Morning Market Internals

NYSE Composite Index:

• Volume Running +21.9% Above 100-Day Average
• 7 Sectors Rising, 3 Sectors Declining
• 58.8% of Issues Advancing, 37.9% Declining
• 196 New 52-Week Highs, 23 New Lows
• 47.8% of Issues Above 200-day Moving Average
• Average 14-Day RSI 38.5%
• Vix 9.7 -3.6%
• Total Put/Call .88 -11.1%
• TRIN/Arms 1.1 +21.3%

Friday Watch

Evening Headlines

Bloomberg:

• U.S. Senate Adopts Budget, Giving Momentum to Trump's Tax-Cut Plans. The Senate adopted a fiscal 2018 budget resolution Thursday that House GOP leaders agreed to accept, a show of unity aimed at speeding consideration of President Donald Trump’s plan to enact tax cuts. Final approval of the budget, which cleared the Senate 51-49, will unlock a special procedure allowing Republicans to pass a subsequent tax code rewrite without Democratic support. The House and Senate tax-writing committees plan to release draft legislation by early November, which will set off a furious lobbying battle as Republicans attempt to enact a bill by the end of the year.

• Asia Stocks to End the Week Lower; Kiwi Holds Loss. Stocks in Asia opened lower on the final day of a week that’s seen record levels for global equities as investors assess the prospects for earnings, the economy and monetary policy implications of a new chair of the Federal Reserve. Japan’s stocks declined after a rally in the yen weighed on exporters and yet another corporate scandal. Nissan Motor Co. shares dropped after the carmaker halted domestic production because of quality-control issues. The dollar remained under pressure after a report from Politico that President Donald Trump is leaning toward Jerome Powell as the next Fed chairman. In New Zealand, the election result pummeled the kiwi dollar as investors said the outlook for economic growth had deteriorated. Japan’s Topix index lost 0.3 percent as of 9:20 a.m. in Toyko with an index that includes automakers dragging down the benchmark. Nissan shares fell as much as 1.6 percent. Australia’s S&P/ASX 200 Index fell 0.1 percent and South Korea’s Kospi index rose 0.2 percent. New Zealand’s S&P/NZX 50 Index remained weaker though it pared a loss of as much as 1.2 percent. Hang Seng Index futures were up 0.2 percent in most recent trading. That market fell 1.9 percent on Thursday, with moves exacerbated by derivatives contracts.

• Five Things You Need to Know to Start Your Day. (video)

• Forget Hurricanes, Brexit and Kim's Missiles: Earnings Are Fine.

Wall Street Journal:

• Tillerson Balances Trump’s Goals and His Own. In interview, secretary of state reflects on his role in administration, warns China on trade and territory.

• A Fed for a Growth Economy. Trump needs a leader at the central bank who supports faster growth.

• Hedge Fund Maverick Capital Debuts 0% Performance Fees. New ‘recovery share’ class will lower fees for existing clients.

• Wal-Mart(WMT) Courts Lord & Taylor For Online Challenge to Amazon. Retailer nears deal to host Lord & Taylor section on walmart.com; move could expand to other brands.

• Republicans Expect Senate Budget Resolution to Pass. Vote marks an important step in the GOP push to overhaul the tax code. 

• Beneath the Market Rally: A Lot Less Trading. Low volatility, rise of passive funds and lack of market-moving news have kept many investors on sidelines.

• Why Bitcoin Buyers Should Heed Lessons of China’s Bubbles. Being early can be as good as being wrong, yet buying into a bubble doesn’t usually work.

• Quebec Ban on Full-Face Veils Draws Muslims’ Uproar. Muslim council says measure represents ‘ugly identity politics’; ‘I should see your face, and you should see mine,’ premier says.

MarketWatch.com:

• OPEC beware: The rebound in U.S. shale oil production hasn’t peaked yet

Fox News:

• First look at 8 prototypes of Trump's 'big, beautiful' border wall. (video)

CNBC:

• IRS to block, suspend tax returns that lack Obamacare disclosures.

• CIA director: ISIS still 'enormous threat' despite group's battlefield setbacks.

• Trump's apparent favorite to run the Fed is a safe bet unlikely to rock markets.

• PayPal(PYPL) earnings: 46 cents vs. 43 cents EPS expected.

• Celgene(CELG) won't initiate phase 3 trial for Crohn's disease drug. (video) 

• Skyworks Solutions(SKYW) CEO: '5G is going to solve' the world's 'digital traffic jam'.

Zero Hedge:

• Bank Run Imminent? Catalan Separatists Urge Supporters To Pull Cash From Bank.

• The World's Largest ICO Is Imploding After Just 3 Months. 

• S&P Spikes Into The Close After Politico Reports Again Powell Is Leading Fed Candidate.

• Coverup Questions Emerge Over Vegas Security Guard's 'Ellen' Appearance.

• Mandalay Bay, MGM Resorts Ordered To Preserve Evidence In Vegas Massacre.

• Chinese Capital Outflows Return As Soon As PBOC Halts FX Intervention.

• Be Afraid America - DHS Warns ISIS, Al Qaeda Are Planning '9/11-Style' Attack.

• These Are The Top Geopolitical Risks According To The World's Largest Asset Manager. (graph)

• Philly Admits Soda Tax Is Crushing Local Small Businesses, Expanding "Food Deserts".

• Papers Filed To Disbar James Comey Following "False Testimony To Congress".

• "I Was Stunned, Brokenhearted": General Kelly Defends Trump, Blasts Congresswoman For "Selfish Behavior".

• LAPD Opens Rape Investigation Into Harvey Weinstein.

• Buy-The-Black-Monday-Echo-Dip - Stocks Dip & Rip After China Bubble Warnings. (graph)

Telegraph:

• China risks 'Minsky Moment' as debt reaches saturation.

Night Trading 

• Asian equity indices are -.25% to +.75% on average.

• Asia Ex-Japan Investment Grade CDS Index 75.25 -1.0 basis point. 

• Asia Pacific Sovereign CDS Index 15.75 -.5 basis point.

• Bloomberg Emerging Markets Currency Index 73.73 -.14%.

• S&P 500 futures +.42%.

• NASDAQ 100 futures +.5%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (BHGE)/.12

• (CLF)/.33

• (GE)/.49

• (GNTX)/.31

• (HON)/1.74

• (KSU)/1.31

• (MAN)/1.97

• (MINI)/.32

• (PG)/1.07

• (SLB)/.42

• (STI)/1.05

Economic Releases 

10:00 am EST

• Existing Home Sales for September are estimated to fall to 5.3M versus 5.35M in August.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Yellen speaking, Fed's Mester speaking, German PPI report and the (SCHW) business update could also impact trading today.

BOTTOM LINE:  Asian indices are mostly higher, boosted by industrial and technology shares in the region. I expect US stocks to open modestly higher and to maintain gains into the afternoon.  The Portfolio is 100% net long heading into the day.

Stocks Slightly Lower into Final Hour on China Bubble Fears, Apple Earnings Concerns, Oil Decline, Energy/Tech 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) 10.10 +.3%

• Euro/Yen Carry Return Index 138.93 +.1%

• Emerging Markets Currency Volatility(VXY) 8.08 +.37%

• S&P 500 Implied Correlation 15.45 +4.11%

• ISE Sentiment Index 67.0 -44.6%
  

• Total Put/Call .99 +5.3%

• NYSE Arms .85 -21.86%

Credit Investor Angst:

• North American Investment Grade CDS Index 53.70 -.18%
  

• America Energy Sector High-Yield CDS Index 391.0 +.75%

• European Financial Sector CDS Index 60.86 +1.87%

• Western Europe Sovereign Debt CDS Index 4.97 -1.78%

• Asia Pacific Sovereign Debt CDS Index 14.81 -2.10%

• Emerging Market CDS Index 173.30 -.76%
  

• iBoxx Offshore RMB China Corporate High Yield Index 144.59 +.11%

• 2-Year Swap Spread 24.25 -.5 basis point

• TED Spread 27.5 +.75 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -40.50 -2.5 basis points

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 73.74 +.11%
• 3-Month T-Bill Yield 1.09% unch.
  

• Yield Curve 77.0 -1.0 basis point

• China Import Iron Ore Spot $60.88/Metric Tonne -2.93%

• Citi US Economic Surprise Index 1.8 +1.6 points

• Citi Eurozone Economic Surprise Index 53.90 unch.

• Citi Emerging Markets Economic Surprise Index 17.60 -.6 basis point

• 10-Year TIPS Spread 1.84 -2.0 basis points
  
• 80.8% chance of Fed rate hike at Dec. 13 meeting, 81.9% chance at Jan. 31 meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -68 open in Japan 
• China A50 Futures: Indicating -74 open in China

• DAX Futures: Indicating +3 open in Germany

Portfolio: 

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

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

• Market Exposure: Moved to 75% Net Long

Bear Radar

Style Underperformer:

• Small-Cap Growth -.8%

Sector Underperformers:

• 1) Airlines -2.9% 2) Tobacco -1.3% 3) Oil Service -1.2%

Stocks Falling on Unusual Volume: 

• BHE, MZOR, SLM, UAL, UN, CTRL, CTRP, NCLH, SSYS, UL, GPC and SWKS

Stocks With Unusual Put Option Activity:

• 1) HOLX 2) RTN 3) VRX 4) THO 5) SPG

Stocks With Most Negative News Mentions:

• 1) BHE 2) SAH 3) NAT 4) HAIN 5) PRI

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Value -.1%

Sector Outperformers:

• 1) Homebuilders +1.0% 2) Utilities +.9% 3) Telecom +.5%

Stocks Rising on Unusual Volume:

• QURE, KMG, FNSR, ADBE, HCC, SAP, HXL, BEDU, DHR, IIIN, WBC, HCA, EVHC, IBM, WGO, VZ, FOXF, CNS, BX, PCG, TMUSP, MLNX, NNI, DGX, SNA, AKAO and ULTA

Stocks With Unusual Call Option Activity:

• 1) RCL 2) IMMU 3) SPG 4) OLED 5) EBAY

Stocks With Most Positive News Mentions:

• 1) ADBE 2) CRBP 3) QD 4) WGO 5) VZ

Charts:

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

Morning Market Internals

NYSE Composite Index:

• Volume Running -4.5% Below 100-Day Average
• 5 Sectors Rising, 5 Sectors Declining
• 35.9% of Issues Advancing, 59.7% Declining
• 57 New 52-Week Highs, 27 New Lows
• 47.9% of Issues Above 200-day Moving Average
• Average 14-Day RSI 39.1%
• Vix 10.4 +2.8%
• Total Put/Call .9 -7.5%
• TRIN/Arms .93 -14.6%