Here is the (excellent) breadth, biggest movers and heat map at the close:

Market Breadth

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Biggest Movers

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Heat Map

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Great day on the long side! I did cut back a bit around the core...

Astonishingly, a number of my shorts (including (FIGS) , (DWAC) , (BLI) and (SNBR) ) closed down on the day!

I have two research calls at 4:30 p.m. and 5:30 p.m. and then a business dinner! (After not sleeping because of my doxie's health issue -- all night -- it will be a challenge staying awake!)

Thanks for reading my Diary.

Enjoy the evening.

Be safe.

None

I agree with Toddo's tweet below.

My core tenets in shorting:

* Avoid high interest shorts -- as measured against daily average volume and percentage of the float.

* Avoid high multiple concept shorts.

* When shorting high-beta stocks, reduce the size (and VAR) of the short position.

* Short understandable companies that sell widgets (I often use that term as did Todd below) and whose intermediate-term prospects are weaker and whose business models are less attractive than the consensus assumes.

From TC:

$2.7 billion to buy market on close.

Today I cut back a bit on my long exposure in light of the failure of bonds to improve in price and decline in yield. 

Unfortunately, to this observer, a 4.5% risk free rate of return caps the upside to equities.

Tomorrow I will deliver a market update -- bright and early!

The Meta (META) , Amazon (AMZN) , Alphabet (GOOGL) and Microsoft (MSFT) complex is doing great today.

I am selling some out of the money calls against my Hilton (HLT) long - to lock in a nice gain.

Break in! 

Senator Corey Booker (D-NJ) on the prospects for cannabis reform.

This could be an important catalyst for cannabis stocks.

Friday was a -87% down day.

Today not so much in the market without memory from day to day, or sometimes hour to hour:

Today's bounce is a combination of sigh of relief in Europe, particularly Britain, bringing yields lower there and assisting yields to move lower here. That is helping the bulls make use of this heavily oversold market. They are also benefitting from some commentary.

Mike Wilson, from Morgan Stanley, who has been quite the bear observer throughout the year, talking about a tradeable bounce and the very astute Katie Stockton saying that the bounce could last potentially several weeks if things go right. So that has helped the equity bulls to keep this thing going.

We continue to watch if resistance develops in that 3700/3750 area in the S&P. Clearly, yields are the key compass for all of this. So, having been above 4% on the ten-year, they are enjoying the relative area of seeing the ten-year down around 3.95%. In the unlikely event it goes back up above 4%, that will clearly begin to cut the legs out from under the bulls move.

Let's see how long this bear market bounce has an extended shelf life and we will keep an eye on potential black swans and see if there is any reaction in London that is not expected or even some concern building up in China and the very illiquid trading the Japanese bond market.

To repeat - it is the oversold, greatly aided by the sigh of relief in the British market and some update commentary from some of the savvy technical observers.

Let's see if the European close at 11:30 has any impact on the market.

Stay safe.

Arthur

Could Pot Be Decriminalized Before Biden Leaves Office?

In looking at the market internals at 10:35 am, one could say that volume is a bit disappointing this morning:

- NYSE volume 173M shares, about in line with its three-month average

- NASDAQ volume 1.13B shares, 10% below its three-month average

- VIX index -2.9% at 31.06

Breadth

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Big Movers - with very average volume

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Heat Map

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I reshorted the (QQQ) calls that I covered on Friday's weakness near the close that was discussed in the Futures post. Those were for November and January expirations. 

I also sold some of the (SPY) that I purchased late Friday afternoon at good prices ( $366.40-$367.00) and sold some more SPY $366 calls (November monthlies).

From Wolf Street, here.

From Peter:

The October NY manufacturing index, the 1st October industrial figure to be released, fell to -9.1 from -1.5 and that was below the estimate of -4.3. It's also the 3rd straight month below zero and the 5th month in the past six. New orders were unchanged at 3.7 while backlogs were under zero for a 5th straight month, though a touch less so.

Inventories moderated but are still above zero at 4.6. Employment fell 2 pts but after rising by a similar amount in September. The workweek got back above zero. Delivery Time was basically flat at -.9. Prices paid rebounded by 9 pts after falling by 16 pts last month while those received fell .7 pts to the least since January 2021.

The six month outlook fell back below zero at -1.8 and that's the 2nd time in the past four months. Capital spending plans improved but not for technology as it fell after rising in September.

Bottom line, we know that manufacturers are dealing with the hangover from the goods spending party over the past few years, the economic slowdown overseas and the competitive pressure from the strength in the dollar. While supply constraints have definitely eased as have commodity prices, they are still well above previous years and still remain a cost and procurement challenge, as does managing one's labor force.

NY Mfr'g

Prices Received

The Six Month Outlook

And it's wrecking havoc with momentum-based trading strategies.

Somewhat like George Washington and his colonial compatriots, the Wall Street equity bulls thought they had achieved a major turnaround and reversal. In the case of Washington and the colonists, it was, obviously, the Battle of Saratoga. In the case of the Wall Street bulls, it was Thursday's somewhat massive outside reversal. It was not until about three years later, in the case of Washington, that he discovered through the treachery of Benedict Arnold that Saratoga was not quite the unalloyed victory that many had thought.

Well, it did not take three years for the Wall Street equity bulls to see that they did not have quite the reversal they thought in Thursday's action. Early on in the day, things began to fade and the follow-through to Thursday had a shelf life that was almost non-existent. We noted some of that in this late morning update:

Late Morning Update 10.14.22 - The opening bell extension of yesterday's reversal rally had begun to sputter. Part of that is because of the governmental changes and reassignments in Britain have not produced any clear cut sigh of relief rally. The market is unsure that problem is over and wonder if it will begin to resurface next week after the Bank of England leaves the playing field. Esther George of the Fed says that inflation continues to be a problem and that too is providing a small sense of anxiety on yields that had begun to move down, but after her comment, the yield on the ten-year ticked up off the lows.

So, what the bulls need to be very careful of is not to allow the market to weaken enough to wipe out yesterday's gains. So, let's see if they can hold their own here on Friday and that will keep things better, but keep your eye on yields and keep your eye on Britain as they move toward the close at about 11:30 EDT. Stay safe and have a great weekend.

The yields, as we had suggested, continued to be a major factor during the day as did the fact that things did not turn out to be as successful in Britain as the market had assumed. The day wore on and even after the close in London, the British currency and bond market looked a little shaky. You might have thought that could lead to a bit of a flight to safety, but it did not, as there were concerns of other international factors that would keep the Fed over a barrel, so to speak and that continued.

Somewhat later in the session, as prices were slipping further, my longtime friend, Ron Insana, told me and several hundred thousand CNBC viewers that there were signs of real trouble developing in the other markets, most particularly in the Japanese bond market, which had not had trades in the ten-year in several days. Another old time friend from CNBC, Rick Santelli, was kind enough to confirm that and, the always on the spot Rick, pointed out to me that liquidity in the Japanese bond market had been eroding over the course of a year and that the trading grew lighter and lighter as in order to protect its currency even though it had to keep yields down.

The Bank of Japan was buying up an uncomfortable amount of its own government bonds. In fact, there are current estimates that the BOJ may own as much as 70% of their ten year bond and that is why it trades by appointment and, as Rick noted, somewhat even more rarely. That is true of a variety of other foreign markets. So, this concern about potentially systemic challenges around the world is beginning to grow.

That reminded me of another friend, John Mauldin, who in this week's letter revisited the hypothesis about "sandpiles". As most of you may recall, scientists, for over a decade, have been studying the instability of sandpiles. You can build a pile, sometimes to amazing levels, but the sudden movement of one little pebble of sand, can bring the whole thing crashing down and that gets back to Hyman Minsky's theories of instability and crashes.
__________ 

At any rate, the combination of old friends reminded us that there are more than a few unstable markets around the world and that is going to be a problem for the Fed and particularly those of us market players who have to keep watching things. That brings us to look at some of those markets and what they did over the weekend and overnight. Overnight, equity markets around the world are a little bit bipolar. Asian markets are generally lower. Japan is down with continuing anxiety about the shrinking liquidity we are seeing there, plus some signs that the government policy may be getting a review.

In China and Hong Kong markets are lower. President Xi gave a speech before his assumed re-appointment as Supreme Leader. The speech was somewhat briefer than five years ago, which was over four hours. This one was a little under two hours, but he seemed to reassert the Covid shutdown policy would continue, and the markets had hoped otherwise.

Also, the Asian markets, including India and Australia were all closed before the new British Prime Minister and her newly appointed Chancellor of the Exchequer announced a complete revision of their previous tax plans. That allowed the pound to rise smartly and brought the yield on the ten-year British bond down smartly and that has put a bid under London certainly and to a lesser degree, under equity markets in the European Union. The upbeat nature of the sigh of relief in Europe has put a bid under U.S. equity markets and, as dawn hits Central Park, the Dow futures look like they would be up about 300 points or so.

We will continue to watch the various overseas markets from British gilts to the scarcely traded Japanese bonds. If you are wondering why we look at black swans in all of these somewhat arcane places, please recall in 1997 when the late-Mark Haines, anchoring Squawkbox, heard one of his reporters remark on the default of the Thai Bhat, and said - who the hell cares about the Thai Bhat. Within 24- hours, he learned that everybody cared because many of bonds and hedge funds have some very convoluted positions that depend on things like Russian bonds and Thai Bhat's.

So, we need to keep our eye offshore as much as here. Today's economic calendar is virtually non-existent. We get New York Fed data at 8:30. No scheduled Fed speakers. No scheduled Treasury auctions. So, we may see the markets face interaction on a couple of things such as internal technicals and things happening offshore. With geopolitical in the forefront, you know the drill.

Stay close to the newsticker. Keep your seatbelt tightly fastened. Stay nimble, alert and lets see if the S&P can make it back up above Friday's intraday highs (circa 3715/3725) and that will be a key help technically. Right now they are in limbo. Stay safe.

Upside

- (INPX) +59% (momentum following recent purchase orders of industrial IoT solutions)
- (LFG) +50% (to be acquired by BP for $26.00/shr valued at EV $4.1B)
- (MGNX) +35% (announce oncology collaboration with Gilead to develop bispecific antibodies)
- (MIST) +32% (Etripamil Nasal Spray Phase 3 RAPID clinical trial in patients with paroxysmal supraventricular tachycardia met primary endpoint)
- (SPLK) +10% (Activist investor Starboard Value LP said to have a stake just under 5%)
- (BDSX) +9.7% (awarded US federal supply schedule contract for its comprehensive lung cancer diagnostic testing solutions)
- (CLR) +8.3% (to be acquired by the Hamm Family at $74.25/shr in all-cash merger)
- (BBLN) +8.1% (files to sell 145.9M shares at $0.42/shr in private placement)
- (BK) +4.4% (earnings)
- (NWSA) +3.0% (confirms formation of special committee to begin exploring a potential combination with Fox Corporation)
- (BAC) +2.9% (earnings)
- (ATHA) +2.2% (advances Phase 2/3 LIFT-AD clinical study of fosgonimeton in mild-to-moderate Alzheimer's patients following independent, unblinded interim analysis)
- (BP) +2.1% (acquiring LFG for $26/shr in deal valued at EV $4.1B; confirms medium-term capex)
- (RLMD) +1.8% (Point72 Asset Management, L.P. discloses passive 7.3% stake)

Downside

- (FOXA) -5.6% (NWSA confirms formation of special committee to begin exploring a potential combination with Fox Corporation; Credit Suisse, Loop Capital downgrades)
- (CLVS) -2.8% (highlights updated LuMIERE phase 1 data of targeted radiotherapy candidate FAP-2286 at the 35th Annual EANM Congress)
- (HIMS) -1.7% (Piper/Sandler Cuts HIMS to Neutral from Overweight, price target: $6)

Some important observations by my buddy/pal/friend Peter:

Gilt yields are falling sharply again as the new Chancellor of the Exchequer outlines his new plan today which is basically just a backtrack of the old one. If one of the sacrifices is that the corporate income tax rate will rise to 25% next yr from 19%, I'd like to hear why that's a good idea. The 10 yr yield is down by 35 bps to just under 4% at 3.99%, a two week low. The 30 yr yield is down by 38 bps to 4.41%, back to where it was on Oct 7th.

The pounds is stronger, as are most currencies against the US dollar today, as the BoE confirmed that bond purchases have ended and they said they will resume the sale of corporate bonds next week that they hold. They will do this via auction and will list the bonds for sale this Friday. Also, on the sign that just maybe the pension fund LDI situation has been derisked, European bonds across the board are rallying and in turn lifting US Treasuries.

I do though need to point out that in Japan, the 40 yr JGB yield hit a fresh 8 yr high overnight at 1.74%. How the BoJ handles things from here is still a story that needs to be told and the yen is one of the few currencies weaker against the dollar today.

40 yr JGB Yield

I looked thru some of the earnings transcripts of the big banks to see what they said about the deposit situation I've been highlighting. JPM said "with spending growth faster than income, we are seeing a continued decrease in median deposits year on year, particularly in the lower income segment. And not surprisingly, small business owners are increasingly focused on the risks and the economic outlook." Wells Fargo said "Average deposits declined 3% from both the year ago and the second quarter, with declines across our deposit gathering businesses.

Compared with the second quarter, Wealth and Investment Management had the largest decline by dollar amount as clients looked for higher-yielding alternatives. Declines in our commercial businesses were driven mostly by outflows of non-operational deposits, which can be more price sensitive and are a less stable source of funding." Citi said "And average deposits were down approximately 2%, largely driven by declines in legacy franchises and the impact of FX translation, partially offset by the issuance of institutional CDs as we continue to diversify the funding profile of the bank."

I did not see any comments on how banks plan to raise the rates they will pay on deposits (likely for competitive purposes) in order to better compete with money market funds. Maybe for now they don't mind losing some deposits as they got so many over the past few years but I'm bringing this all up because it is a direct influence on the bank reserves held at the Fed and in turn QT and also will impact bank lending.

Over the past year, bank reserves held at the Fed have fallen by $1.1 Trillion and $700b of it just from March when the Fed started hiking rates and ended QE. If the drop continues at this pace, it will be unlikely the Fed is able to get away with as much QT as they hope.

Bank Reserves held at the Fed

Reflecting the continued global slowdown, particularly with the purchases of goods, Singapore said its non-oil exports in September fell by 4% m/o/m, well worse than the forecast of up .4%. They are still up 3.1% y/o/y but down from 11.4% higher seen in August. Electronic exports in particular dropped by 10.6% y/o/y. Geographically, exports to China plunged by 34% y/o/y. Asian stock markets were mixed overnight and the Straits index weaker by .8% but is down just 3.5% ytd.

I had a sick dog all last night (again!) so I will be holding back my market update until tomorrow morning.

I have also recently highlighted weak investor sentiment: 

More from Morgan Stanley's Wilson on a possible market rally:

These charts are important. 

I have argued recently in my Daily Diary and in my latest interview on Bloomberg Surveillance (with Tom Keene and Paul Sweeney) that rent and home prices, which are lagging indicators that created a stir in the hot CPI release, will fall more rapidly than the consensus expects:

US HOUSING DATA

US FINANCIAL CONDITIONS vs. 30Y FIXED MTGE RATE

I have been making the case that rent prices have peaked and that housing prices will fall more than expected by the consensus:

This chart is a good resources for short term trading types:
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I am buying treasuries more aggressively now:

Break in!

Solid beat of four cents by Bank of America (BAC) .

* In the market without memory from day to day, there was no follow thru from Friday's weak session to the downside in overnight futures.

* UK and the EU's economic and financial uncertainties - of taming inflation, on one hand, and resuscitating economic growth, on the other hand - remains the concern du jour. Who would have thought, several months ago, that UK policy would be the tail that wags the U.S. market's dog?

* Jeremy Hunt: British pound rises as finance minister brings forward policy announcements. News that the UK pound is rising after the finance minister brings forward a policy announcement has given life to non US bonds. The UK has just announced its intention to scrap tax cuts indefinitely. Truss, the Prime Minister may be in power but she doesnt appear to be running things!

* As a result, this morning UK gilt note and bond yields are dramatically lower (e.g., the ten UK year yield is -34 bps!):

* Based on the steady advance in futures throughout the evening, which moved a leg higher on the UK announcement, the continuing streak of down S&P and Nasdaq days may end today.

* I remain in the camp of a successful test in here as noted in my opening missive on Tuesday. I also had mentioned that I spoke to Lee Cooperman on Tuesday night and he mentioned that two technicians he speaks to and respects are looking for a rally over the near term. (They were solely wrong on Friday!)

* The unprecedented instability of currencies and interest rates continues to underscore the likely end of the salad days of easy financial conditions and holds the key to the prospective course of global equity markets during the near term. Higher short-term interest rates remain a market hurdle for meaningful gains.

* Overnight, non-U.S. currencies, especially the pound and the Eurodollar, remain in check and a bit stronger, placing downside pressure on global yields. The recent climb in overseas interest rates is the byproduct of ill-timed (2021-2022) and now hawkish monetary policy and what appear to be related reverse currency wars - are moving multiple standard deviations from the mean. Again, this morning's tentative futures rise is likely being impacted by fears of a hotter CPI. If it were not for that concern I suspect S&P futures would be +1% or more!

* Investor sentiment remains sour and the bears I speak to are very emboldened now. Previous bullish strategists - Goldman and others - are now confidently bearish, bulls are now talking about limited downside and not so much about the upside, and put buying set a record three weeks ago Friday, AAII Bears are at March 2009 levels and the S&P oscillator remains in an oversold state... but sentiment is not a good timing tool. As mentioned early last week, traders' short hedges are at records.

* Goodbye TINA (There Is No Alternative), hello TATA (Treasuries Are the Alternative): I believe the bond rout continues to create an opportunity in both fixed income and, in the fullness of times, in equities. Depending on one's risk profile, short-dated Treasuries are a reasonable place to be even though I expect a market rally. (More on Minding Mr. Market shortly, in my opener).

For me, as I have mentioned over the last week, weak stock prices sow the seed of superior investment performance - and I continue to buy incrementally:

Oct 12, 2022 ' 05:45 PM EDT DOUG KASS

Expanding on Weakness

It was a weak close. (Sorry Mikey, they didn't "puke.")

The slight downturn at the end of the session should not be too surprising in light of the consumer price index release tomorrow morning (before the opening).

I continue to expand my net long exposure on price weakness.

I am investing, not trading - and I am not looking for immediate satisfaction in a market that is clearly broken.

Many are now cheering for lower prices and, in a way, I am too - because lower prices are my friend and serve to be the seeds for the tree of superior investment returns.

Bearishness dominates the markets, the business media and our Comments Section - it's the polar opposite of December, 2021.

As mentioned again in my opening missive, I am buying great companies at good prices - not yet great prices.

If great prices come, I have plenty of cash and Treasuries.

* The yield on the U.S. Two-Year Note is -6 bps after advancing for most of the last month. The yield on the 10-Year is also -6 basis point and the yield is now at 3.951% (buy still up by nearly 35 basis points in the last two weeks). The 10-year UK gilt yield is -34 basis points after some more aggressive policy statement from the new Chancellor.

* Market inflation data have noticeably moderated, softening labor and commodities, in recent months. This morning soft commodities are mixed and energy product prices are little changed - Brent Oil is flat this morning. But for now, the market is not focused on these factors and more focused on currencies and global bond yields and, like The Fed in rear view mirror (ex post) data.

"Workin' on our night moves
Trying to lose the awkward teenage blues
Workin' on our night moves
In the summertime
And oh the wonder
Felt the lightning
And we waited on the thunder
Waited on the thunder."

- Bob Seger, "Night Moves"

The market (and money) never sleeps -- and neither do I, it appears!

I described the importance that overnight futures trading holds for me here. It is a guidepost to my strategy in the regular trading session.

Moreover, the overnight/early morning futures hold opportunities as they are (1) inefficient, though liquid, and (2) it seems fear and greed is often exaggerated outside the regular trading session.

S&P futures were higher most of the evening - that recovery accelerated on the UK news, fueled a few hours ago. And the rise, at least for now, seems non trivial - but in recent days we have seen these early climbs fail to hold.

In recent weeks, during these volatile markets, I have kept a bead on volatility as well as currency rates. This morning VIX is +0.23 to 32.25. The VIX has been stubbornly high over the last nine days - and remains so.

Gold, which has collapsed in recent weeks, is +$13.50 this morning. I still can't work it up to buy precious metals.

Brent oil is unchanged at $91.91, little change.

Bond yields continue to represent the greatest risk to equities, and with rates spiraling ahead equities grow harder to value. Bond yields, the equity market's nemesis, are likely responsible for a large portion of the market's drubbing recently. This morning yields are broadly lower, with UK news as the catalyst.

The S&P oscillator stands at -3.72%, finally trending a bit higher, though on 10/12 it was -5.57%. It was -2.81%% at Thursday's close and -11.51% at September's end. The oscillator has been a good short-term trading tool over the last few months! The oversold, lower share prices and other factors have me leaning to add - but I was demonstrably slow in doing that over the last week given the unprecedented currency and rate movement. This has begun to change in the last two days - I am getting more aggressive.

Cryptocurrencies are flat to lower, Bitcoin is unchanged at $19,335. This asset class is "off the tape" and I continue to have zero interest in the asset class.

S&P futures peaked at +43 and bottomed at -9. At 6:05 a.m. ET futures were +39 handles.

Nasdaq futures peaked at +157 and bottomed at -27. At 6:07 a.m. ET futures were +134.

Here is a synopsis of some of my columns I believe were important, or in the event you were out yesterday. The principal intent is to review the logic of my market moves and other factors:

- I was out of the office on Friday.

Here were Friday's trades. This section provides transparency and a further record in memorializing my good and bad investments - frankly, there are a lot of disingenuous actors that smile and get away (in the business media) with disastrous recommendations of individual stocks and in piss poor market projections:

Though I was out of the office I was active on Friday:

* Added to (SPY)

* Added to (PINS) common and bought PINS calls

* Purchased more (MSOS) and (GTBIF)

* Increased (AMZN) position

* Covered my (QQQ) short calls

* I added to my already large Treasury holdings

* I covered some more of my individual short positions

* Reshorted (FIGS)