Bull Radar

Style Outperformer:

• Small-Cap Value +.42%

Sector Outperformers:

• 1) Oil Service +3.41% 2) Energy +2.98% 3) Computer Hardware +2.11%
  

Stocks Rising on Unusual Volume:

• KING, SALE, CLLS, LMNX, RNG, RTEC, FN, SANM, ATVI, TXRH, NLS, UNT, ONDK, AEO, CBT, BOFI, NXTM, XON, TTPH, MDCO, CRAY, DO, PRTY, SCTY, AXLL and JBL
  

Stocks With Unusual Call Option Activity:

• 1) AEO 2) QRVO 3) PLUG 4) MPC 5) TERP
  

Stocks With Most Positive News Mentions:

• 1) ATVI 2) KING 3) RHAT 4) T 5) UPS
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Morning Market Internals

NYSE Composite Index:

• Volume Running +21.0% Above 100-Day Average
• 3 Sectors Rising, 7 Sectors Declining
• 48.4% of Issues Advancing, 49.2% Declining
• 66 New 52-Week Highs, 16 New Lows
• 40.3% of Issues Above 200-day Moving Average
• Average 14-Day RSI 47.4
• Vix 14.2
• Total Put/Call .89
• TRIN/Arms .68

Tuesday Watch

Evening Headlines 

Bloomberg:

• Six Ways to Gauge How Fast China's Economy Is Actually Growing. (graph) There are many ways to analyze China's GDP, and all the ones presented here show it trending below the government's official statistics for the third quarter.
• China's Money Exodus. Here’s how the Chinese send billions abroad to buy homes.
• Hong Kong's Stock Rally Seen Too Good to Last as Volume Fades. Wherever Alex Wong looks, he sees signs that Hong Kong’s stock rebound isn’t going to last. The Hang Seng Index’s 8.6 percent surge in October came on the lowest trading volume since February. Chinese investors sold more shares in the city than they bought, and small-caps were the worst-performing part of the market.
• EPA's New VW Cheating Allegations Threaten to Taint CEO Mueller. New allegations from U.S. regulators that German automaker Volkswagen AG cheated on more diesel-powered models, including one Porsche, could be trouble for new Chief Executive Officer Matthias Mueller, who came from the company’s prestigious sports-car maker after his predecessor, Martin Winterkorn, resigned.
• Asian Stocks Track S&P 500 Recovery as Aussie Gains Before RBA. Asian stocks climbed after signs of stabilization in global manufacturing activity helped drive the Standard & Poor’s 500 Index to levels not seen since before China’s yuan devaluation in August. Australia’s dollar extended gains amid bets the central bank will hold interest rates at a review. The MSCI Asia Pacific excluding Japan Index rose for the first time in six days amid signs of resilience in U.S. and European manufacturing and after measures of factory activity in China stabilized, albeit at levels denoting contraction. 
• Oversupply Will Drive Iron Ore, Oil Below $40, Merchant Says. The rout in commodities is set to get worse as resilient supply and faltering Chinese demand will see global gluts persist, sending oil and iron ore below $40, according to Merchant Commodity Fund. Prices are still trying to find a floor with excess supply in almost every commodity, said Michael Coleman, managing director of RCMA Asset Management Pte, which runs the $210 million fund. Any rally in raw materials will be probably short-lived as demand isn’t improving and production cuts are insufficient to stem surpluses, he said in an interview.
• Passport's Burbank Says No Place Safe in China-Led Downturn. One of this year’s most successful hedge fund managers has a message for investors: watch out for China.John Burbank’s main hedge fund at Passport Capital, which rose 18 percent in the first nine months of 2015 betting on macroeconomic events, has "greatly" cut its exposure to markets across the world as it prepares for a China-led global downturn, the investor said in a letter to clients Oct. 30. "The big risk for global markets over the next several months is a worsening in China’s economy -- characterized by nonperforming loan issues -- which could lead China to de-peg from the U.S. dollar, lower rates and, in the process, force the liquidation of risk assets around the world," Burbank wrote. The world may be heading into "a global downturn that leaves no region safe, including the United States."
• JPMorgan(JPM), BofA(BAC), Citigroup(C) Among Big U.S. Banks That S&P May Cut. JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc. are among at least eight large U.S. banks that may have credit grades cut by Standard & Poor’s on the prospect that the U.S. government is less likely to provide aid in a crisis. The companies -- along with Wells Fargo & Co., Goldman Sachs Group Inc., Morgan Stanley, Bank of New York Mellon Corp. and State Street Corp. -- had senior unsecured and nondeferrable subordinated debt ratings placed on negative credit watch, S&P said Monday in a statement.
• White Middle-Aged Americans See Mortality Increase, Deaton Finds. Middle-aged, non-Hispanic white Americans saw a "marked increase" in mortality between 1999 and 2013, a reversal from a decades-long decline that can be largely explained by a spike in suicide, substance abuse and liver disease, new research shows."No other rich country saw a similar turnaround," Angus Deaton, the Princeton University professor who won this year’s Nobel Prize in economics, and co-author Anne Case write in a study dated Sept. 17. 

Wall Street Journal:

• TransCanada Requests Suspension of U.S. Permit for Keystone XL Pipeline. Move comes in face of expected rejection by Obama administration; could put off request until after 2016. The company behind the Keystone XL pipeline on Monday asked the U.S. government to suspend its permit application, throwing the politically fraught project into an indefinite state of limbo, beyond the 2016 U.S. elections. Calgary, Alberta-based TransCanada Corp. sent a letter to the State Department, which reviews cross-border pipelines, to suspend its application while the company goes through a state review process in Nebraska it had previously resisted. The move comes in..
• Farmers Shift to Leases, Threatening to Swell Machinery Glut. Leasing out tractors, combines helps makers sustain demand but risks saturating used market. Farmers increasingly are leasing tractors, combines and other equipment as grain prices continue to slump, helping prop up manufacturers’ sagging sales. But this shift raises the risk of further saturating the farm-machinery market.
• Ben Carson Vaults to Lead in Latest Journal/NBC Poll. Retired neurosurgeon overtakes Donald Trump for lead among Republican presidential candidates.  
• Valeant(VRX) Critic Gets a Taste of His Own Medicine as Attack Misfires. As short seller Andrew Left’s eagerly awaited report falls flat, he faces allegations of his own.
• Thank You, CNBC. For giving millions of Americans front-row seats to the press bias against Republicans. Stuck in a Regulatory Mash-Up. A genetically modified potato could combat blight and cut fungicide use—if the FDA and EPA will let it.

Fox News:

• Christian persecution spikes in Pakistan, prompting calls for US to exert pressure. (video) Violence against Christians is on the rise in Pakistan, where a disturbing trend of attacks by Islamist fanatics has made life inside the U.S. ally hell for religious minorities.

MarketWatch.com:

• Antarctica isn’t melting -- a new study finds it’s actually gaining ice. The thickening ice in parts on Antarctica means the continent isn’t contributing to rising sea levels, contrary to the conclusion of the United Nations Intergovernmental Panel on Climate Change’s 2013 study. Rather, it is taking water out of the ocean at the rate of a quarter of a millimeter per year, said H. Jay Zwally, a glaciologist at the University of Maryland and the NASA Goddard Space Flight Center who led the study.

CNBC:

• AIG(AIG) earnings miss Street's most dismal estimates. (video)
• Philidor to shutter as drug partnerships dissolve. Philidor, a pharmacy facing backlash from accusations about Valeant Pharmaceuticals' practices, announced Monday it would close after losing the drugmaker's business. Last week, some pharmacy benefit managers, and then Valeant, cut ties with Philidor, which short-seller Citron Research claimed had been used to prop up sales of Valeant drugs. Philidor said it would start to shut down principal operations after losing Valeant, its main client.

Zero Hedge:

• One Analyst Says China's Banking Sector Is Sitting On A $3 Trillion Neutron Bomb. (graph)
• Your Health Insurance Premiums Are About To Go Through The Roof -The Stunning Reason Why.
• San Fran Fed Defends Rate Hike, Says Ignore Terrible Wage Growth Data.
• What The Oil And Gas Industry Is Not Telling Investors. (graph)
• S&P Puts Too-Big-To-Fail US Banks On Ratings Downgrade Watch, Blames Fed. (graph)
• Forget China: This Extremely "Developed" Country Just Suffered Its Biggest Money Outflow Ever. (graph)
• Key Apple(AAPL) Supplier Halts Hiring Due To Poor iPhone Sales.
• "Somebody Will Do Something Stupid".
• How The Fed Has Backed Itself Into A Corner.
• Obama To Openly Welcome Criminals As Government Workers.
• 6 Reasons To Be Bullish (Or Not) On Stocks. (graph)
• Wall Street Financial Engineering At Work - How Valeant Got Vaporized. (graph)
• Stocks Melt-Up To Dot-Com Highs Amid Decouplings, Divergences, & Fun-Durr-Mentals. (graph)

Business Insider:

• The jarring disconnect that signaled the August market chaos has reappeared. (graph)
• Fitbit(FITB) smashes earnings expectations, says it's selling more shares, stock tanks.

Evening Recommendations 

Susquehanna:

• Rated (RL) Positive, target $142.

Night Trading

• Asian equity indices are +.25% to +1.0% on average.

• Asia Ex-Japan Investment Grade CDS Index 128.25 -2.75 basis points.

• Asia Pacific Sovereign CDS Index 70.75 -1.5 basis points.
• Bloomberg Emerging Markets Currency Index 72.09 +.09%. 

• S&P 500 futures +.01%.

• NASDAQ 100 futures +.03%.

Morning Preview Links

Earnings of Note

Company/Estimate

• (ADM)/.65
• (CIT)/.75
• (DISCA)/.38
• (EMR)/.97
• (EXPD)/.60
• (FSS)/.23
• (HCP)/.77
• (H)/.25
• (K)/.84
• (MLM)/2.19
• (MBLY)/.13
• (MOS)/.52
• (NSM)/.34
• (ODP)/.16
• (RRGB)/.53
• (RDC)/.50
• (SMG)/-.15
• (S)/-.07
• (VMC)/.96
• (ZTS)/.40
• (CVC)/.22
• (CBS)/.80
• (CERN)/.54
• (DVN)/.52
• (ETSY)/-.03
• (HLF)/1.05
• (MTZ)/.33
• (PZZA)/.45
• (TSLA)/-.60
• (TDW)/-.03
• (X)/-.22
• (WBMD)/.32  
• (ZG)/-.03 

Economic Releases

9:45 am EST

• ISM New York for October is estimated to rise to 45.7 versus 44.5 in September.

10:00 am EST

• Factory Orders for September are estimated to fall -.9% versus a -1.7% decline in August.
• IBD/TIPP Economic Optimism for November is estimated to rise to 47.4 versus 47.3 in October.

Afternoon

• Wards Total Vehicle Sales for October are estimated to fall to 17.7M versus 18.07M in September.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Australia Trade report, weekly US retail sales reports, Goldman Sachs Industrials Conference, (DAL) October Traffic data, (F) October Sales call and the (LB) investor update could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by consumer 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 Surging into Final Hour on Buyout Speculation, Short-Covering, Diminished Global Growth Fears, Energy/Biotech Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Higher
  

• Sector Performance: Almost Every Sector Rising
  

• Volume: Below Average

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• Volatility(VIX) 13.85 -8.1%

• Euro/Yen Carry Return Index 138.94 +.2%

• Emerging Markets Currency Volatility(VXY) 10.75 -.56%

• S&P 500 Implied Correlation 56.45 -3.64%

• ISE Sentiment Index 112.0 +11.0%

• Total Put/Call .82 -22.68%

• NYSE Arms .88 -37.60% 

Credit Investor Angst:

• North American Investment Grade CDS Index 77.18 -2.14%

• America Energy Sector High-Yield CDS Index 1,158.0 +2.62%

• European Financial Sector CDS Index 69.0 +.17%

• Western Europe Sovereign Debt CDS Index 19.06 unch.

• Asia Pacific Sovereign Debt CDS Index 71.11 -1.50%

• Emerging Market CDS Index 312.96 -3.76%
  

• iBoxx Offshore RMB China Corporate High Yield Index 123.04 +.32%

• 2-Year Swap Spread 11.75 +.5 basis point

• TED Spread 26.25 -.25 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -29.25 unch.

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 72.01 -.01%
• 3-Month T-Bill Yield .06% -1.0 basis point

• Yield Curve 143.0 +1.0 basis point

• China Import Iron Ore Spot $49.50/Metric Tonne -.66%

• Citi US Economic Surprise Index -13.1 -.4 point

• Citi Eurozone Economic Surprise Index 32.3 -.4 point

• Citi Emerging Markets Economic Surprise Index -9.2 +1.3 points

• 10-Year TIPS Spread 1.55 +2.0 basis points
• # of Months to 1st Fed Rate Hike(Morgan Stanley) 4.03 -.04

Overseas Futures:

• Nikkei 225 Futures: Indicating +312 open in Japan 
• China A50 Futures: Indicating -4 open in China

• DAX Futures: Indicating +23 open in Germany

Portfolio: 

• Slightly Higher: On gains in my medical/retail/biotech/tech sector longs

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

• Market Exposure: Moved to 75% Net Long

Today's Headlines

Bloomberg: 

• China Financial Crackdown Intensifies as Funds, Banks Targeted. China’s crackdown on its financial industry is intensifying as authorities investigate strategies blamed for exacerbating a $5 trillion stock-market rout. Shanghai police raided hedge fund Zexi Investment on Sunday, taking away computers and other materials, according to a person familiar with the matter. General manager Xu Xiang was detained, the official Xinhua news agency reported. Executives at Yishidun International Trading and Huaxin Futures were arrested, Xinhua said in a separate report.
• Agricultural Bank President Said Taken Away to Assist With Probe. Agricultural Bank of China Ltd. President Zhang Yun was taken away to assist authorities with an investigation, people familiar with the matter said. The people, who asked not to be identified, didn’t give details on who is conducting the probe or what it’s related to. Assisting with an investigation doesn’t mean Zhang is accused of wrongdoing. The Communist Party’s Central Commission for Discipline Inspection is carrying out its first broad checks on the finance industry since President Xi Jinping became the party’s head in November 2012. The summer’s stock-market rout in China has triggered investigations that have snared executives from the country’s biggest securities firm as well as a star fund manager and a top regulatory official.
• Can We Trust China's Economic Data? (video)
• China Tells Eager Parents to Hold Off on the Baby-Making for Now. China ordered local family planning agencies to keep enforcing the country’s one-child policy, undercutting one province’s plans to start letting parents expand their families now, state media said. The policy, which the ruling Communist Party abandoned Thursday after 36 years, would remain the law until legislators amend it this spring, the Beijing News reported Sunday, citing a statement by the National Health and Family Planning Commission. Until then, local authorities shouldn’t "willfully" enact their own versions of the new two-child limit prescribed by party leaders, the health ministry said.
• Emerging-Market ETF Flows Break Longest Winning Streak Since May. Investors pulled money out of U.S. exchange-traded funds that invest in emerging markets last week for the first time since early October, ending the longest winning streak for the ETFs since May. Redemptions from emerging-market ETFs that invest across developing nations as well as those that target specific countries totaled $91.3 million compared with inflows of $1.1 billion in the previous week and $2.58 billion in the past three periods, according to data compiled by Bloomberg. Almost all the losses came from bond funds, with stock ETFs declining by less than $1 million. The MSCI Emerging Markets Index fell 2.4 percent in the week. The biggest change was in Mexico, where funds shrank by $87.7 million, compared with $37.3 million of inflows the previous week. Investors withdrew $82.1 million from stock funds and $5.7 million from bonds.
• Money Flooding Out of Canada at Fastest Pace in Developed World. Money is flooding out of Canada at the fastest pace in the developed world as the nation’s decade-long oil boom comes to an end and little else looks ready to take the industry’s place as an economic driver. Canada’s basic balance -- a measure of national accounts that spans everything from trade to financial-market flows -- swung from a surplus of 4.2 percent of gross domestic product to a deficit of 7.9 percent in the 12 months ending in June, according to analysis from Kamal Sharma, a foreign-exchange strategist at Bank of America Merrill Lynch. That’s the fastest one-year deterioration among 10 major developed nations.
• China Stocks Fall for Second Day on Manufacturing Data, Probes. China’s stocks fell for a second day after official data showed manufacturing contracted for a third month and authorities detained a top-performing hedge-fund manager in widening probes into market manipulation and insider trading. The Shanghai Composite Index dropped 1.7 percent to 3,325.08 at the close, while the Hang Seng China Enterprises Index slid 1.5 percent in a fifth day of losses, the longest losing streak in almost two months. PetroChina Co. and Aluminum Corp. of China Ltd. led declines for commodity shares, sliding at least 2.5 percent. Police raided hedge fund Zexi Investment on Sunday, according to a person familiar with the matter. The 26 companies that Zexi disclosed as a shareholder in the past 12 months fell by an average of 4.5 percent on Monday.
• European Stocks Rise as Euro-Area Manufacturing Beats Estimates. (video) European stocks advanced as better-than-expected manufacturing in the region outweighed disappointing Chinese output data. Commerzbank AG rose 6.6 percent after the German lender said quarterly earnings increased by 25 percent, while Chief Executive Officer Martin Blessing prepares to leave the company. HSBC Holdings Plc fell 0.8 percent as RBC Capital said that the bank’s decline in income will lead analysts to downgrade their estimates. Rio Tinto Group and BHP Billiton Ltd. lost at least 1.4 percent, dragging a gauge of miners to among the worst performers of the 19 industry groups on the Stoxx Europe 600 Index as commodity prices slid. The Stoxx 600 climbed 0.3 percent to 376.75 at the close of trading, reversing a loss of as much as 0.7 percent.
• No Credit? No Problem as Auto Lender Taps Subprime Bond Appetite. Skopos Financial, a deep-subprime auto finance company based in Irving, Texas, is packaging $154 million of loans made to borrowers with weak credit -- and some without a credit score -- into bonds rated investment grade. More than three-quarters of the loans backing the deal are to borrowers with credit scores under 600 and another 14 percent have no credit score at all, according to a pre-sale report by Kroll Bond Rating Agency. That would place the bulk of the obligations well below what’s typically considered good credit. The offering is the latest prepared by privately backed auto lenders that offload their risk into securities bought by institutional investors. Skopos, which is backed by Lee Equity Partners LLC, the New York-based private equity firm started by Thomas H. Lee, has only been in business since 2012. Small and thinly capitalized lenders with short track records and little history of surviving difficult credit cycles have gained the most attention in recent years, as regulators flag booming loan volumes and looser underwriting standards. Low interest rates spurring an increasing amount of debt have inflated the market for the bonds. Overall outstanding auto debt now exceeds $1 trillion, Federal Reserve Bank of New York data show. 
• Paul Singer Says Aug. 24 Shows Stock, Bond Markets Are 'Unsound'. Paul Singer, the billionaire founder of $27 billion hedge fund firm Elliott Management, said stock and bond markets are structurally “unsound” as evidenced in recent market volatility. In a wide-ranging letter that warned of the effects from low interest rates, unrest in the Middle East, and leverage in the financial system, Singer, 71, said steep declines and rapid recoveries in financial markets, such as the Aug. 24 stock market slump, and recent flash crashes in bond markets, probably foreshadow the future. “All of the innovations and complexity in the modern world of finance combine in different ingredients at different times with different catalysts to create fragility, not stability,” he wrote in a note to clients dated Oct. 27. “We wonder if the overall impact of financial innovation, including derivatives, structured products, high frequency trading and communication advances, is net negative, albeit with a possibly long delay before the drawbacks become visible.” Singer said Elliott is finding opportunities in activist equity and looking at "potentially interesting" wagers on stressed credit. "We are determined to keep our powder dry for opportunities to come," he wrote. Elliott’s two main funds gained 2.4 percent and 2.8 percent respectively in 2015, after rising 0.2 percent and 0.1 percent in the third quarter, according to the note.

Zero Hedge:

• Santelli Slams Protesters Blockading CME As Traders Unload On "Soros Paid Morons". (video)
• Europe Will Never Be The Same; Neither Will The World.
• Dan Loeb Now A Bear? "We Have More Single Short Names Than Long Positions In Our Book Today".
• Janus Capital Shares Tumble After Soros Said To Pull $500 Million From Gross' Fund. 
• German Bunds Tumble Amid China Reserve "Selling" Chatter. (graph)
• "For Every Job Created In The US This Decade, US Corporations Spent $296,000 On Stock Buybacks". (graph)
• ISM Manufacturing Tumbles To Weakest In 3 Years As Employment Crashes To Lowest Since August 2009. (graph)
• US Manufacturing PMI At 7-Month Highs As Canada's Crashes To Record Low (Below China). (graph)
• US Equities' "Impressive Rebound" Is Hollow Inside. (graph)

Business Insider:

• 'Simply a disaster': The results of Turkey's historic election were surprising, and ominous.
• EPA: Volkswagen cheated emission tests with another engine.
• Marco Rubio is exploding in a key early state.
• How to delete all of the search data Facebook(FB) keeps on you.
• Why a free Ukraine matters to America and the free world.
• The world's economic 'canary in the coal mine' has no good news to offer. (graph)
• More people in the US have this STI than all others combined.
• Chipotle(CMG) shares are tumbling after E. coli reports in 2 states.

Financial Times:

• ECB officials met bankers before key decisions. Some of the European Central Bank’s top decision-makers met banks and asset managers days before major policy decisions, and on one occasion just hours before, copies of their diaries reveal. The diaries, which cover meetings of the six members of the ECB’s executive board between August 2014 and August 2015, were given to the Financial Times under Freedom of Information rules and reveal engagements with the private sector, officials and the media.

Telegraph:

• Eurozone banks still swamped with bad loans. British and American banks have acted fast to clean up their balance sheets, but European lenders are still weighed down with loans which are not being paid off.

El Pais:

• Germany, Spain Clash Over Sovereign Debt Risk. Germany's Bundesbank wants banks to accept that sovereign debt has some risks and introduce a limit to amount banks can hold. Current regulation gives preference to sovereign debt, giving incentives to banks to hold on it for too long, citing Andreas Dombret, member of the Bundesbank management board.

Bear Radar

Style Underperformer:

• Large-Cap Growth +.57%

Sector Underperformers:

• 1) Utilities -.32% 2) Retail +.05% 3) Road & Rail +.06%

Stocks Falling on Unusual Volume:

• EIGI, THS, HAIN, CMG, SCTY, V, SBRA, STRP, MCO, PHI, TMH, ELLI, HY, QUNR, SC, SYKE, CMCO, BBW, RVNC, ECL, ECOL, COLM, DSW, FFIV, MHFI and SBRA
  

Stocks With Unusual Put Option Activity:

• 1) PPC 2) LNG 3) BZH 4) X 5) V
  

Stocks With Most Negative News Mentions:

• 1) CMG 2) ANET 3) SBRA 4) CPN 5) MCO
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume