Stocks Lower into Afternoon on Rising Mid-East Tensions, Profit-Taking, Technical Selling, Airline/Steel Sector Weakness

 Broad Equity Market Tone:

• Advance/Decline Line: Slightly Higher
  

• Sector Performance: Mixed
  

• Volume: Above Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 14.8 +7.8%

• Euro/Yen Carry Return Index 123.32 -.82%

• Emerging Markets Currency Volatility(VXY) 8.13 unch.

• S&P 500 Implied Correlation 36.60 +2.9%

• ISE Sentiment Index 89.0 unch.
  

• Total Put/Call 1.30 +42.9%

• NYSE Arms .73 -6.4%

Credit Investor Angst:

• North American Investment Grade CDS Index 50.83 +1.5%
  

• America Energy Sector High-Yield CDS Index 385.0 -1.96%

• European Financial Sector CDS Index 56.77 +2.52%

• Italian/German 10Y Yld Spread 132.25 -.75 basis point
  

• Asia Ex-Japan Investment Grade CDS Index 55.81 +.67%
  

• Emerging Market CDS Index 203.44 +1.20%
  

• iBoxx Offshore RMB China Corporate High Yield Index 165.55 +.12%

• 2-Year Swap Spread 1.75 -2.0 basis points

• TED Spread 16.0 -1.5 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -14.75 -7.75 basis points

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 65.91 -.31%
• 3-Month T-Bill Yield 1.99% +4.0 basis points

• Yield Curve .10 +3.0 basis points

• China Iron Ore Spot 94.05 USD/Metric Tonne -1.67%

• Citi US Economic Surprise Index 18.60 +1.2 points

• Citi Eurozone Economic Surprise Index -34.90 +1.6 points

• Citi Emerging Markets Economic Surprise Index -9.0 -4.4 points

• 10-Year TIPS Spread 1.68 +2.0 basis points
• 100.0% chance of Fed rate cut at Oct. 30th meeting, 100.0% chance of cut at Dec. 11th meeting

Overseas Futures:

• Nikkei 225 Futures: Indicating -183 open in Japan 
• China A50 Futures: Indicating -29 open in China

• DAX Futures: Indicating +18 open in Germany

Portfolio:

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

• Disclosed Trades: None

• Market Exposure: 75% Net Long

Morning Market Internals

NYSE Composite Index:

• Volume Running +28.0% Above 100-Day Average
• 5 Sectors Rising, 6 Sectors Declining
• 54.4% of Issues Advancing, 43.2% Declining
• 41 New 52-Week Highs, 8 New Lows
• 62.7% of Issues Above 200-day Moving Average
• Average 14-Day RSI 52.3%
• Vix 14.6 +6.3%
• Total Put/Call 1.06 +16.5%
• TRIN/Arms .72 -7.7%

Monday Watch

Today's Headlines

Bloomberg:   

• Saudis Set to Restore Almost Half of Output Lost to Drone Strike.

• Draghi’s Stimulus Shot Is No Cure for Europe’s Japanification. 

• Johnson Confident of EU Brexit Deal, Works ‘Flat Out’ on Leaving.  

• China's Bond Traders Stuck With a Market That Just Doesn't Move.

• Emerging-Market Rally May Hinge on Stimulus. Just Not Too Much.

• Oil Soars, Yen Gains After Saudi Oil Field Attacks. Oil surged and the yen climbed after a strike on the heart of Saudi Arabia’s oil production increased geopolitical risk concern. U.S. equity futures declined and Treasury futures rose. Brent crude soared 13% and West Texas Intermediate added 11%. News of the devastating attack on the world’s largest crude exporter also sent currencies of commodity-linked nations higher, including the Norwegian krone and the Canadian dollar. U.S. President Donald Trump said he has authorized the release of supplies from the country’s emergency fuel storage, known as the Strategic Petroleum Reserve, if that is needed. Futures on the S&P 500 Index fell 0.3% as of 8:50 a.m. in Sydney. The underlying gauge declined 0.1% on Friday. Hang Seng futures ended Friday up 0.2%.  

• Oil Jumps the Most Ever After Attack Cuts Saudi Supplies.

• U.S. Oil Companies Set to Benefit From Saudi Supply Disruption.

• Five Things You Need to Know to Start Your Day.

• New York Declares ‘Emergency’ Ban on Flavored E-Cigarettes.

• Fed Doves Fear Risks Abroad While Hawks See a Solid Home Front.

Wall Street Journal:

• Gucci’s Social-Media Status Fell, and Its North American Sales Dropped.

• Iran Rejects U.S. Accusations Over Saudi Oil Attacks.

• Junk Debt Sends Early Warning Signals.

• Resilient U.S. Growth Propels Stocks as Trade Fears Ease.

• Lawmakers Make Long-Shot Bid to Check Presidential Tariff Powers.

• Political Crisis Deepens in Hong Kong as Protesters Retake Streets.

• Luxury’s Trouble Getting Down With American Kids.

• U.S. Targets North Korean Hacking as Rising National-Security Threat.

Fox News:

• Comey, McCabe will face criminal charges amid FISA report: McCarthy.

• Trump blasts 'lies' against Kavanaugh as new accusation sparks Dem impeachment calls.

CNBC:

• Saudi stock market dives, crude futures to jump after drone attack on oil plants.

• ‘It’s not a free market’: These manufacturers say tariffs help level the playing field with China.

• UAW calls strike against General Motors for first time since financial crisis.

• Trump says Justice Kavanaugh should ‘start suing people’ after new report of sexual misconduct.

Zero Hedge:   

• Iran War Imminent? Trump Says US "Locked And Loaded" To Respond To Saudi Attack.

• Former CIA Spook: "Clear To Me That Spying On Trump Was Ordered By Obama".

• Satellite Images Reveal It Would Take "Months" To Fix Saudi Oil Facility.

• Petrol Bombs, Rubber Bullets And A Stormtrooper Waving An American Flag; Another Sunday In Hong Kong.

• China Slaps Britain: You Can't Afford Hostility

• The IRS Is Blindly Coming After Cryptocurrency Traders - Here's Why

• U.S. Poverty Levels Fall To Pre-Recession Low

• Man Brings "Emotional Support Clown" To Meeting Where He Was Laid Off

• We're Ready For "Full-Fledged" War: Iran Responds To US Accusation It Launched Saudi Oil Attack.

Business Insider:

• These 'kamikaze' drones are believed to be the culprits of the attacks on 2 Saudi oil fields. Here's what we know about them.

• A GOP pollster said $2 billion will be spent in the 2020 election on convincing 6% of voters which party to vote for.

• The US auto workers union just decided to walk out on GM — here's why they're striking.

Night Trading

• Asian indices are -.5% to +.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 55.5 unch.

• China Sovereign CDS 37.75 unch.

• Bloomberg Emerging Markets Currency Index 66.13 +.03%.

• FTSE 100 futures n/a.

• S&P 500 futures -.32%.

• NASDAQ 100 futures -.59%.

Morning Preview Links

Earnings of Note

Company/Estimate

Before the Open:

• None of note

After the Close:

• None of note

Economic Releases

8:30 am EST

• Empire Manufacturing for September is estimated to fall to 4.0 versus 4.8 in August.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The China Industrial Production/Retail Sales reports, RBA Minutes and (VAR) investor meeting could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by technology and consumer shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed.  The Portfolio is 75% net long heading into the week.

Weekly Outlook

• Wall St. Week Ahead by Reuters. 

• Weekly Market Outlook by Yahoo. (video)

• Global Economy Week by Bloomberg.

• Stocks to Watch Next Week by Seeking Alpha.

• Weekly Economic Calendar by Briefing.com.

BOTTOM LINE: I expect US stocks to finish the week mixed as profit-taking, technical selling and less dovish FOMC commentary offsets easing China trade tensions, oil strength and diminished global growth concerns. My intermediate-term trading indicators are giving neutral signals and the Portfolio is 75% net long heading into the week.

Today's Headlines

Bloomberg:        

• India Plans $7 Billion of Export Stimulus to Revive Economy.

• Crude Oil Bulls Plunge Back In as Trade-War Pendulum Swings. 

• Yemen’s Civil War Is Spilling Deeper Into the Gulf Region.

• Tropical Storm Humberto Expected to Turn Away From U.S. After Strike in Bahamas.  

• JPMorgan Says the Momentum Rotation Isn’t a ‘Quant Quake’ Yet.

Wall Street Journal:

• Saudi Arabia Shuts Down About Half Its Oil Output After Drone Strikes.

• U.S. Blames Iran for Drone Strikes on Saudi Oil Facilities.

• U.S. Insulated From Possible Supply Shock After Saudi Attack.

• Obama’s Incredible Movie Makeover.

• The Startup That Manipulated Data to Get a Miracle Drug to Market.

• Congress Demands Tech CEOs’ Emails in Antitrust Probe.

• Peanut Allergy Drug Backed by FDA Advisory Panel.

Barron's:

• Had bullish commentary on  (UHAL), (CP), (CSX), (TPR), (ADBE), (NFLX), (DIS), (LUV), (S), (UAL), (ALGT) and (DAL).

MarketWatch.com:

• Some older Americans say millennials’ student-debt crisis is their own fault.

Fox News:

• Huffman’s 14-day prison term sparks social media outrage.

• Scion of 9/11 mastermind taken out in counterterrorism op, Trump confirms.

• Ex-NFL player accused of trashing his 2 businesses to resemble hate crime.

• GM autoworkers could walk off job for first time since ’07 without contract.

CNBC:

• Dow notches 8-day winning streak, nears record on growing optimism around US-China trade

• Disney CEO Bob Iger resigns from Apple board.

• Bottles of Cristal and steak dinners mark UAW corruption probe as prosecutors detail lavish use of union funds.

• 10-year yield surges the most in a week since 2016 as investors reassess recession concerns.

• New York City health chief sounds alarm on vaping rates among middle-school children.

• The US-China trade war has set in motion an unstoppable global economic transformation.

• The top tech IPOs this year have outperformed the S&P 500, despite Uber and Lyft.

• Wall Street analysts say these stocks have upside potential.

• Saudi Arabia reportedly shuts down half its oil production after drone attack.

Zero Hedge:

• Massive Fires Erupt After Drone Strike Hits World's Largest Oil Processing Facility In Saudi Arabia.

• Retail Carnage Continues: Forever 21 Bankruptcy Expected By Sunday.

• 83% Say Mental Health To Blame For Mass Shootings, Gallup Poll Finds.

• "You're Being Tracked" - Massive 30 State, Real-Time License Plate Database Revealed.

• Over A Million Households Climbed To Middle Class Under Trump, Census Data Shows.

• Osama Bin Laden's Son Killed In US Operation: White House.

• European Carmakers Face Perfect Storm.

• Poll: Majority Of Brits (Including A Third Of Remainers) Want Brexit Vote Respected.

• Why Gen-Z'ers And Millennials Support Socialism.

• Stunned Silence Followed Trump's G-7 Outburst: "Where's My Favorite Dictator".

• Get Ready For Weed Checkpoints: The Marijuana Breathalyzer Is Now A Reality.

• California Bans Private Prisons - Including ICE Detention Centers.

• Eating Human Flesh Is The Latest Idea To Stop Climate Change.

• Actress Felicity Huffman, First Parent Sentenced In College Admissions Scandal, Gets 14 Days In Prison.

• Soft Bank Reportedly Planning To Buy $750 Million WeWork Shares In Floundering IPO.

• Stocks Soar Near Record Highs Despite Bond Bloodbath, Momo Meltdown.

Business Insider:

• An analyst that loves Beyond Meat's business still thinks the stock is wildly overpriced — and he's urging traders to sell.

• Another storm is threatening to hit the Bahamas and Florida with tropical storm-force winds and heavy rain.

• J.Crew's 'crown jewel' Madewell files for an IPO.

• MOVIEPASS SHUTTING DOWN. 

• Elizabeth Warren endorsed two left-wing primary challengers to House Democrats. It could be a risky play to win Alexandria Ocasio-Cortez's endorsement.

• If everyone except for Biden, Bernie, and Warren dropped out of the 2020 race right now, Biden would be the clear loser.

The Telegraph:  

• The trade war between Japan and South Korea will be harder to resolve than the US-China spat.