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

Enjoy the evening!

In today's session I added to my bank longs and to Macy's (M).

I also took a small trading long rental in Wal-Mart (WMT).

My thoughts about 30 minutes before the closing bell:

• A newsy day, mostly of a geopolitical kind.
• Currently, markets near the lows -- S&P 500 down a tad after being up by more than 10 handles. But, little net change on the day.
• I continue to expect a lot of volatility ahead.
• Breadth is poor (see my post on Bob Farrell's No. 7 Rule of Investing). 
• The U.S. dollar continues to strengthen, taking a toll on the consumer nondurable sector.
• Bonds reversed the early weakness and are up in price on the day, and down in yield.
• Municipal bonds are bid for, but junk is junky. Poor receptivity for high-yield new offerings and there appears to be -- according to desks I speak to -- sell orders above the market. Blackstone/GSO Strategic Credit Fund (BGB) is flattish. Closed-end municipal bond funds are lower (I continue to pare back this group).
• Bank stocks at their lows, reversing some early strength.
• Oil is stinking up the joint (slighlty higher than $40 a barrel and down 2.5% on the day) and the energy group is suffering. Exxon Mobil (XOM), my short "Trade of the Week," is down a beaner in today's session. Energy stocks have been lower in eight of the last trading sessions.
• Biowreck is better (up 1%), but no thanks to Valeant Pharmaceuticals (VRX), which got a large price target downgrade from Morgan Stanley this morning (from $200 to $98).
• Old tech giving up some of Monday's gains.
• NOSH -- Nike (NKE), O'Reilly (ORYL), Starbucks (SBUX) and Home Depot (HD) -- is lower, save HD, which is up $4.60 on terrific earnings.
• (T)FANG -- Tesla (TSLA), Facebook (FB), Amazon (AMZN), Netflix (NFLX) and Google, now Alphabet (GOOGL) -- is mixed, with AMZN and GOOG trading lower.
• My pal, Thomas Lee (Fundstrat), reaffirmed his 2300+ S&P close for year-end. (Note: I have bet with him that he is wrong!)

I raised my short profile to medium in size during this morning's ramp.

Most shouldn't be short, but should consider above-average cash positions in these uncertain times.

From the Brookings Insittute -- a look at the countries from which ISIS supporters are tweeting.

"Bob Farrell's Rule No. 7: Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chip names."

-- Bob Farrell Sr., 10 Rules for Investing

Before you chase the last two days' price momentum, consider my comments in this post earlier this afternoon:

Narrowing leadership and breadth remain the market's potential Achilles' heels.

For example, Zero Hedge reports that while the Nasdaq Composite has ripped higher by nearly 14% over the past month, the exchange has seen 180 new lows vs. just 20 new highs.

Historically, that type of disparity has often marked an important market top.

-- Doug's Daily Diary, Stat of the Day (Nov. 17, 2015)

A constant theme of mine this year has been to watch for narrowing market breadth and leadership. From a technical standpoint, these two factors had me issuing warnings at both the market's May peak and the rebounds that followed August and September's pullbacks.

Legendary technical analyst Bob Farrell captured the concept of following market breadth eloquently in his famous 10 Rules for Investing (above).

Breadth is important. A rally on narrow breadth indicates limited participation and above-average odds of failure.

The market can't continue to rally with just a few "generals" (large-caps) leading the charge. The "troops" (small- and mid-caps) must also be on board to give a rally credibility. A rally that lifts all boats indicates far-reaching strength and increases the chances of further gains.

Frankly, it's a good time to re-read all of Bob's rules (it always is). Click here to check them out. (Hat tip to my pal Barry Ritholtz.)

Financials are outperforming the market today, one day after I added to my bank exposure as several stocks moved into my target buying range.

My latest thoughts on the sector:

• The first day of conference day at Bank of America (BAC) is relatively quiet so far, with no major headlines or breakthroughs thus far.

• Regions Financial (RF) is leading the regional banks, trading higher in front of Thursday's analyst day.

• Online brokers and trust banks are strong, with higher than 1% gains on the day.

• Credit-card stocks American Express (AXP), Capital One Financial (COF) and Discover Financial Services (DFS) are all lower. Perhaps investors are selling to fund purchases of consumer-finance giant Sychrony Financial (SYF), which General Electric (GE) is spinning off.

• The institutional-trading desks I speak to are about 1.5x better to buy than sell. However, volumes are well below their 10-day average (by more than 20%).

With today's additional short sales, I've now moved to a medium-sized net short exposure.

Narrowing leadership and breadth remain the market's potential Achilles' heel.

For example, Zero Hedge reports that while the Nasdaq Composite has ripped higher by nearly 14% over the past month, the exchange has seen 180 new lows vs. just 20 new highs.

Historically, that type of disparity has often marked an important market top.

Midday musings from Sir Arthur Cashin:

"Crude continues to play orchestra conductor to the stock market.

Traders begin to shift attention to today's close, which will see a variety of reweightings. A key focus will be General Electric (GE), thanks to the Syncrony spinoff. Some estimates are that the GE shuffle could involve several tens of million shares."

Morning musings from Sir Arthur Cashin:

"The market continues to respond to the shifts in crude.

When crude moved to the morning lows, it reversed the equity rally -- sending stocks to their lows.

Now, crude cuts losses in half and stocks rally."

I'm continuing to pare back my exposure to closed-end municipal-bond funds.

I added to my stake in the ProShares UltraShort S&P 500 ETF (SDS) in the first few minutes of trading this morning, moving from a small net portfolio short exposure to somewhere between a small- and medium-sized position. (But unlike Larry Kudlow, I never belonged to the Students for a Democratic Society.)

As I expressed in the first segment of yesterday's three-part opener, I don't think terrorism will sink the markets -- but I do think technicals might!

Peter Boockvar parses this morning's industrial-production data and Consumer Price Index and explains why he's aghast that the Federal Reserve thinks inflation is too low:

October U.S. industrial production fell 0.2% m/o/m vs expectations of +0.1%, but the internals were mixed. Manufacturing rose 0.4% m/o/m -- twice expectations -- driven by production of machinery and cars/auto parts (up 0.7% m/o/m and 10.9% y/o/y). Computer/electronics production likewise rose 0.1%.

But the drag on the headline figure was a 2.5% drop in utility output, which was clearly due to October's mild weather. Mining production also fell for a second month and is down 6.9% y/o/y for obvious reasons.

The bottom line: Manufacturing production rebounded after declines in the two prior months as autos continue to be a strength (as we also saw in the elevated inventory levels of last week's business-inventory data). But on a y/o/y basis, manufacturing production is only up 1.9% -- and just 1.2% when taking out the auto industry.

Stocks rarely respond much to the IP number. As for bonds, just as the stock market yesterday got back Friday's selloff, Treasury yields are doing the same. The 10-year yield is back to 2.30% and the two-year is at 0.88% after touching 0.83% early yesterday. The fed-funds futures market is showing a 68% chance of a December Federal Reserve rate hike.

Meanwhile, the October CPI rose 0.2% m/o/m in both the headline and core rate, as expected. The y/o/y gains were 0.2% and 1.9%, respectively. That core rate of gain matches the most since May 2014, as services inflation ex energy rose 0.3% m/o/m for the second straight month and 2.8% y/o/y.

Shelter costs drove services inflation again, as OER rose 3.1% y/o/y and rent of a primary residence was up by 3.7% y/o/y. Medical care spiked 0.7% m/o/m and is now up 3% y/o/y. Commodity prices -- 37% of CPI -- were flat m/o/m and down 3.4% y/o/y. Apparel prices fell for a second month and are down 1.9% y/o/y. New- and used-car prices were both down as well.

Energy was down by 17.1% y/o/y, and that rate of change will slip to zero next year. However, food prices were up by 1.6% y/o/y.

The bottom line: Commodity deflation and services inflation remain the story. All we need to see a jump in headline inflation during 2016 is for energy prices to stop going down on a y/o/y basis.

I'll say it again -- the inflation/deflation debate isn't black or white and its effects aren't uniform. If you rent a place in a big city and don't drive a car, the rising cost of living is a problem. But it's not that bad for those who own suburban homes and drive to work. I truly find it ridiculous that we have Fed members who worry that inflation is too low.

I've included two charts for those who only look at inflation's rate of change rather than the CPI's absolute level. This one is for headline CPI:

Source: Bloomberg 

And this one is for the core rate over the past 20 years. Inflation (rather than deflation) is really the only thing that we've seen:

Source: Bloomberg

Industrial-production figures came in weaker than expected this morning at -0.2% vs. a +0.1% consensus.

This continues an extended streak of weak output that's followed the strengthening U.S. dollar.

Bonds were down before the IP report, with the 10-year Treasury yield up to 2.30%. But bonds haven't budged since the data's release.

Some spicy Sir Mark Grant commentary this morning:

"'S&P 500 earnings are on track to close their first reporting season of negative growth since the Great Recession, and estimates call for sub-zero growth in the current quarter as well.'

-- Reuters (Nov. 15, 2015)

I keep telling you that the correct strategy is return on capital and not trying to grow your capital through appreciation. There has been no growth to date this year in either Treasuries or the Dow industrials. Owning an index fund this year got you nothing. Owning the 10-year Treasury has gotten you the coupon and a minor loss, as we began the year at 2.17%.

Closed-end municipal and taxable-municipal bond funds have gotten you somewhere. These funds pay monthly, so you get a rapid compounding of interest. But you have to know which ones to buy, and I have given a good amount of institutional investors the ones that I like.

Here is a sweet spot in an otherwise uninspiring market: BBB- and A-rated munis and taxable munis have gotten you somewhere. The default rate is miniscule compared to corporates, and those knowledgeable enough to do so can take advantage of that. There are decent yields in these spaces if only you look around in the secondary markets. It requires a little work, and your portfolio managers will have to do something besides going to meetings -- but then, the wake-up call might be good for them.

The S&P 500's trailing 12-month earnings per share for 2015 have continued to fall from the levels that Standard & Poor's projected in August they would be at. In fact, what they forecast in February and May of this year (not to mention November 2014) have mirrored the International Monetary Fund for optimism. Always optimistic, and almost always wrong -- shocking, shocking I know.

Many pension funds got hammered this year as their tried-and-true formula turned out to be not so 'true' after all. Their large asset allocation to equities, which had bailed them out since the 2008-2009 debacle, did not perform. You can expect massive switches in asset-allocation models at the end of 2015 as a result. Pension funds will be singing at the end of the year, but it will be the blues that will get sung.

The U.S. dollar is at 1.0665 this morning and heading to parity with the euro, as I have said all year. This is a tremendous negative for American corporate earnings. While nodded at by some, I don't think most institutions realize the full impact of what this means. The Europeans should be rejoicing. If the Fed raise rates in December (which is now my expectation), that will make things worse for U.S. corporations. But no matter, the Fed wants to get on with their show. There's no business like show business.

Of course, any more serious acts of terrorism might just derail the Fed. Probably not, but something sinister in Berlin or Vienna or Rome could stop the grand gala. How the Fed expects to get to normalcy in a world defined by the central banks -- a world I call 'Wonderland' -- is an open question. Because regardless of what the Fed actually does, there is no normalcy to be found in our current environment.

'Everything was perfectly healthy and normal here in Denial Land.'

-- Jim Butcher, Cold Days

The mere fact that the equity markets rallied on a major act of terrorism tells you conclusively that there's no 'normal' anywhere close to us. The People's Bank of China, the European Central Bank and the Bank of Japan are heading off in their own directions, but the Fed is now going to head in the opposite direction. Which will help all of those countries and harm America.

That is normal, of course -- a country's own central bank acting in ways to injure the nation that it represents. A great amount of normality here only if ECB chief Mario Draghi is paying their salaries. Maybe we should audit the Fed so we can find out.

I am being just a touch sarcastic, of course. However, I do honestly wonder what these people are thinking. Perhaps it's the fact that almost all of the Fed presidents and governors are academics and are living in places where the cow jumps over the moon. That must be it -- they're living a fairy-tale existence!

The problem is that we've been dragged into this fairy tale with them. Well, 'Jack be nimble and Jack be quick' -- because if you don't change your current strategies, you're going to get burned by Jack's candlestick.

The Fed wants to return to tuna salad on white bread, PTA meetings in Topeka and corn dogs at the state fair, but I'm telling you: We ain't gonna get there!"

Peter Boockvar writes about an oversold bound, the ZEW investor-confidence survey and the European Central Bank this morning: 

"If it seemed unusual to have such a big stock-market rally yesterday in the first trading day after a major terrorist attack, it did come in the context of an oversold market. The S&P 500's seven-day RSI hit 23 at Friday's close, the same level it touched on Sept. 28 -- right before the rally that followed.

Asia and Europe certainly took their cues today from Wall Street's rally yesterday. In fact, the copper market seems to be the only place that's worried about global growth. Copper is falling for the ninth day in the past 10 to its lowest level since May 2009. The copper industry is going to need even more production cuts.

Germany's November ZEW investor-confidence survey showed that sentiment about the coming six months rose to 10.4. That was above the 6.0 estimate and almost gets back a steep drop seen in October. For perspective, the figure has averaged 32.9 this year and touched 54.8 back in March just as the ECB Quantitative Easing program was about to ramp.

The survey's current-conditions component was little changed at 54.4 vs. 55.2 last month -- but that's still the lowest read since February. ZEW said 'the currently high level of consumption in Germany, the recent decline in the external value of the euro, and the ongoing recovery in the United States are likely to bolster the robust development of the German economy.' The euro is little changed in response, as are bund yields.

Another ECB member seems to be laying the groundwork for more easing. Executive Board member Peter Praet said: 'It's key for a central bank to keep inflation expectations anchored, especially in a period of slack in the economy, and we have some signals that these inflation expectations are fragile. There are risks, and this is why we're considering further action.'

The Eurozone's core inflation rate printed at 1.1% y/o/y yesterday, the highest in more than two years. Thus, ECB chief Mario Draghi and his followers aren't following the data, instead making up excuses for more action because they seem to be losing patience. They still have 10 more months of money printing ahead of them on just the current QE program, but a -0.20% deposit rate doesn't seem low enough for them.

The ECB's Benoit Coeure yesterday said the central bank 'doesn't see overvalued asset prices' and sees 'little bubbles' in some markets. I guess he doesn't look at the insanity of negative yields as bubble like, particularly a German two-year yield at -0.38%.

U.K. October inflation is following a similar path to that reported by the Eurozone yesterday. Headline U.K. CPI fell 0.1% y/o/y, unchanged from September and in line with expectations. The core rate rose one-tenth to 1.1% but has held pretty steady this year, as the year-to-date monthly average is +1%. The pound is little changed, but gilt yields are higher, as the core rate was one-tenth more than expected.

What Draghi, the Bank of England's Mark Carney and the Federal Reserve's Janet Yellen face next year is the anniversary of oil prices' drop, as y/o/y declines will start to flatten out as early as January. That means headline inflation will start ticking higher just on a rate-of-change basis. And if core inflation remains sticky, we could see 2%-ish headline inflation next year in the Eurozone, Britain and America.

New Dallas Fed President Rob Kaplan gives his first speech of significance today, so hopefully we'll get a sense of where he stands. Fed members Jerome Powell and Daniel Tarullo also speak today."

This morning's earnings reports among retailers:

• Home Depot (HD) delivered excellent results.

• Wal-Mart (WMT) met markedly reduced expectations.

• Dick's Sporting Goods (DKS) disappointed in a sizable way.

It's increasingly clear that consumers are targeting their spending toward home improvement, smart phones and other electronic devices and autos (thanks to liberal financing opportunities) to the detriment of apparel and general merchandise.

But look at the potential dark side to that trend. What happens if or when the rate of home-price appreciation slows down, the smart-phone business gets saturated and/or car-loan delinquencies rise?

I've added to my short of the SPDR S&P 500 (SPY) in premarket trading this morning at $206.53.

My net short exposure is now small-sized, and I intend to move to medium-sized on strength.

Here are some important reads to check out this morning:

• Monetary Policy and the Euro Area Problem (speech by European Central Bank Vice Chair Vitor Constancio), ECB Web site (Nov. 16, 2015)

• ECB weekly schedule of speeches, ECB Web site (Nov. 13, 2015)

• Quiet U.S. Ports Strike Slowdown Fears, The Wall Street Journal (Nov. 15, 2015) 

• Auto-Loan Debt Tops $1 Trillion, ABC 7 News Chicago (Nov. 16, 2015)

• A Bad Year for Earnings, The Wall Street Journal (Nov. 16, 2015)

• Debt-Market Distortions Go Global as Nothing Makes Sense Any More, Bloomberg (Nov. 15, 2015)

• 'Abenomics' Architect Predicts No More Bank of Japan Easing This Year, Reuters (Nov. 16, 2015)

• G20 Leaders Pledge to Cut Off Financing to Curb IS Terrorism, Deutsche Welle(Nov. 17, 2015)

• Turkey Warned France Twice About Paris Attacker, Senior Official Says, Mashable (Nov. 16, 2015)