• "One More Thing" -- Lt. Columbo

 After the close, Microchip Technology (MCHP) missed badly.

I don't think the company has whiffed since the economic rebound started in 2008-09.

MCHP is very well run and broad based across all end markets and geographies.

This report may be construed as a negative for the Nasdaq and technology tomorrow -- and it appears Nazzie futures are a bit lower than at the close.

Thanks for reading my Diary today and I hope it was value added.

Enjoy the evening. And God Bless Uncle Vinnie.

• And some wise words from Vizzini.

1. Never be self-confident in view, as the only certainty is the lack of certainty. 
2. Avoid (and never pay attention to) those commentators, money managers and analysts who display an over confident market and view. (For that matter, never ever trust Federal Reserve economic forecasts).
3. At times, Mr. Market exists to screw the most people.
4. The crowd typically outsmarts the remnants -- except at inflection points.
5. Always pay attention to technical divergences during market rallies, particularly during the later stages of an advance. Narrowing leadership and a contraction of breadth are usually tell-tale signs of a maturing bull market.
6. The relative performance of small-cap stocks (e.g., the Russell 2000 index) should never be ignored. 
7. TINA (there is no alternative) is a silly reason to be long stocks, as cash is a defensible asset class during almost all periods.
8. Volatility is not the friend or companion of a bull market.
9. Sometimes it is more appropriate to be concerned with the return of capital than the return on capital. Risk-aversion and preservation of capital should always be on your mind, as we never know (as Grandma Koufax used to say) when "the Cossacks are coming."
10. And, of course, "Never get involved in a land war in Asia and never ever go in against a Sicilian when death is on the line!" 

• Barron's has referred to my questions to Carl Icahn this afternoon.

• Disagreeing over bear markets.

A commentator on CNBC just said that bear markets aren't accompanied by the sort of action we have seen in the last week.

I am not so sure about that.

But I am sure that bear markets are almost always preceded by the sort of narrowing breadth and leadership that I have been highlighting since early August!

• Going into the end of the day.

I plan to end the day with the following shorts: bonds, MagicJack (CALL), MetLife (MET), Lincoln National (LNC), GM (GM), Ford (F), Apple (AAPL), SPY, QQQ and IWM.

• Till tomorrow.

Again, I'll have to incorporate my recap of trades into tomorrow's "Market Setup" as I have been too active to chronicle the trades today.

It's a better day than yesterday!

• The benefit of a flight to safety.

I'm encouraged in my bond short as a large drop in equities recently has been associated with a flight to safety in U.S. Treasuries.

Is it different this time? I hope so, as I have expanded my short consistently this week as the 10-year yield has moved towards 2.30%.

• Omega Advisors' Lee Cooperman on "Squawk Box" this morning.

Watch and learn!

Here, here, here, here and here.

• Now flat.

I am out of the balance of my SPY long at $194, making up for my loss in the earlier SPY long rental.

Now flat.

• I have a legitimate problem today.

I am trading so rapidly I can't post on a timely basis. 

One of those days!

But so was yesterday!

• I just sold half of my SPY long rental at $194.08.

• Also pressed my SPY long.

I covered my JPMorgan Chase (JPM) short ($59.45), which was against my Citi (C) long (for a profit).

Sticking naked long C.

I pressed my SPY long at $193.52,

• Added to my bond short and reloaded my Spyder long.

I added to ProShares Short 20+ Treasury (TBF) at $26.89 and reloaded on a SPY long rental (after taking a small loss earlier) at $193.33.

• Housekeeping item.

I covered my Apple (AAPL) short at $100.90 from this morning for a small gain.

Still short the name, but small after the recent covers,

Looking for another opportunity to enter on the short side at higher prices.

• Stopped out of long SPY rental.

• Sticking with the thesis.

I reloaded on Ford (F) and General Motors (GM) shorts yesterday.

Sticking with the Peak Autos thesis.

• The drop has accelerated.

I discussed the breakdown in the life insurers (MetLife (MET) and Lincoln National (LNC)) yesterday.

The drop has accelerated today.

MET and LNC are on my Best Ideas list (short).

• Never go in against a Sicilian, when death is on the line.

The S&P futures are now 40 handles below my short sale in premarket trading TODAY.

Amazing, inconceivable.

Err on the side of conservatism.

• More from Sir Arthur Cashin.

Markets fear a divergence growing among central banks as Mario is no longer magic amidst concerns that his tool box is empty.

Other central bank figures are still due to talk so bumper cars may continue.

Run rate at 12:15 projects to an NYSE final volume of 780/860 million shares.

• I just took a small long rental in SPY at $193.80.

Tight stop.

• Also, never get involved in a land war in Asia.

The Spyders are now down more than 30 handles from my short in premarket trading today.

The volatility is inconceivable!

Most shouldn't short, but many should err on the side of conservatism.

• Have I mentioned that the market has no memory from day to day? 

• Mid-morning musings from Sir Arthur Cashin.

Weak German data started today's pullback.  It got a second leg down when Draghi remarks disappointed.

S&P breaking 1950 is not a good sign.

• Housekeeping item.

I have covered the balance of my SPY short at $194.15 and my QQQ short at $97.65.

• Housekeeping item.

With S&P futures now down by 21 handles, I am covering half of my SPY and QQQ shorts now.

• Does he realize the implications of his $200 target?

Here are some additional questions for Carl Icahn:

• Let's start with this statement: "As a premium Android phone such as the Galaxy S5 and Note 4 sells at a similar price point to the [Apple (AAPL)] iPhone 6 and 6+ respectively. The choice between them is analogous to the choice between a Volkswagen over a Mercedes at the same price." This statement is so preposterous it casts everything else he says in huge doubt. How can you make such a statement when the newest Nexus devices have better specifications -- better screens, cameras and other features -- than Apple's (AAPL) iPhone 6?

• If you publicly state that you believe Apple is worth $200 per share, will you publicly commit to not selling a single share until it reaches $200? There seems to be no reason to sell before then, because if you say it is worth $200 in your public letter that has to be your base case forecast -- as opposed to upside case that you believe has a 5% chance of happening. So, by definition, you should not sell a share until that number!

• Do you realize the implication of a $200-per-share target? Apple already has highest market capitalization of any stock. So you are saying the company should be worth more than 2x any company? Do you realize the implications of that statement? Apple has to hold on to well-above-average margins forever and, at its size, it needs grow at a high rate for a long time. How is this conceivable for a technology business with an uncertain future that has just stumbled badly and is losing market share in a mature market?

• Here's Goldman Sach's take on the Fed's commentary.

BOTTOM LINE: The September FOMC minutes emphasized that the considerable time forward guidance was data dependent, but noted that "communications challenges" might be associated with changing it. Many members saw significant slack in the labor market. The growth and inflation outlooks were downgraded slightly. The information in the minutes was consistent with our view that major changes to the statement at the October meeting are unlikely.

MAIN POINTS:

1. The minutes reiterated Chair Yellen's comments in the post-FOMC press conference, emphasizing that the "considerable time" forward guidance for the date of the first rate hike did not represent "some fixed calendar interval," and should be interpreted as indicating data dependence.

2. Meeting participants foresaw "communication challenges" associated with changing the current "considerable time" forward guidance when it becomes appropriate. This suggests that the Committee may prefer to wait for a meeting including a press conference before adjusting the guidance.

3. "Many" members indicated that significant slack remained in labor markets, while only "a few" expressed concern about the statement's "significant underutilization" language. This suggests the current assessment is likely to remain in the statement in the near term, despite the recent further decline in the unemployment rate.

4. The staff downgraded its growth outlook slightly both in the short- and medium-term, in part due to a stronger projected exchange value of the dollar and a slower rate of home price appreciation. Participants also counted foreign economic growth among downside risks to growth. Similarly, near-term inflation forecasts were revised down a bit, in light of recent downside surprises. Both the staff and FOMC participants saw greater downside than upside risk to the growth outlook. Persistent low inflation among trading partners and further appreciation of the dollar were cited as downside risks to inflation.

5. "Some" participants indicated that the market-implied path of the fed funds rate remained below most participants' projections; however others appealed to downside tail risks incorporated into market pricing as potentially explaining the discrepancy.

• At $26.91.

I added more ProShares Short 20+ Year Treasury ETF (TBF) at $26.91 this morning.

Reminder: At year-end 2013 I had an outside of consensus view that interest rates on U.S. Treasury bonds would decline. Today my view of rising rates is equally out of consensus.

• From Nautilus. 

Here's some good stuff from Nautilus Research on volatility.

• Here is Carl Icahn's letter to Apple (AAPL).

• Adding aggressively.

I am adding to Oaktree (OAK) on an aggressive scale as it moves lower (starting at $49.25).

• Questions on Apple (AAPL) for Carl Icahn.

Here are the questions I would like Judge Wapner and the "Fast Money" gang to ask Carl Icahn on "Fast Money Halftime" today:

• How can you be so certain and confident that the present iPhone6 (and 6 plus) upgrade is not the last important smartphone product upgrade cycle for Apple over the next few years?
• As a corollary to the first question, your profit estimates are substantially in excess of the Wall Street consensus expectations. Why is the sell side wrongfooted in their views of Apple's prospective earnings? What metrics and assumptions are you using that differ so greatly from the Street's forecasts?
• How well-versed is your research team in Apple's technology and products? In terms of background, what qualifies (and I write this respectfully) Icahn Group's analysis over the consensus, particularly since they are at such odds?
• In other words, why are your outside-of-the-box forward forecasts for Apple's products believable?

• But I stand by my Apple (AAPL) call.

Like back in September 2012, I am getting a lot of pushback from my Apple short these days.

Frankly, Apple is just another short to me.

I have continued to take profits under $99 (as posted) over the last few weeks.

But today, on the (disappointing) Icahn letter, I reloaded at $101.60.

Let's repeat my case for shorting Apple.

Apple's core is weak.

I stand by my Apple call.

• I made this tweet a few hours ago regarding Icahn/Apple (AAPL).

•  Where it began.

Greece is collapsing, the Iranians are getting aggressive and Rome is in disarray. Welcome back to 430 B.C. -- John Cleese 

The rundown:

• U.S. futures are bouncing all over (but are now well off their highs) after yesterday's vigorous rally. (S&P 500 futures are -5 and Nasdaq futures are -8 handles).
• Europe is higher. led by the DAX, despite very weak German trade figures released, but trading off of their highs, too. 
• Japan is -0.75% (weak machinery orders) as the yen strengthens. Within the Nikkei, consumer discretionary outperformed while tech, industrials, telecoms, energy and materials all lagged. Fast Retailing closed in the green ahead of its earnings (it reported after the Japanese close Thursday). Japan Display was hit on back of a Mitsubishi UFJ Morgan Stanley downgrade. On the upside, Tokyo Electron (keying off the Applied Materials (AMAT) rally in the U.S. on Wed.). 
• China is +0.28%. Premier Li's remarks were cited as a reason for the rally but he has made similar comments on several occasions in the recent past. Within the index, materials, telecoms, industrials and energy all outperformed, while tech, health care and staples lagged. 
• Foreign exchange action, the U.S. dollar -0.22% and the euro +0.16%. As I mentioned recently, look for some multinationals to disappoint in 3Q in the face of exchange headwinds and weakening exports.
• Gold is +$25/oz. Crude is -$0.10. Copper is +1.30%.
• The yield on the 10-year U.S. note is down another three basis points to 2.29%. Sovereign debt yields are mixed to lower.

Yesterday I traded quite actively and, in the aggregate, expanded my net short exposure. I became more aggressive later in the day.

I added to my Bon-Ton (BONT) long.

This morning, I shorted more SPY at $197.20 and QQQ at $98.80. I am putting my money where my pen is and taking advantage of yesterday's rise and this morning's early ramp (which has evaporated)! 

Global stocks are generally higher in reaction to our gains yesterday.

Consensus seems to be that the S&P is range bound (1950-1985), but consensus is often meant to be broken.

Over here, Alcoa's (AA) and PepsiCo's (PEP) results were strong and personal computers were better than expected for 3Q 2014,

The focus will be on Bullard, Tarullo, Lacker Fischer and Williams' Fed head chatter this morning in Washington.

Elsewhere on the corporate front, United Continental (UAL) issued an upside preannouncement. Tesla (TSLA) has  a product event.

There are no major U.S. economic data.

SHORT SPY IWM QQQ

LONG TBF

• Here is a terrific letter from Peter Boockvar to the saver.

Dear Saver,                                                                                                                    

To the forgotten and misunderstood soul, may you rest in peace. There just seems that nothing can save you now. You were bloody and battered after the stock market bubble crashed in 2001 and 2002. Afterward, you stuck with stocks but also decided to play it safe in real estate. That was ok for a few years but your stock portfolio fell again by 50% and while you have a great new kitchen and wood paneled library, the value of your house is now worth much less than your mortgage. I know, renting can be so much easier! But some guy named Greenspan said something about a wealth effect.

Finally you said enough is enough. You wanted a safe, conservative place for your savings where living off fixed income of mostly CD's and bonds was possible. Maybe you'd buy an occasional stock again but maybe not. You called your local branch banker and were told that for the privilege of being a Platinum Honors client that you would be able to secure a better rate on a money market savings account. Nice! You were told that you'd be able to get .10%, more than triple the standard rate of .03% that the average person gets! Disgusted, you went online and saw this great add on the Bank of America website, it said "With a Featured CD I can earn a fixed rate on my next egg." Sounds enticing until you scrolled down the page and saw it paid .08% for a fixed 12 month term. It had to be a typo but unfortunately it was not.

Questioning now how you can ever retire on your savings after working hard for the past 40 years, you decided to find out who can possibly be responsible for these pathetic yields when you know your cost of living is rising well above the 1.5-2% that these statisticians at the government keep telling you. You ask what an hedonic adjustment is? Don't worry about it because the purchasing power of your money relative to inflation has been declining day after day for at least 6 years now. This is madness you say. I agree.

You started to read the papers and watched the news and learned that the men and women that work at the Federal Reserve, mostly economists who call themselves central bankers, sit around a large table and decide what the right interest rate should be. Ok you say, they are smart, they have models created by people that likely did really well on their SAT's, they know what they're doing and this can't last. Well, I'm sorry to say to you, we're 6 years into zero interest rates and these people have no intention of ever saving your savings. You're screwed and even though they say it's in your best interest because zero rates and money printing will help the economy, don't believe them anymore because the strategy has failed. After all, If these policies actually worked, I wouldn't be writing this letter to you.

I wish I had good advice for your savings but I can't advise buying stocks that have only been more expensive in 2000 on some key metrics right before you know what and I can't recommend buying any long term bond as the yields also stink relative to inflation. With the Fed now saying that the dollars in your pocket are now worth too much relative to money in people's pockets overseas and thus joining the global FX war maybe you should buy some gold but I know that yields nothing either. You are the sacrificial lamb in this grand experiment conducted by the unelected officials working at some building name Eccles who seem to have little faith in the ability of the US economy to thrive on its own as it did for most of its 238 years of existence. Borrowers and debt are their only friends. To you responsible saver that worked hard your whole life, may you again rest in peace.

Sincerely yours,

Peter Boockvar        

• At worst, a bear market may be emerging.

Share prices have obviously benefited from massive liquidity and a zero interest-rate policy. The recent high-beta earthquake in which stocks sold off was probably the first shot across the bow. Increasingly, the market seems to be realizing that each progressive quantitative easing is having a more restrained impact on growth. With rates at zero, QE [quantitative easing] has become a blunt tool. The Federal Reserve has built a bridge to growth, but it can't deliver the destination on its own. And the flattening of the yield curve tells a story of slowing growth. There is about a 230 basis point [2.3 percentage points] spread between two- and 10-year Treasuries, compared with almost 270 bps at the end of last year. That's signaling muted economic growth. If growth fails to emerge in the months ahead, we'll see an ah-ha moment in which investors, to quote the singer Peggy Lee, say, 'Is that all there is?'

--Doug Kass, "Preparing for the Bear's Return," Barron's (April, 2014) 

Last evening's closing column contained the following warnings:

While I have an overall cautious view of the market there is nothing definitive to say about yesterday's schmeissing and today's vigorous rally. 

Was Tuesday a 'one-day wonder?' Or was today a 'one-day wonder?'

Hard to say, though Jim 'El Capitan' Cramer ends his blog today with some observations on the subject.

As I have continually written, the only certainty is the lack of certainty.

Those that are certain of view (in either direction), and don't qualify those views, should be avoided like the plague.

The market is acting more volatile than the underlying fundamentaIs and it is starting to overreact to news (like today's not unexpected FOMC [Federal Open Market Committee] minutes). I remain of the view that this sort of volatility and uncertainty -- in a market that has no memory from day to day -- is not a particularly healthy backdrop to invest in.

And, as a friend (who is a lot smarter and richer than I am) remarked near the close: Historically, slowing global economic growth and rising equity markets are not a positive combination.

Stated simply.

In Tuesday's opening missive, "Throwing Down the Bear Market Gauntlet," I summarized an outline of my market concerns:

I have long worried about the bull market in complacency that has seems to have fermented with the sharp rise in valuations in 2013 (in which the S&P rose by more than 30% while earnings climbed by only about 8%).  

I see many peaks to consider. 

Since early August I have highlighted numerous technical divergences (in the weakness of the Russell Index, new highs, the cumulative advance/decline lines, etc.), the schmeissing of the high-yield market (often seen as a precursor to stock vulnerability) coupled with growing evidence of weakening global economic growth (posing a threat to consensus corporate profit forecasts) and other factors (including valuation, sentiment and geopolitics) suggesting that a downwards trend and (potential) bear market might be in the early state of developing.

History also shows that rising volatility in foreign exchange markets may be consistent with bear markets. (A good analysis by Nautilus Research can be found here.) 

Economic weakness in Europe has been a worrisome factor that I have steadily highlighted. As I have noted, the EU (and its banking system) face structural headwinds that are not being adequately addressed. 

The ECB, though impacting the euro and pushing European sovereign debt yields lower, doesn't have the hold on its equity markets that the Fed has had. Yesterday, Europe's strongest economy, Germany, reported weak August factory orders. Today, German industrial production dropped by an outsized 4% (compared with consensus of -1.5%). As a result, the German DAX is trading at its lowest level since mid- August, below where the index sold after the September interest rate cuts and 8% below where stocks sold before the June ECB [European Central Bank] meeting when Draghi took out the heavy monetary artillery. 

Over here, the domestic economy recovery (though subpar compared with prior trajectories) has been the recipient of unprecedented monetary largesse that has already begun to lose its effectiveness. The tailwind of QE is about to reverse as the Federal Reserve begins to consider raising the fed funds rate for the first time since June 2006. In doing so, our addiction to low interest rates (in both the public and private sectors) runs the risk of being exposed in 2015.

The advance in the S&P is also growing long in the tooth (having nearly tripled since The Generational Bottom in March 2009).

Finally, the average company's share price has been eroding for several months, even in the face of the senior indices being close to their all- time highs. 

Though federal funds haven't been raised since June 2006, investors continue to act like Pavlov's dogs, responding to the slightest changes in Fed verbiage -- even as, at the core, the comments referenced bad economic news. Buyers also failed to focus on this hawkish passage of the minutes: "A few members, however, expressed reservations about continuing to characterize the extent of underutilization of labor resources as significant."

One partial explanation of this behavior (and of Wednesday's market reversal) is the increased role of high-frequency-trading (HFT) price-momentum-based strategies, whose algorithms trigger to the word "dovish."

Algos react without analysis, so stocks again rallied vigorously Wednesday after the release of the FOMC minutes, seemingly based upon the notion that the Fed is slightly more dovish. 

The FOMC minutes, released yesterday afternoon, confirmed my global economic concerns, the risks to domestic sales and profits associated with a rising U.S. Dollar (a form of tightening) and, most important, the growing limitations and reduced impact of an aggressive easing in monetary policy. 

Upon reading further, the FOMC minutes actually dismissed the dovish spin that provoked a rapid and substantial spike in stock prices yesterday: 

Lastly and in one of the more interesting sentences of the minutes, the Fed is implicitly acknowledging that with rates already at zero and a $4.5T balance sheet almost 6x bigger than in 2007, they said "the risks to the forecast for real GDP growth were still seen as tilted a little to the downside, as neither monetary policy nor fiscal policy was viewed as well positioned to help the economy withstand adverse shocks." The underline is mine. Another way of saying this is the Fed is out of bullets to deal with any lean downward in economic growth from here.

--Peter Boockvar, October 8 Commentary

As I mentioned in my Barron's interview five months ago, I believe an "Aha Moment" -- a moment of sudden realization and insight -- is growing closer by the day, as the Fed is out of bullets. So it might be written that the central bankers outside the U.S. -- who face structural, not necessarily cyclical headwinds -- are also out of bullets.

Insane in da membrane

(Insane in da brain)

Insane in da membrane

(Insane in da brain)

Insane in da membrane

(Crazy insane, got no brain)

Insane in da membrane

(Insane in da brain)

--Cypress Hill, "Insane in the Membrane"

The market's volatility is insane in the membrane. Volatility is expanding, and we are seeing an unhealthy randomness in overall price behavior, all in a market that has no memory from day to day. It is nearly certain that daily triple-digit changes in the Dow Jones Industrial Average are not the sort of stock-market backdrop that emboldens the average retail investor.

As I wrote earlier, market breadth eroded and leadership has narrowed. Though the major market indices are within 2% of their all-time highs, the average stock is down much more than that.

With the normal caveat that the only certainty is the lack of certainty -- It is my view that, at best, the market's reward-risk ratio is unattractive.

At worst, a bear market might be emerging.