Bull Radar

Style Outperformer:

• Large-Cap Value -.15%

Sector Outperformers:

• 1) Semis +1.14% 2) Agriculture +.86% 3) Defense +.17%
  

Stocks Rising on Unusual Volume:

• KLAC, LRCX, SWI, TUP, FULT, SYT, DRII, GM and ISRG

Stocks With Unusual Call Option Activity:

• 1) MDLZ 2) KLAC 3) LMT 4) SYF 5) WTW
  

Stocks With Most Positive News Mentions:

• 1) EDU 2) FULT 3) SNDK 4) BA 5) IPG
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Morning Market Internals

NYSE Composite Index:

• Volume Running +2.8% Above 100-Day Average
• 5 Sectors Rising, 5 Sectors Declining
• 48.5% of Issues Advancing, 47.7% Declining
• 49 New 52-Week Highs, 27 New Lows
• 34.8% of Issues Above 200-day Moving Average
• Average 14-Day RSI 47.0
• Vix 15.5
• Total Put/Call .97
• TRIN/Arms 1.48

Wednesday Watch

Evening Headlines 

Bloomberg:

• Leverage in China's bond market at record high. Chinese bankers say a debt-driven bond market rally is starting to show the same signs of overheating that preceded a collapse in equities. Repurchase transactions allowing investors to use existing note holdings as collateral to borrow money for one day doubled in the past year to a record 2.1 trillion yuan ($330 billion) on Monday. The cost of such funding in the interbank market has risen to 1.89 per cent from a five-year low of 1 per cent in May and has swung violently before, reaching 11.74 per cent in June 2013. A similar contract on the Shanghai stock exchange climbed to 2.21 per cent as equities rallied. Credit spreads at the narrowest in six years are being questioned as a steel trader delays making debt payments. "There are signs of an overheating market, and certainly the rally can't last for long," said Wei Taiyuan, an investment manager at China Merchants Bank Co. in Shanghai. "Leverage in the bond market is much higher than at any time in history. If equities continue to perform well, or initial public offerings resume, the liquidity-fueled rally may come to an end."

• More Money Leaving China: Is It a Cause for Concern? (video)

• Japan's Exports Grow at the Slowest Pace in More Than a Year. Japan’s exports grew at the slowest pace in more than a year in September, with a drop in shipments to Asia all but overwhelming gains in sales to Europe and the U.S. The trade data are one of the most crucial economic indicators before the Bank of Japan meets on Oct. 30 to consider whether the nation needs more monetary stimulus to stoke inflation and economic activity. Exports to China, India, Indonesia, Thailand and Malaysia all fell as the slowdown in China’s economy sapped demand across Asia. The value of Japanese shipments rose just 0.6 percent in September from a year earlier, marking the third straight month of waning growth, the finance ministry reported Wednesday. Economists surveyed by Bloomberg had expected a 3.8 percent increase. The value of imports sank more than 11 percent, underscoring a lack of demand in Japan’s domestic economy as well as falling oil prices.  

• The Thai Connection That Tells You Turkish Bank Debt Is Souring. Before July, SCB Asset Management Co., part of Thailand’s second-largest bank, held about $2 billion of medium-term notes issued by Turkish lenders. That’s now dropped to about $1.2 billion. While a fraction of the more than $88 billion of debt due within a year from Turkish banks, the decline in holdings by Thai investors like SCB shows one of the most robust markets for nation’s lenders is waning. Since 2013, when Moody’s Investors Service lifted Turkey from junk status, Thais have become some of the biggest buyers of medium-term notes to capture the highest yields in the universe of investment-grade banks.

• Asian Stocks Follow U.S. Equities Lower as Drugmakers Retreat. Asian stocks fell after U.S. shares declined amid mixed company earnings. Drugmakers and finance shares led losses on the regional benchmark gauge. The MSCI Asia Pacific Index retreated 0.1 percent to 133.59 as of 9:01 a.m. in Tokyo.

• Disney's ESPN Said Planning to Eliminate as Many as 350 Jobs. Walt Disney Co.’s ESPN sports network, confronting rising programming costs and a loss of viewers, plans to eliminate as many as 350 positions, about 4.3 percent of its workforce, according to people with knowledge of the matter. 

Wall Street Journal:  

• Debt, Growth Concerns Rain on Deficit Parade. Budget success yields to concerns about debt-to-GDP ratio and the economic outlook. The U.S. budget deficit is lower than before the 2008 financial crisis. But the good news is tempered by concerns on two fronts, one about the nation’s debt load and the other about the economy. Deficit hawks are concerned that the improvement will lead both parties to overlook the red ink set to rise later this decade from a surge in spending on health care and retirement benefits for the baby-boom generation. They worry that while the deficit is at the lowest level since 2007, the U.S. has added nearly $8 trillion in debt, an increase of 140%. That has nearly doubled the nation’s debt-to-GDP ratio, which stands near 73%—based on federal debt held by the public—and isn’t projected to fall in the coming years.

• New Guidelines Push Back Age for Mammograms. American Cancer Society recommends women start having mammograms every year at age 45, instead of 40.

• Why Benghazi Still Makes a Difference. Hillary Clinton may not see the point, but her Thursday testimony may tell us much about her ability to lead. Only in Perry Mason stories does the real culprit break down in open court. After Hillary Clinton’s now-immortal Capitol Hill outburst about investigations into the deadly 2012 terrorist attack in Benghazi, Libya—“What difference, at this point, does it make?”—the former secretary of state and Democratic candidate for president is unlikely to offer any such spontaneity when she testifies Thursday before the House Select Committee on Benghazi. Nonetheless, the committee’s work is utterly serious, its preparations... 

Fox News: 

• Ryan to run for House speaker if he gets full party support. Wisc. Rep. Paul Ryan told House Republicans Tuesday he would run for speaker if he gets broad support from all wings of the party and gave colleagues until Friday to express their views. A statement released by his spokesman, Brendan Buck, said Ryan “discussed what’s necessary, in his view, for the next speaker to be successful” at the closed-door meeting. “If the members agree with his requests and share his vision, and if he is a unity candidate - with the endorsement of all the conference's major caucuses - then he will serve as speaker,” the statement said. “He will be all in.

MarketWatch.com: 

• What a Democratic president could mean for your taxes.

CNBC:

• Chipotle(CMG) stock falls after earnings disappoint. (video) Revenue increased to $1.22 billion from $1.08 billion a year ago. Wall Street analysts forecast Chipotle Mexican Grill would deliver earnings per share of $4.62 and revenue of $1.22 billion, according to a Thomson Reuters estimate. Shares were last 7 percent lower after the bell.

• Yahoo(YHOO) cuts Q4 guidance after earnings miss. (video) The firm cut its fourth-quarter revenue outlook to a range of $1.16 billion to $1.2 billion. Analysts expected $1.33 billion in sales, according to StreetAccount. 

Zero Hedge: 

• Offshore-Onshore Yuan Spread At 1-Month Wides Hinting At Outflows As Japanese Stocks 'Mysteriously' Meltup At The Open. (graph)

• Banks Turn Down Deposits As Stealth NIRP Takes Hold.

• Meet The New Generation Of Traders.

• PM-Elect Of 'US Ally' Canada Wastes No Time: Tells Obama Will Withdraw Fighter Jets From Syria, Iraq.

• Show Of Hands: Who's Interested In A CDO Backed By A Pool Of Subordinated Community Bank Debt?

• Then It Was BlackRock(BLK), Now It's Blackstone(BX) But The Result Will Be The Same.

• Confusion, Delusions, & Illusions. (graph) Telling people the truth today is meaningless, as they don’t want their illusions destroyed. But destroyed they will be, when this teetering edifice of debt comes crashing down on their heads. 

• Europe Secretly Starts Imposing TTIP Despite the Public’s Overwhelming Opposition.

• Crude Tumbles As API Reports Another Huge Inventory Build. (graph)

• Ferrari Prices IPO At $52 (Upper End Of Range), Raises $893 Million.

• How The Entire Short Volatility ETF Complex Could Be Wiped Out Overnight. (graph)

• Bonds & Stocks Drop Amid Crude Carnage; Bills, Biotechs, & Big-Boy-Toys Battered. (graph)

Business Insider:

• Gold is making a comeback. (graph)

• Obama just slammed the door on Arctic drilling.

• NSA chief: This is what keeps me up at night.

• Oil inventories are piling up. (graph)

Reuters: 

• VMware's(VMW) revenue forecast misses estimates, shares fall. Virtualization software maker VMware Inc forecast current-quarter revenue largely below Wall Street's estimates, sending its shares down 5 percent in extended trading. VMware, whose parent EMC Corp is being acquired by Dell Inc in a $67 billion deal, said EMC and Dell have committed to support the company's independent partnering strategy. The company said it had seen softer bookings in the quarter due to speculation about its future and weakness in China, Russia and Brazil.

• Bridgewater's $70 bln 'All Weather Fund' down 6 pct in 2015 - sources. The $70 billion Bridgewater All Weather Fund, managed by hedge fund titan Ray Dalio, was down 1.9 percent in September and is down 6 percent through the first nine months of the year, three people familiar with the fund's performance said on Tuesday.

• Texas teen arrested over clock is moving to Qatar with his family. The Texas boy arrested for bringing to school a homemade clock that was mistaken for a bomb is moving to Qatar, his family said on Tuesday, a few hours after he was at the White House for an astronomy night hosted by President Barack Obama. Ahmed Mohamed, 14, a bespectacled ninth-grader who became an Internet sensation for an arrest that supporters said was influenced by bias against his Muslim religion, has accepted an offer from the Qatar Foundation to study at its Young Innovators Program. "This means, that we, as a family, will relocate to Qatar where Ahmed will receive a full scholarship for secondary and undergraduate education," his family said in a statement. The teenager, who dabbles in robotics and had attended a Dallas-area high school, has basked in celebrity status since his arrest in September. The family has been traveling the globe to meet dignitaries. Sudanese state radio reported that his father took him to meet Sudanese President Omar al-Bashir. The Sudanese leader is accused by the International Criminal Court of masterminding genocide, crimes against humanity and war crimes during Sudan's Darfur conflict.

Evening Recommendations 

• None of note

Night Trading

• Asian equity indices are -.25% to +.50% on average.

• Asia Ex-Japan Investment Grade CDS Index 138.75 -.5 basis point.

• Asia Pacific Sovereign CDS Index 77.25 +2.25 basis points.

• Bloomberg Emerging Markets Currency Index 72.68 -.01%. 

• S&P 500 futures +.11%.

• NASDAQ 100 futures +.13%.

Morning Preview Links

Earnings of Note

Company/Estimate

• (ABT)/.53

• (ARMH)/.07

• (BHI)/-.14

• (BIIB)/3.79

• (BA)/2.20

• (CSL)/1.62

• (KO)/.50

• (EMC)/.43

• (GM)/1.19

• (ITW)/1.36

• (KMB)/1.49

• (MAN)/1.55

• (OC)/.67

• (STJ)/.97

• (TMO)/1.79

• (WFT)/-.11

• (WIT)/9.08

• (AXP)/1.31

• (CCI)/1.05

• (EBAY)/.40

• (FWRD)/.59

• (KMI)/.19

• (KNX)/.36

• (LRCX)/1.72

• (LVS)/.63

• (RJF)/.92

• (RHI)/.73

• (SNDK)/.80

• (TXN)/.73

• (TSCO)/.63

• (URI)/2.36

• (VMI)/1.36

Economic Releases

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory build of +3,660,000 barrels versus a +7,562,000 barrel gain the prior week. Gasoline supplies are estimated to fall by -745,000 barrels versus a -2,618,000 barrel decline the prior week. Distillate inventories are estimated to fall by -1,160,000 barrels versus a -1,520,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to fall by -.34% versus a -1.5% decline prior.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Bank of Canada rate decision, Brazil Central Bank decision, OPEC special meeting, weekly MBA mortgage applications report, (STX) annual meeting and the (CS) investor day could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by technology 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 Lower into Final Hour on Earnings Outlook Concerns, Emerging Markets Debt Angst, Oil Decline, Biotech/Pharma Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Slightly Lower
  

• Sector Performance: Mixed
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 15.44 +3.07%

• Euro/Yen Carry Return Index 142.06 +.47%

• Emerging Markets Currency Volatility(VXY) 11.25 +.27%

• S&P 500 Implied Correlation 61.55 +3.0%

• ISE Sentiment Index 73.0 -39.67%

• Total Put/Call 1.03 +15.73%

• NYSE Arms .99 -21.79% 

Credit Investor Angst:

• North American Investment Grade CDS Index 80.75 -.45%

• America Energy Sector High-Yield CDS Index 1,057.0 -.22%

• European Financial Sector CDS Index 74.51 -.98%

• Western Europe Sovereign Debt CDS Index 19.81 -5.94%

• Asia Pacific Sovereign Debt CDS Index 76.89 +2.56%

• Emerging Market CDS Index 334.79 +1.26%
  

• iBoxx Offshore RMB China Corporates High Yield Index 121.66 +.11%

• 2-Year Swap Spread 10.75 -1.0 basis point

• TED Spread 30.75 -1.5 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -24.5 -.25 basis point

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 72.67 -.34%
• 3-Month T-Bill Yield .01% +2.0 basis points

• Yield Curve 144.0 +1.0 basis point

• China Import Iron Ore Spot $52.93/Metric Tonne -.69%

• Citi US Economic Surprise Index -7.20 +4.1 points

• Citi Eurozone Economic Surprise Index 7.5 +.7 point

• Citi Emerging Markets Economic Surprise Index -17.40 +.7 point

• 10-Year TIPS Spread 1.48 +2.0 basis points
• # of Months to 1st Fed Rate Hike(Morgan Stanley) 6.75 +.25

Overseas Futures:

• Nikkei 225 Futures: Indicating +67 open in Japan 
• China A50 Futures: Indicating -9 open in China

• DAX Futures: Indicating +9 open in Germany

Portfolio: 

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

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

• Market Exposure: Moved to 25% Net Long

Today's Headlines

Bloomberg: 

• China Stabilizes on Shaky Pillar, Making More Stimulus Likely. China’s economy is relying on a shaky pillar, making more stimulus likely. While authorities won’t unleash the same flood of credit that followed the 2008 financial crisis, more targeted measures to get money flowing to jump start infrastructure projects is on the way. Recently announced measures also include a tax cut for vehicle purchases and a reduction in the minimum down payment for first-time home buyers. And unlike global peers, the People’s Bank of China still has room to cut interest rates.

• For Mongolia, China's Slowdown Is Provoking Emergency Response. While China’s slowing economy has singed stock markets around the world, no nation is more affected than neighboring Mongolia. Things have gotten so bad that the government in this mineral-rich nation is planning job and salary cuts for bureaucrats, and the sale of of shares in state-owned companies including the postal service. Mongolia, sandwiched between China and Russia, is an early illustration of fallout from slower growth in the world’s second-biggest economy. “When China sneezes, we get a cold. That is how the situation is. It really affects us in a major way,” Dale Choi, founder and director of the research firm Independent Mongolian Metal & Mining Research, said in a phone interview.

• China Mobile Profit Misses Estimates as User Growth Slows. China Mobile Ltd. posted third-quarter profit that missed analyst estimates as the world’s largest carrier faces stiffer competition, slowing subscriber growth and costs for its new high-speed network. Net income rose 13 percent to 28.2 billion yuan ($4.4 billion) in the three months ended September, according to figures derived from nine-month results published Tuesday. That’s the highest quarterly growth in at least five years. China Mobile has boosting investment to get more users onto its fourth-generation network as competitors with virtual operator licenses enter the market, escalating competition and hitting average revenue per user.

• Swiss Watch Quarterly Exports Decline the Most Since 2009. Swiss watch exports had their biggest quarterly decline since 2009 as the industry struggles with the strong franc and as a slump in demand in China and Hong Kong began to spread across Asia. The value of shipments fell 7.2 percent in the third quarter, adjusted for working days, the Swiss customs office said Tuesday in a statement. Exports dropped 2 percent in the first nine months of the year to 15.8 billion francs ($16.5 billion), according to the Federation of the Swiss Watch Industry.  

• Emerging Stocks, Currencies Decline on Global Stimulus Outlook. Emerging-market stocks fell from a two-month high as investors weighed the prospects for a pullback in the monetary stimulus in developed nations that has helped prop up demand for riskier assets. The MSCI Emerging Markets Index slipped 0.4 percent to 864.19 at 12:01 p.m. in New York, ending a three-day gain.

• European Stocks Fall After ECB Report Dims Prospects of More QE. European stocks declined after a report showing an improvement in the region’s lending conditions lowered the prospects for additional monetary stimulus. After hovering near a two-month high in the first hour of trading, equities slid as a European Central Bank survey showed credit standards on loans to companies eased for the sixth straight quarter. Banks fell after the ECB said its quantitative-easing program will drag on profitability at those companies in the next six months. The report gives policy makers less cause to act when they meet this week, said Mirabaud Securities’ John Plassard. “The market is disappointed because if there is any improvement there, then for sure there’s no expansion of the purchases,” said Plassard, a senior equity-sales trader at Mirabaud in Geneva. “Good news is bad news. Draghi will probably continue saying ECB will use all its tools and they will repeat what is in the bank lending report.” The Stoxx Europe 600 Index dropped 0.4 percent to 362.67 at the close of trading.

• Iran Plans 20-Year Contracts as Incentive for Energy Investments. Iran will pay foreign oil companies larger fees than it did under previous buy-back contracts to attract $100 billion of investments needed to rebuild its energy industry. The Persian Gulf state, once OPEC’s second-largest crude producer, will also offer 20-year contracts on oil and natural gas projects, Roknoddin Javadi, managing director of state-run National Iranian Oil Co., said in an interview in Tehran.

• Diamond Prices Lose Luster in China-Fueled Slump. (video)

• Posco Posts Biggest Loss Since at Least '10 as Steel Slumps. Posco, South Korea’s biggest steelmaker, reported the largest quarterly loss in at least five years amid losses on foreign exchange and mining assets, a lawsuit settlement and as a deluge of Chinese exports pushed down world prices. The net loss, excluding minority interests, was 534.2 billion won ($474 million) in the three months ended September, from a 237.8 billion won profit a year earlier, the Pohang-based company said Tuesday. That compares with an expected loss of 156 billion won, according to the average of 13 analyst estimates compiled by Bloomberg. 

• Hedge Funds are Bringing Back Everyone's Least Favorite Toxic Investment. Joshua Siegel is bringing back a version of one of the most toxic financial vehicles ever devised and arguing that this time it’s going to be different. His StoneCastle Financial is among the funds that are reviving the collateralized debt obligation, or CDO. CDOs stuffed with mortgages and their derivatives caused billions in losses around the world during the 2008 crisis.

• Bernie Sanders's Danish Utopia Girds for Deeper Welfare Cuts. Bernie Sanders’ utopia needs fixing. The Vermont senator used part of a debate this month with Senator Hillary Clinton and other contenders vying to become the Democratic Party’s candidate for U.S. elections to tell voters they should model their society on Scandinavia. “We should look to countries like Denmark, like Sweden and Norway,” he said. Ironically, the Denmark that Sanders wants the U.S. to emulate is now taking a long, critical look at its welfare model as it decides which bits to scale back.

• IBM Drops to Almost 5-Year Low as Profit Forecast Is Cut. IBM’s stock dropped to almost a five-year low after the company cut its profit forecast, underscoring the difficulty of trying to reinvent itself as a powerhouse in cloud computing and data analytics. The shares tumbled 5.4 percent to $141.23 at 11:07 a.m. Tuesday in New York. The stock earlier fell to $140.50, its lowest intraday price since late October 2010.

• Even the Cheapest Homes Are Too Expensive For Millennials. Lowest-priced homes are now outpacing growth for the highest tier.

Barron's:

• Micron(MU): Redstone Says Short it; Margin Recovery a Ways Away.

Fox News: 

• Webb drops Democratic presidential bid, weighs possible independent run. (video)

Zero Hedge: 

• Saudi Arabia Warns Iran: "Stop Meddling In Our Neighborhood!"

• S&P Earnings Expectations Tumble 15 Days In A Row - Longest Streak Since Financial Crisis. (graph)

• Will "Vice" Stocks' Out-Performance Put Clamps On The Bull Market? (graph)

• Crude Crumbles Back To $45 Handle - Down 6% From China GDP. (graph)

• Good Luck, Canada. (graph)

• Tech Bubble Pops: Dropbox Warned It Can't IPO At Its "Private Valuation".

• Oil Prices Still Not Low Enough To Fix The Markets. (graph)

• Housing Permits Plunge To 7-Month Lows Despite Decade-High Homebuilder Sentiment. (graph)

• Ominous Signs Of Peak Employment. (graph)

• Peak Debt, Peak Doubt, & Peak Double-Down.

Business Insider:

• Chinese shipping imports just nosedived to their worst levels ever. Growth of exports from China has been dropping relentlessly, for years. Now this “growth” has actually turned negative. In September, exports were down 3.7% from a year earlier, the “inevitable fallout from China’s unsustainable and poorly executed credit splurge,” as Thomson Reuters’Alpha Now puts it. Most of these exports are manufactured goods that are shipped by container to the rest of the world. And imports into China – a mix of bulk and containerized freight – have been plunging: down 20.4% in September from a year earlier, after at a 13.8% drop in August.

• Consumer Reports pulls recommendation for Tesla(TSLA) Model S. Consumer Reports has withdrawn its recommendation for the Tesla Model S sedan, citing reliability issues, the Los Angeles Times reported. Tesla shares were down 11% in trading on the news, to $204.

• The next China bubble is forming right before our eyes. China's bubble of investor money has moved from the stock market to a new asset class: corporate bonds. And all we can do is watch.

• HALLIBURTON CEO(HAL): The oil industry's 'day of reckoning' is near.

• These CIA-vetted Syrian rebel groups fighting Assad are Russia's primary targets.

• People are worried this could be the next US 'subprime' crisis.

• Europe is starting to look even more like Japan.

Telegraph:

• Why there's no easy way out of Spain's insurmountable economic mess. Despite being hailed as an unmitigated EU success story, the eurozone's fourth largest economy still faces daunting economic challenges.

Bear Radar

Style Underperformer:

• Small-Cap Growth -1.14%

Sector Underperformers:

• 1) Biotech -3.37% 2) Computer Services -3.35% 3) Drugs -2.68%

Stocks Falling on Unusual Volume:

• BIN, HOG, RMBS, HXL, EAT, HZNP, VRX, IBM, HASI, AMSG, TASR, PAYC, ASTE, FCFS, SJM, CXRX, WWAV, VAR, WDC, LG, AMCX, TSLA, IEX, ATI, HA, VAR, EAT, BOFI, DPLO, CEMP and DEPO

Stocks With Unusual Put Option Activity:

• 1) HOG 2) EWC 3) IBM 4) GE 5) UA
  

Stocks With Most Negative News Mentions:

• 1) HOG 2) TSLA 3) AMZN 4) WWAV 5) BOFI
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume