BofA(BAC) Fined $12.5 Million For Creating At Least 15 Mini "Flash Crashes".
• WTI Crude Surges Back Above $46 On Saudi Hype But Traders Pile Into Protection. (graph)
• ECB Board Member Admits Central Bank's Monetary Policy Risks "Tearing Up Social Fabric".
• Germany Goes There: "You Can't Compare Deutsche Bank To Lehman". (graph)
• "My Order Book Is Abysmal" - Dallas Fed Contracts For 21st Straight Month. (graph)
• New Home Sales Tumble As Prices Hit 2-Year Lows. (graph)

The Telegraph:

• Global debt climbs towards fresh high as companies and countries keep on borrowing.
• The Deutsche Bank(DB) crisis could take Angela Merkel down – and the Euro.

Bear Radar

Style Underperformer:

• Small-Cap Value -1.0%

Sector Underperformers:

• 1) I-Banks -2.5% 2) Banks -2.3% 3) Gaming -1.9%

Stocks Falling on Unusual Volume: 

• BABY, GLPG, CBOE, LE, DKT, ACOR, DTK, FCB, DB, CYBE, DXB, SWHC, CALM, ACIA, VA, CCL, NLNK, MYOK, TWTR, IHG, FNBC, LMCK, CUK, CPA, MG, SHLD and FII

Stocks With Unusual Put Option Activity:

• 1) EWG 2) HP 3) JWN 4) AXP 5) NKE

Stocks With Most Negative News Mentions:

• 1) HIMX 2) SALE 3) NLS 4) BAC 5) NKE

Charts:

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