In watching and listening to the business media yesterday, investors/talking heads were most confident in the prospective results at Microsoft (MSFT) and Alphabet (GOOGL) .

They have been disappointed.

Yesterday I sold the balance of my Microsoft for a nice gain:

Oct 24, 2022 ' 03:05 PM EDT DOUG KASS

Calling an Audible on Microsoft

I am a bit nervous about the Microsoft (MSFT) quarterly release. I don't expect a beat and based on our research the report could be a bit light.

So, with Microsoft having recently climbed from $219 to 247 - I am calling an audible and I just sold the balance of my holdings.

I will revisit after the release tomorrow.

and...

Oct 24, 2022 ' 02:55 PM EDT DOUG KASS

Trading Around Another Core Position

I am making some sales in Microsoft (MSFT) after its recent strong run.

Getting smaller into the EPS report.

And I shorted the shares of MSFT on the release:

Oct 25, 2022 ' 04:03 PM EDT DOUG KASS

Shorting Microsoft

I shorted a small amount of Microsoft (MSFT) ($250.07) on the EPS release (in the after hours).

On MSFT, Azure missed small -- I am assuming some sort of guide-down lies ahead during the conference call.

Along these lines, I have reduced my overall net long exposure throughout the last two days.

I feel comfortable about that decision.

I have a lot of reports/conference calls to digest so that is for me for the day.

Thanks for reading.

Enjoy the evening.

Be safe.

After-Hours Movers:

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I shorted a small amount of Microsoft (MSFT) ($250.07) on the EPS release (in the after hours).

I initiated a buy in another bank -  (USB)  - this morning.

I now own seven banks.

More later in the week.

Wolf Street on the state of the housing market.

Only one more issued today - the installation of Xfinity high speed internet probably after the close.

Market near the highs, and I continue to incrementally pare back.

Some thoughtful comments from Jefferies on uplistings of cannabis stocks:

This story helps to understand the strength in cannabis stocks today.

I have accelerated my paring of long positions into strength.

Market internals have improved from Monday's lackluster data: 

- NYSE volume 339M shares, 17% above its three-month average

- NASDAQ volume 2.34B shares, 5% above its three-month average

- VIX index -3.5% at 28.80

Breadth

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Biggest Movers

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Heat Map

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(Note: I promised to publish his morning views but was out this a.m. - will start tomorrow.)

The relative quiet on the geopolitical front and a couple of minor down ticks in yields have given the bulls enough energy to push further on this "tradeable bounce". The earnings that we have seen so far are more than tolerable and have also contributed to the bounce.

They were entitled to slow down and have a consolidation day and maybe slip a little bit toward the overbought side, but we will see how they progress through the afternoon.

As usual, yields will be the key factor and the ten-year getting up to 4.30% will catch everybody's attention and potentially put pressure on equities.

Overall, the bulls seem to be on automatic pilot. Let's see if they can maintain enough ammunition to keep going through the afternoon.

Stay safe and alert.

Arthur

From Peter Boockvar:

According to S&P CoreLogic, home prices rose 13% y/o/y in August, a downshift from the 15.6% pace seen in July. It's the fifth straight month of deceleration and again, the only question is to what extent does this continue. Because of what will still be limited supply of existing homes - in contrast to new ones - with many wanting to hold on to their 3%ish type mortgage, it will be the number of transactions and everything associated with a move in/out that suffer the most in this housing recession.

The plus side here is the slow down and possible price declines in some markets can help to mitigate the 7% sticker shock mortgage for many first time buyers. 

The sunbelt cities continue to drive the price gains with Miami, Tampa, Charlotte, Dallas and Atlanta leading the way. The price gain laggards were San Francisco, DC, Minneapolis, Portland and Detroit. 

Home Price Gains y/o/y

The October Conference Board's consumer confidence index fell to 102.5 from 107.8 and that was below the estimate of 105.9. Most of the decline was in the present situation but expectations slipped too. One year inflation expectations rose 2 tenths to 7% after falling by 2 tenths in September with the price of gasoline and food being the major influences. The 20 yr average with inflation expectations is 5.3%. 

Notable was the answers to the current situation jobs questions where some deteriorated. Those that said jobs were plentiful fell 4 pts to the lowest since April 2021. Those that said they were hard to get rose to the most since September 2021. Expectations on jobs and income were more mixed. Expectations for 'more jobs' did improve to the best since January 2022 and expectations for an 'Increase in Income' was the highest since fall 2021. This for both was mitigated by a rise in expectations for 'fewer jobs' and a 'decrease in income.' Those that thought they would stay the 'same' is from where the shift took place. 

Interestingly, spending intentions improved for autos, homes, and major appliances but they did slip for vacations. There was a definite income differential in the stats where those making between $25-$125k all saw consumer confidence fall but it rose for those making more and maybe the latter drove those spending intentions. 

This was the bottom line from the Conference Board, they referred to consumer view of the short term outlook as "dismal" and said that an expectations reading under 80 is a "level associated with recession."
As what will happen from here, "inflationary pressures will continue to pose strong headwinds to consumer confidence and spending, which could result in a challenging holiday season for retailers." For perspective, the 102.5 print compares with 132.6 seen in February 2020 and the Covid low of 85.7 in April 2020. I'll also add, keep note of the growing clouds building in the labor market figures here ahead of claims Thursday and the October jobs data next week.
Consumer Confidence

One yr Inflation Expectations

Jobs Plentiful

Jobs Hard to Get

We now have three October regional manufacturing indexes that are below zero with the Richmond Fed today saying its index fell to -10 from zero. The estimate was -5. New orders and backlogs were deeply negative and capital spending plans moderated as did six month expectations for them. Employment was zero for a second month and wages fell after jumping last month. The outlook for each fell. Prices paid and received rebounded after the recent declines as did the expectations for them.

Bottom line, the US manufacturing sector is now in a recession.

Richmond Mfr'g

I have sold some calls against my (PNC) and (C) longs.

Sold my (TLT) position (put on) at $94.84 for a quick gain.

Added to (PARA) and (PINS) .

Increased my (OIH) short.

Back in the saddle... again. 

Going to get my sea legs back.

Off to a doctor visit, back in one hour.

I further reduced my net long exposure on the early morning ramp.

I have been buying (TLT) for days.

This morning TLT is getting jiggy.

Upside

- (TSHA) +38% (Astellas to acquire 15% stake for $50M in Taysha's AAV-based Gene Therapy Programs)
- (MEDP) +29% (earnings, guidance)
- (WEBR) +24% (Holder BDT Capital proposes to acquire all 27.5M of the outstanding shares of Class A Common Stock that are not owned by the Investor or Holdings for $6.25/shr in cash)
- (ARAV) +20% (files to sell 45.2M shares through private placement)
- (AAN) +12% (earnings, guidance)
- (XM) +9.1% (earnings, guidance)
- (HUBB) +7.5% (earnings, guidance)
- (CLS) +7.4% (earnings, guidance)
- (CALX) +7.3% (earnings, guidance)
- (ITW) +7.3% (earnings, guidance)
- (UBS) +5.5% (earnings)
- (SHW) +5.4% (earnings, guidance)
- (GM) +4.5% (earnings, guidance)
- (CGC) +3.9% (acquires 100% of Acreage, a vertically integrated, multi-state operator of cannabis cultivation and retailing facilities)
- (GEVO) +3.8% (enters into new fuel sales agreement with Qatar Airways for 5M gallons of sustainable aviation fuel/yr over five years)
- (ADTN) +3.4% (preliminary Q3 earnings)
- (GE) +3.0% (earnings, guidance; planned spin-offs on track)
- (KO) +2.9% (earnings, guidance)
- (UPS) +2.9% (earnings, guidance)
- (FLXS) +2.7% (earnings)
- (PCAR) +2.2% (earnings, guidance)
- (BABA) +2.0% (small bounce following yesterday's weakness)
- (HAL) +2.0% (earnings)

Downside

- (HOTH) -23% (announces a 1:25 reverse stock split effective pre-market opening on October 26, 2022)
- (HSII) -11% (earnings, guidance)
- (XRX) -9.5% (earnings, guidance)
- (CCK) -9.4% (earnings, guidance)
- (CLF) -7.3% (earnings, guidance)
- (ZION) -6.6% (earnings)
- (GLW) -5.7% (earnings, guidance)
- (CNC) -3.4% (earnings, guidance)
- (JBLU) -3.3% (earnings, guidance)
- (MMM) -2.9% (earnings, guidance)
- (RRC) -2.5% (earnings, guidance)

Looking at Coca Cola's earnings number (a stock we own), it's hard to find a more international company and thus one with a lot of FX exposure. The strong dollar clipped revenue by 800 bps. Of the 16% revenue growth ex FX (organic), 12 points of that was price and 4 unit case volume which is better than some of its peers.

Hong Kong's September trade data was weak but not as bad as expected. Exports fell 9.1% y/o/y after a 14.3% drop in August and vs the estimate of down 14%. Exports particularly to China were down by 8.5% and fell by 25% to the US. Imports were lower by 7.8% y/o/y, better than the forecast of down 16.4% and after a 16.3% decline in the month before. A spokesman in Hong Kong said honestly, "Looking forward, Hong Kong's export performance will remain under immense pressure, as elevated inflation in major advanced economies and more aggressive monetary policy tightening in response continue to dampen global demand."

After yesterday's drubbing, the Hang Seng index was flat while the H share index rebounded by more than 1%. The yuan though continues to weaken. As for the Hang Seng, strictly on a valuation basis, it's now one of the cheapest in the world at 8.5x earnings with a 4.4% dividend yield but we know it's clearly cheap for a reason. As I said yesterday, China is going to need to economically grow in spite of Xi, not because of his policies.

CNY (the higher the weaker)

The German October IFO business confidence index was little changed at 84.3 vs 84.4 in September. The Current Assessment fell a touch while the Expectations component was down slightly. The IFO was pretty succinct today, "Sentiment in the German economy continues to be grim...The German economy is facing a difficult winter." Europe is seeing some relief on the rate side as bonds are rallying while the euro is little changed. German power prices are up almost 2% today but just off the lowest since early August. They though are still 3.3x above where it was pre-invasion.

IFO

The October UK CBI industrial orders index was -4 vs -2 in September but better than the feared print of -12. The CBI said "It's a tough time for manufacturers. Price pressures remain acute, availability of materials is still a big issue - and it is 49 years since manufacturing firms were this worried about being able to find workers with the skills they need. It's really no surprise that sentiment has deteriorated further."

With Rishi Sunak the new PM officially today, gilts are rallying for the 5th day in the past 7. The pound is also higher and I'll reiterate again my belief that the pound and stocks in the UK are very cheap and attractive. We'll see what the BoE does next week and the market is expecting 75 bps hike to 3%.

CBI

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GE (GE) and 3M  (MMM) "spit the bit."

For MMM it's the second lowering of guidance.

A possible tailwind in the immediate time ahead:

General Motors (GM) vs. General Electric (GE) .

The "generals" deliver opposite results relative to expectations.

"Price has a way of changing sentiment."

- The Divine Ms M 

While I have been more bullish - and I have documented why in my Diary - than many in the last month, I am increasingly concerned about the rising tide of optimism - in some cases coming from previously self confident bears. 

As far as I can see, the prevailing view seems to be based on two factors:

 * The current price momentum

* Expectations of seasonal strength over the next two months 

While there are numerous reasons to be constructive, to this observer, these two factors are not rigorous reasons to become bullish. 

In fact they are poor reasons and a dangerous/slippery slope to become bullish.

Good advice from "El Capitan":

This chart is a valuable tool and resource for short term traders:

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This daily feature is like inside baseball. I try to show you and write about what I believe thoughtful hedge fund managers are looking at when they awake, setting the stage for their strategy in the day. The market is a complicated mosaic and the more info you have the better trader and investor you will be!

* "All investment roads lead to interest rates" has been the market's mantra. Goodbye TINA (There Is No Alternative), hello TATA (Treasuries Are the Alternative): I believe the bond rout continues to create an intermediate term opportunity for income and even some price appreciation - after the biggest bond rout in history this year.

Along those lines, we experienced a rate/equity delinkage on Monday as we did on Friday. That said, the market votes in the near term but is a weighing machine over the longer term - the absolute level of domestic and non US interest rates will continue to weigh on equities and provide a cap to the current stock market advance as it raises the cost of capital and the risk-free rate of return used in discounted dividend models.

I continue to believe that we are at the terminal stage of the rate advance. For the last few days I have been a buyer of TLT to add on to my already large holdings of short dated Treasury notes up to two years. Moreover, if you are more fearful regarding equities than I am, fixed income remains especially compelling on a return basis for those that have low risk tolerance and don't want to be involved in the growing chaos, uncertainty and volatility in the equity markets.

* S&P futures were a bit lower after spending the evening modestly in the green.

* A still elevated VIX is providing a lot of intra day volatility! Friday and Monday were good examples of sizeable and unpredictable range trading in the S&P. To me, this requires attention and action as VAR (value of the portfolio at risk) rises along with a higher VIX - in other words your portfolio's change in daily value is growing more extreme. One should adjust exposures in this market based on your risk appetite and risk profile. However, last night's futures action was an exemption to the last few days as the action was tight and range bound.

* Another concern, expressed yesterday, was continuing signs of dollar funding stress with the three month FRA/OIS spread widening. This is something to watch... closely as no one is paying attention to this variable.

* The U.K. and the European Union's economic and financial uncertainties, punching above their weight - of taming inflation on one hand and resuscitating economic growth on the other - remain the concern du jour. As I wrote Monday, who would have thought several months ago, that U.K. policy would be the tail that wags the U.S. market's dog? The unprecedented instability of currencies and interest rates continues to underscore the likely end of the salad days of easy financial conditions and likely holds the key to the prospective course of global equity markets during the near term.

Elevated global short-term interest rates remain a market hurdle and could be a restriction for meaningful gains from here - that has been my view for a while. Anyway, this results in me looking at U.K. gilt yields and the pound's value when I arise at 4 am, even before reading about the baseball playoffs (crap!). This morning sterling was little changed and gilt bond yields are lower (see below).

* The yield on the U.S. 2-Year Note was -1 basis point this morning after advancing dramatically over the last few months. The yield on the 10-Year was down by five basis points, to yield 4.182% after experiencing a large runup in the last week as well. (Long TLT should be good today!) The 10-year U.K. gilt yield is tame and -3 basis points.

* Yesterday, the Chinese stock and currency markets came into focus - with the yen at 7.3 to the US Dollar - lowest since The Great Decession in 2008-9 and Chinese equities are getting schmeissed after Xi's moves to gain or keep his power. Things appeared to have calmed down this morning seeing some stabilization and relief.

* My Foot Back Is Back on The Brake - While I remain relatively optimistic - I dispassionately bought the weakness when many were fearful - I am less bullish now, reflecting the size and slope of the market's advance in a brief period of time, the sudden delinkage between stocks and bonds, still high bond yields and now that everyone seems to be getting on board with the momentum - several commentators magically declared their optimism yesterday - price has a way of changing sentiment! As well, as noted in my Diary, market breadth in yesterday's rise was unimpressive to negative on the Nasdaq:

Oct 24, 2022 ' 09:45 AM EDT DOUG KASS

Defensive Move

I am positioning myself a bit more defensively as bond yields reverse hard. (I did this by selling calls against a portion of some of my long holdings)

*The U.S. dollar remains flattish this morning. Overnight, non-U.S. currencies, especially the pound and the Eurodollar, are little changed as well. The Yen the same, yesterday it was quite weak. 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 non-trivial reasons why the market has declined, the VIX is over 30 (rear view?) and many are fearful.

* Investor sentiment remains sour but, along with higher stock prices has begun to improve. Specifically I would note that the S&P Oscillator turned positive at Friday's close and got more overbought last night. That's a caution sign for me.

* Market inflation data have noticeably moderated, softening labor and commodities in recent months. In the last few days I have highlighted the imminent weakness in rental and home prices, which work with a lag in the data. Mortgage rates of 7% will hand homeowners a bum deal and I now believe that home price drops will accelerate relative to consensus expectations. (I also wrote about the carnage in housing yesterday, see below) This morning soft commodities are broadly lower. Iron ore is a standout to the downside. Brent oil was -$0.57 per barrel to $92.70 - as noted I have been shorting OIH.

"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 slightly lower after having been modestly higher throughout most of the evening.

In recent weeks, during these volatile markets, I have kept a bead on volatility as well as currency rates. In Thursday's decline, VIX dropped by nearly one handle and, on Friday dropped again - proving to be a good tip off to the rally in equities. This morning VIX was up by +0.01 to 29.86. The VIX has been stubbornly high over the last two weeks and remains so. Importantly, if you watch my trades I am using the elevated VIX to take in larger premiums in my short calls and puts and in putting on my (SPY) $370 straddle.

Gold has recently shown some life after being weak for months. This morning it was down by about $6 after being down a like amount on Monday.

This morning Brent oil was -$0.53 to $92.63/barrel. Late last week I shorted a small position in VanEck Oil Services ETF (OIH) and I added on Friday and Monday. More on this later in the week.

Bond yields continue to represent the greatest risk to equities - the price action is quiet this morning, with rates slightly lower (day over day) in both the US and UK. 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 this year.

The S&P Oscillator finally moved positive on Friday - at 0.16% - after being in the range of -3% to -4% for about 10 days. It closed on Monday at 1.79%. I have stepped off the accelerator of adding to equities, as a result and have put on the brake a bit as the oscillator has been a good short-term trading tool over the last few months. Remember, when the oversold is extreme I tend to be more of an aggressive buyer and vice versa.

Cryptocurrencies are lower/uninteresting again, with uninspiring action on little volume, Bitcoin was at $19,300 and the conversation (and FIN TV specials/interviews - no Mooch or Saylor) have been nonexistent in recent weeks. This asset class is "off the tape" and I continue to have zero interest in it.

S&P futures peaked at +9 and bottomed at -14. At 5:11 a.m. ET futures were -9 handles.

Nasdaq futures peaked at +36 and bottomed at -43. At 5:12 a.m. ET futures were -11 handles.

Here is a synopsis (link) 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:

The Market Has More Moves Than A Shortstop Batting .110!

META Reality Check: Why Should We Listen To Gerstner?

Market Breadth is Lack Luster

This section provides transparency and a further record in memorializing my good and bad investments - frankly, there are a lot of disingenuous actors who smile and get away in the business media with disastrous recommendations of individual stocks and in piss poor market projections:

* Reflecting a somewhat more defensive stance I sold calls against a portion of my portfolio holdings. Here is an example:

Oct 24, 2022 ' 02:25 PM EDT DOUG KASS

UAL Move

Taking In some premium United Airlines (UAL) which has had a terrific move and I think there is more to come.

But it's a bit extended now and I am selling some December $43 and $45 calls for a nice premium.

* I initiated a small long in WBD (after the close the company announced a multi billion restructuring charge)..

* Oct 24, 2022 ' 10:35 AM EDT DOUG KASS

Today's Trades

Added to (DAL) , (GOOGL) , (META) , (GTBIF) and (MSOS).

Sold small (DIS) and eliminated (MSFT).
__________

Long SPY, QQQ, WBD, UAL, DAL, GOOGL, META, GTBIF, MSOS, DIS.

Short SPY calls and puts, QQQ calls, GOOGL calls, META calls, MSOS calls, DIS calls.