Bear Radar

Style Underperformer:

• Small-Cap Growth -1.04%

Sector Underperformers:

• 1) Steel -4.30% 2) Airlines -3.51% 3) Biotech -1.91%

Stocks Falling on Unusual Volume:

• YDKN, HTWR, ZFGN, R, VMW, CPHD, FMC, QLIK, UTEK, SKYW, EMC, PUK, FAST, JBLU, NHTC, INFN, CBD, ETSY, CCU, SYT, GPN, SWFT, GNE, PHM and HSKA

Stocks With Unusual Put Option Activity:

• 1) LLTC 2) UTX 3) VIAB 4) XLF 5) HOG
  

Stocks With Most Negative News Mentions:

• 1) UTX 2) VRX 3) HTWR 4) JBLU 5) VALE
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Large-Cap Growth -.52%

Sector Outperformers:

• 1) HMOs +1.72% 2) Gold & Silver +1.44% 3) Gaming +1.18%
  

Stocks Rising on Unusual Volume:

• WPP, NBBC, TAP and SAP

Stocks With Unusual Call Option Activity:

• 1) FXY 2) OAS 3) VMW 4) DAL 5) WMT
  

Stocks With Most Positive News Mentions:

• 1) FLR 2) MDT 3) JNJ 4) HPQ 5) CERN
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Morning Market Internals

NYSE Composite Index:

• Volume Running 4.4% Below 100-Day Average
• 5 Sectors Rising, 5 Sectors Declining
• 51.5% of Issues Advancing, 44.9% Declining
• 39 New 52-Week Highs, 9 New Lows
• 32.2% of Issues Above 200-day Moving Average
• Average 14-Day RSI 47.2
• Vix 16.4
• Total Put/Call .93
• TRIN/Arms 1.08

Tuesday Watch

Evening Headlines 

Bloomberg:  

• China Imports Slump for 11th Month, Export Decline Moderates. China’s imports slumped for an 11th month, the longest losing streak in six years, underscoring the heavier headwinds to growth at home and abroad. Imports slipped 17.7 percent in yuan terms in September, widening from a 14.3 percent decrease originally reported in August. Overseas shipments fell 1.1 percent in September in yuan terms, the customs administration said Tuesday, compared with a 6.1 percent decline in August. The trade surplus was 376.2 billion yuan ($59.4 billion). The data signal increasing risk China’s economic slowdown will be a heavier drag on global growth. The People’s Bank of China’s surprise devaluation of the yuan in August has helped exports stabilize, even as slowing property investment has discouraged imports. "Although intensified policy support should help bolster infrastructure investment growth in coming months, it will unlikely fully offset the still sizable headwinds coming from China’s property and financial services sectors," analysts at UBS Group AG led by Harrison Hu wrote in a report ahead of the data.

• Singapore Set to Ease as Currency Faces Rerun of '97 Asia Crisis. Singapore’s central bank is poised to ease monetary policy for the second time in 2015 in an effort to revive dwindling growth, economists predict. The Monetary Authority of Singapore, which manages the economy through guiding the currency rather than setting interest rates, will boost stimulus when it meets Wednesday, according to 16 of 25 economists surveyed by Bloomberg. The remainder predict no move. The MAS eased policy at an unscheduled meeting in January, saying it would seek to slow the pace of the local dollar’s gains versus its trading partners. At the first of this year’s two scheduled meetings in April, it refrained from further action. 

• Home Flipping Frenzy in Sydney Sparks Warnings on Housing Risks. Lana Taylor quit a job at Unilever Plc to buy, renovate and sell homes in Sydney, where prices have increased in 13 of the past 15 years. Taylor, a marketing manager at the consumer goods company until October 2013, and two friends started Three Birds Renovations in July last year. Since then, they have bought and sold three homes in Sydney’s northwestern suburbs and made a gross profit of about A$600,000 ($441,000). They are working on the fourth, which will be ready for sale by Christmas. “We aim to flip the property in six weeks,” said Taylor, 37. “We are kind of living the dream, where three friends, three mums are buying and renovating houses for a living.”

• Asian Stocks Slide as Japan Reopens, Investors Await China Data. Asian stocks dropped, with the regional benchmark index retreating from a seven-week high, as Japanese shares slipped after a holiday and investors awaited China’s trade data. The MSCI Asia Pacific Index fell 0.3 percent to 133.76 as of 9:00 a.m. in Tokyo after closing Monday at the highest since Aug. 20.

• Shaoul: Earnings Season Could Bring "Disappointment". (video)

Wall Street Journal:

• SEC Readies Clawback Rules for Punishing Bad Accounting. When errors are found in a company’s books, the responsibility often falls on the finance chief and chief executive who signed off on the numbers. And it is up to the board of directors to decide whether they should be penalized by returning some of their compensation.

• The Mullahs Say Thanks. Iran becomes more belligerent in the wake of the nuclear deal. President Obama and his foreign-policy admirers—a dwindling lot—hoped that the nuclear deal would make Iran more open to cooperation in the Middle East and with the U.S. Mark this down as another case in which the world is disappointing the American President. Iran’s judiciary on Monday announced that Jason Rezaian, the Washington Post’s Tehran correspondent, has been convicted. He was on trial for “espionage.” Security forces arrested Mr. Rezaian and his wife, journalist Yeganeh Salehi, in July 2014. Ms. Salehi

• The Golden Goose Is on the Run. Free enterprise is under assault from politicians who only care about good intentions, not results.

Fox News: 

• Former ISIS hostage says 'Jihadi John' beat him, forced him to dance Tango. A Danish photographer who endured months of torture at the hands of Islamic State extremists says the terrorist killer known as “Jihadi John” forced him to stand for days and dance the Tango at a prison in Syria. Daniel Rye Ottosen, 26-- the last ISIS hostage to be released alive last June-- revealed details about his experience in captivity in an interview Sunday with Denmark radio network DR. The identity of “Jihadi John”-- the British terrorist infamous for beheading at least 4 hostages—became public last spring. Mohammed Emwazi, 26, was born in Kuwait, raised in London, and graduated from Westminster University before going to Syria in 2013 to fight with ISIS.

MarketWatch.com:

• These stocks went from worst to first and it has caused a debate on Wall Street. Market strategists are split in their opinion when it comes to the recent rally in the S&P 500’s weakest sectors of the year: While some think it is the bull market gathering its second wind, others see it as an unsustainable bear rally. 

• Here are the most popular excuses for poor Q3 earnings, so far.

• Ryder Systems(R) shares fall after profit outlook cut. Ryder System Inc. shares declined in the extended session Monday after the truck rental company cut their profit outlook for the third quarter and for the year. Ryder shares fell 6% to $71.10.

CNBC:

• What to watch into earnings season. (video)

• Why US banks soon will be singing the blues. (video) Fading hopes for a rate hike in 2015 and other factors are making analysts nervous about just how the quarterly profit reports will shape up. JPMorgan Chase gets things started for the Big Four on Tuesday, with Bank of America and Wells Fargo on tap Wednesday and Citigroup due Thursday. Goldman Sachs reports Thursday as well and PNC will report Wednesday.

Zero Hedge:

• Thousands Of Angry Unpaid Chinese Workers Protest Shocking Bankruptcy Of Major Telecom Supplier.

• "Now Is Not The Time To Raise Rates" China Demands The Fed Live Up To Its "Global Responsibilities".

• "We've Never Seen Anything Like This" - Dumbfounded Central Bankers Brace For "Rolling Series Of Crises".

• The Monetary Policy Dead-End.

• Meet The Ghostly Iranian Spymaster Running Every Mid-East Proxy War: "He Is Everywhere But Nowhere".

• Leaving The Eye Of The Hurricane.

• Have We Reached "Peak Fedspeak"?

• Which Commodites Are Most Levered To A Chinese Crash.

• Fortress Liquidating Its Once Gargantuan Macro Hedge Fund After 17% Loss In 2015.

• If You Thought China's Equity Bubble Was Scary... (graph)

• VIXtermination Lifts Stocks To Longest Winning Streak Of 2015 Despite Crude Carnage. (graph)

Business Insider:

• Agricultural giant FMC just gave a big warning about its business in Brazil and now the stock is crashing.

• The oil bust just caused Saudi Arabia to halt government spending.

• The 'Volkswagen blues' have spread to Mexico and Spain.

• We might be headed for a recession in 2016.

• The commodities bust is destabilizing emerging markets.

Reuters:

• U.S. hedge funds' favorite stocks lose more than rivals - data. Publicly listed companies that are popular with U.S. hedge funds lost more money than sector rivals when stock markets tumbled in the last few months, new data from research firm Symmetric.io show. Hedge fund managers, who often promise strong returns in all markets, were caught off guard when stocks sold off on fears of slower growth in China, falling energy prices, and worries about a potential U.S. interest rate hike. Some funds are nursing double digit declines, their deepest since 2008, according to the data that Symmetric will release to clients on Tuesday. Reuters reviewed the data on Monday. David Einhorn's Greenlight Capital is off 17 percent while Larry Robbins' Glenview Capital is down 13 percent.

Telegraph:

• EU orders Spain to re-write national budget, demanding more cuts. Brussels raps Spain on the knuckles for failing to comply with spending rules months before a momentous general election.

Evening Recommendations 

• None of note

Night Trading

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

• Asia Ex-Japan Investment Grade CDS Index 141.0 -.5 basis point.

• Asia Pacific Sovereign CDS Index 79.0 .25 basis point.

• S&P 500 futures -.07%.

• NASDAQ 100 futures -.09%.

Morning Preview Links

Earnings of Note

Company/Estimate

• (ASML)/.73

• (DFRG)/.04

• (FAST)/.46

• (JNJ)/1.45

• (ADTN)/.17

• (CSX)/.50

• (INTC)/.59

• (JPM)/1.37

• (LLTC)/.46

Economic Releases

6:00 am EST

• The NFIB Small Business Optimism Index for September is estimated to fall to 95.5 versus 95.9 in August.
  

Upcoming Splits

• (SKX) 3-for-1

Other Potential Market Movers

• The Fed's Bullard speaking, Fed's Dudley speaking, German ZEW Index, China Trade Balance report, China inflation report, US weekly retail sales reports, (MYL) business update and the (BSX) investor update could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by financial and industrial 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 Higher into Final Hour on Central Bank Hopes, Buyout Speculation, China Bounce, Airline/HMO Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Modestly Lower
  

• Sector Performance: Mixed
  

• Volume: Below Average

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• Volatility(VIX) 16.46 -3.63%

• Euro/Yen Carry Return Index 142.38 -.17%

• Emerging Markets Currency Volatility(VXY) 11.06 -2.64%

• S&P 500 Implied Correlation 61.84 +1.91%

• ISE Sentiment Index 109.0 +17.20%

• Total Put/Call .87 +1.16%

• NYSE Arms 1.92 +50.54% 

Credit Investor Angst:

• North American Investment Grade CDS Index 81.24 -.27%

• America Energy Sector High-Yield CDS Index 998.0 -.96%

• European Financial Sector CDS Index 78.0 -2.07%

• Western Europe Sovereign Debt CDS Index 20.57 -1.67%

• Asia Pacific Sovereign Debt CDS Index 78.89 -.59%

• Emerging Market CDS Index 330.66 +.23%
  

• iBoxx Offshore RMB China Corporates High Yield Index 120.72 +.13%

• 2-Year Swap Spread 12.75 n/a

• TED Spread 31.75 n/a

• 3-Month EUR/USD Cross-Currency Basis Swap -22.75 +.25 basis point

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 73.39 +.1%
• 3-Month T-Bill Yield .00% n/a

• Yield Curve 145.0 n/a

• China Import Iron Ore Spot $56.61/Metric Tonne +1.07%

• Citi US Economic Surprise Index -24.30 +2.0 points

• Citi Eurozone Economic Surprise Index 8.70 -.3 point

• Citi Emerging Markets Economic Surprise Index -18.80 +.1 point

• 10-Year TIPS Spread 1.53 -2.0 basis points
• # of Months to 1st Fed Rate Hike(Morgan Stanley) 5.40 -.21

Overseas Futures:

• Nikkei 225 Futures: Indicating -63 open in Japan 
• China A50 Futures: Indicating +18 open in China

• DAX Futures: Indicating -13 open in Germany

Portfolio: 

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

• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges

• Market Exposure: Moved to 50% Net Long

Today's Headlines

Bloomberg:  

• Putin's Bombing of Syria's Moderates Must Stop Now, EU Says. European Union governments demanded Russia stop targeting moderate groups opposed to Syrian President Bashar al-Assad after days of aerial bombardment and cruise-missile attacks. Scrambling to come up with a unified response to Vladimir Putin’s intervention in the crisis, foreign ministers of the EU’s 28 nations demanded Russia bomb only Islamic State extremists and other recognized terrorists or risk extending a civil war that’s already in its fifth year. “The recent Russian military attacks that go beyond” Islamic State and target the moderate Syrian opposition “are of deep concern and must cease immediately,” the foreign ministers said in a statement from their meeting in Luxembourg. “This military escalation risks prolonging the conflict, undermining a political process, aggravating the humanitarian situation and increasing radicalization.” Putin is building up his military presence in Assad’s stronghold on the eastern Mediterranean Sea, has fired cruise missiles from the Caspian Sea and violated Turkish airspace during bombing raids. The air campaign came as a surprise to the U.S. and EU countries, which have been conducting their own bombardments of IS targets.  

• China Sausage Maker Says May Miss Bond Payment as Defaults Mount. A Chinese sausage maker said it’s not sure if it can repay a bond after its director was put under house arrest, the latest case in China mixing corporate governance and debt problems. Based in the eastern province of Jiangsu, Nanjing Yurun Foods Co. is suffering cash shortages and great risks in its finances and operations, it said in a statement posted on the Chinamoney website. The company, which sold 1.3 billion yuan ($206 million) of bonds at a yield of 5.49 percent in 2012, must repay 1.37 billion yuan in principal and interest due Oct. 18, according to the statement. As that’s a Sunday, the effective due date is the following day, it says. Investors are growing alarmed as slowing economic growth and a fight against corruption compound strains in China’s 42.2 trillion yuan bond market. There have been four defaults this year, including one by China National Erzhong Group Co., according to China International Capital Corp. Kaisa Group Holdings Ltd. became the first Chinese developer to renege on a debt obligation in the offshore bond market in April after founder Kwok Ying Shing resigned amid a corruption probe.

• Jim Chanos: Playing Shanghai Market Is Like a Casino. (video) 

• Chanos Sees Tesla(TSLA) as an Overpriced Carmaker Compared With BMW. (video)

• Jim Chanos Hints at Glencore Short, Questions Company's Strategy. (video) Glencore Plc bought assets at the top of the market and is now selling at the bottom, said Kynikos Associates LP founder Jim Chanos, hinting that he is short the stock. “We are not going to comment on our position in Glencore, but what I will say is we know the company pretty well,” Chanos said in an interview with Bloomberg Television in New York. “I’m a potential purchaser,” he added. “To close out a short position you have to buy stock.”

• One Way Emerging Markets Are Shooting Themselves in the Foot. The founder of research firm Ecstrat highlights a structural reason for the underperformance of the asset class. Emerging-market stocks and currencies have taken a beating in 2015, but underperformance in these assets is hardly novel. The MSCI Emerging Market index hit its post-recession peak in 2011 and has been trounced by its developed-market counterpart since 2010. Emerging markets are now abandoning the liberalization of corporate governance regimes in the wake of the financial crisis, he concludes, with several large countries instead regressing and moving to more authoritarian or hierarchical systems that are not friendly to minority shareholders. These backsliders have entered a "vicious cycle," according to Smith, in which poor corporate governance will foster rounds of weakness in both EM economies and currencies.  

• Pimco's Bear Case Only Gets Stronger as Emerging Currencies Jump. Pacific Investment Management Co. is sticking with its pessimistic outlook on emerging-market currencies, saying the biggest rally in 17 years has only bolstered the case for making bearish wagers. “These currencies look more interesting to be underweight from here than they were a week ago,” Luke Spajic, an emerging markets money manager at Pimco, whose developing-nation currency fund has outperformed 97 percent of peers during the past five years, said in a phone interview on Monday. Pimco, which oversees $1.52 trillion, said in an Oct. 1 report that it had short positions in currencies such as Malaysia’s ringgit, the Thai baht and the South Korean won.

• Car Industry Sounds Alarm as EU Weighs Tougher Pollution Tests. The European Union auto industry sounded a warning in the push to toughen pollution tests after Volkswagen AG’s diesel-engine deception, saying future EU checks need to be “realistic” so they don’t drive up car prices, weaken sales and cause job losses. The salvo by the European Automobile Manufacturers’ Association comes as EU governments prepare their verdict on the details of an inspection regime penciled in for September 2017 that will gauge emissions of smog-causing nitrogen oxides under real driving conditions as well as in laboratories. The EU, where most cars are powered by diesel, wants new models to be tested on the road because of evidence that real-driving emissions are 400 percent to 500 percent higher than in labs.

• European Stocks Decline, Ending Best Winning Streak Since July. European stocks fell for the first time in seven days as commodity producers reversed early gains and ended their longest rally since 2000. Glencore Plc slipped 6.2 percent, erasing an advance of 5.2 percent. Kynikos Associates LP founder Jim Chanos hinted that he is short the stock. Rolls-Royce Holdings Plc and Safran SA lost 3.9 percent or more after a report that European regulators have started a probe into whether airlines are being forced to enter anti-competitive service contracts. The Stoxx Europe 600 Index lost 0.3 percent to 361.79 at the close of trading, erasing an intraday gain of as much as 0.3 percent.

• Iron Ore Seen Weaker as BHP, Rio `Squeeze Out' High-Cost Miners. Iron ore will extend declines in 2016 on rising low-cost supplies from the world’s largest miners, weak demand growth in China and a stronger dollar, according to BMI Research, while Goldman Sachs Group Inc. repeated a forecast for lower prices. Prices will trade between $50 and $60 a metric ton over the remainder of this year, then drop to a range of $45 and $55 in 2016, BMI said in a report e-mailed Monday. Ore with 62 percent content delivered to Qingdao rose 1.1 percent on Monday to $56.61 a dry ton, according to Metal Bulletin Ltd. Iron ore has dropped 21 percent this year as Rio Tinto Group and BHP Billiton Ltd. in Australia and Brazil’s Vale SA boosted low-cost supplies to increase market share even as demand growth stalled in China. Steel consumption in China was seen shrinking by an average of 1.3 percent annually between this year and 2019, BMI said. “Global iron ore majors will continue to ramp up production to squeeze out higher-cost competitors,” BMI said. “BHP Billiton, Rio Tinto and Vale all reported record output in 2014 and will increase output further in the quarters ahead.”

• Lockhart Says Improving U.S. Job Market Supports Liftoff in 2015. (video) Federal Reserve Bank of Atlanta President Dennis Lockhart said an improving U.S. job market warrants an interest-rate increase this year, reinforcing the message from other officials in recent days that they remain on track for liftoff in 2015. “We are getting much closer to the finish line from the point of view of whatever you would consider full employment,” Lockhart told reporters Monday after a speech in Orlando, Florida. “I would expect to continue to make progress. So the beginning of normalization of interest rates I think is quite justifiable in the context of continuing progress of multiple measures of employment.”

• Dividend Stocks Under Pressure as Growth Slows. (video)

• Lilly(LLY) Halts Cholesterol Drug, Losing a Potential Blockbuster. (video) Eli Lilly & Co. said it will stop development of evacetrapib, an experimental cholesterol drug with blockbuster potential, because it failed to benefit patients with heart disease. Lilly shares fell 7.1 percent to $80.05 at 9:52 a.m. in New York. The drug’s failure builds on a series of disappointments for medications that inhibit a molecule known as CETP, which results in higher levels of HDL. Also called good cholesterol, HDL is known to ferry fatty lipids out of the arteries. Merck & Co., which is still developing a CETP inhibitor, slid 1.6 percent to $50.11.

• Dell(DELL) Faces $60 Billion in Total Debt With EMC Deal. (video)

Wall Street Journal: 

• Russia Steps Up Bombing Campaign in Syria. Russian President Vladimir Putin defends decision to send warplanes as aimed at political solution.

MarketWatch.com:

• S&P downgrades Volkswagen and its subsidiaries by one notch to A-minus.

CNBC:

• Optimism turns negative among wealthy: Survey. (video)

• Market top? 2015 set to pass 2000 for M&A record.

• Tech bubble: This is ‘money in your mattress’ time.

• Dick Bove: US banks have been 'nationalized'. (video)

Zero Hedge: 

• Global Deflation Alert: Hidden EM Debts To China Could Be Immense. (graph)

• VIX Drops For 10th Day In A Row, Breaks Significant Technical Support. (graph)

• Deflation = Debt + Demographics + Disruption. (graph)

• Iran Openly Flouts Obama, Launches New Ballistic Missile.

• Glencore Production Cuts Backfire After World's Second Largest Miner Vows To Fill The Glencore Void. (graph)

• Oil Stumbles Below $49 As Goldman Warns "Lower For Even Longer". (graph)

Business Insider:

• CHANOS: We have a 'looming' oversupply problem.

• Here's Obama's strange response when he was told Putin was challenging his leadership. (video) Obama's reaction was stunning. He scowled and said, "In what way?"

• The 5 issues worrying investors with a potential train wreck looming in Washington.

• North Korea stages a massive military parade — and they say they're ready for war with 'US imperialists'. (video) 

• Apple(AAPL) is reportedly seeing 'disappointing' sales of the iPhone 6s. In a research note sent on Sunday, Pacific Crest says it believes the latest smartphone from Apple will sell well below analysts' expectations — 67 million iPhones versus consensus expectations of 76 million shipments throughout calendar Q4.

• One of the hottest debates in hedge funds is starting to boil over.

• GOLDMAN(GS): Welcome to the '3rd wave' of the financial crisis.

• A chart from the financial market's junkyard is 'flashing red'. (graph)

Reuters:

• Saudis tell Russia its actions in Syria will have 'dangerous consequences'. Moscow's military intervention in Syria will have "dangerous consequences", escalating sectarian war there and inspiring militants from around the world to join in, senior Saudi Arabian officials told Russia's leaders on Sunday, a Saudi source said. The message, twinned with a pledge of support for moderate foes of Syrian President Bashar al-Assad, Russia's ally, signals Saudi suspicions about Moscow's motives in entering a 4-1/2 year war in which some 250,000 people have been killed and some 11 million, or half the population, driven from their homes."The Russian intervention in Syria will engage them in a sectarian war," the source said on Monday, adding that the kingdom "warns of the dangerous consequences of the Russian intervention". "The Saudis will continue strengthening and supporting the moderate opposition in Syria," he added.