"Everyone knows that life isn't fair. Saying it's not fair suggests that you think life is supposed to be fair, which makes you look immature and naive." -- Travis Bradburry

As If Nobody Cares What if North Korea threw yet another tantrum, and nobody cared? News broke late Thursday afternoon that North Korea had fired a missile over the northern Japanese island of Hokkaido for the second time in less than a month. This move had been expected by many over this past weekend, so to be honest, the international response appears well prepared. South Korea responded almost immediately by conducting a simulation where they strike the launch site (which happened in this case to be near the capital of Pyongyang). Japan alerted citizens in the path of the projectile that they were at risk. As far as the Japanese government can tell, the missile flew 2000 kilometers before plunging into the Pacific Ocean. No bits or pieces of this missile have landed or crashed on Japanese territory. This aggressive behavior comes in the wake of more jawboning by North Korea earlier in the week, when they threatened both Japan, and the U.S.

Kim Jung-un has become that annoying child that needs his or her mother's attention, and will go to great lengths to gain that attention, whenever feeling denied. A child? Yes, but a child with very dangerous toys. Well, there will be attention paid on Friday, as the U.N. Security Council goes into an emergency meeting at the request of both the United Sates and Japan. The financial markets, however, have reacted as if.... well, quite frankly, the financial markets simply have not reacted.

As if being calloused over, markets have learned in recent years that panicked reactions to geopolitical events have been extremely short term. These moves have simply presented opportunity to those who have kept their collective heads, while everyone around them behaved as if each event were the "big one". Friday morning, Japanese equities are surprisingly higher, as are South Korean stocks. Assets usually considered to be safe havens are not experiencing any kind extreme activity. Gold is only up small, while yields seem to be headed higher almost across the board. The planet is also watching an incident at a London subway station as I try to bang out this morning note. That incident could end up impacting markets more than last night's tantrum.

The Bottom Line

The bottom line is that money movers are not going to be pushed around anymore by what has become routine saber-rattling. Does that mean that somebody ups the ante? It could. There are no sure things in the markets, nor in life. For this reason, I have told you before that I believe everyone managing their own dough needs some significant exposure to defense stocks. For me that means owning Lockheed Martin (LMT) , Raytheon (RTN) and Kratos Defense (KTOS) . All three have behaved very well for me, but KTOS is different. This high-end manufacturer of drone technology has reacted poorly to a secondary offering that went off last week. This presents a lower entry point to anyone who had missed the move, but it does come with some risk. My real miss here was not getting long some Boeing (BA) when I established this aggregate stake. This stock just does not seem to quit. Now that BA has cracked $240 resistance, the stock sits at the highs of July. This is where it becomes interesting.

Quick Look at Boeing (BA)

Though this name just spent eight weeks consolidating, it remains dangerously close to overbought on all charts ranging from six months out to two years. Giant pennant? That would imply a violent move in the near future. That said, on the six month, you are also dealing with a moving average convergence divergence (MACD) that appears poised to dish out a bullish crossover for the first time since early August. The most recent moves in this name come fundamentally, not from defense but from an announced boost to production for civilian airliners, as well as increased estimates that came from Cowan's shop yesterday. By the way, Cowan has a price target of $300 on this stock.

What I think is that I'd like to get my feet wet, but not here. I've said that before, and I ended up whiffing a couple of times. If BA finds support at $245, then you have another breakout on your hands. In that case, prices around $275 range become very realistic. I think I continue to wait, however, until I can nibble. It's not like I need more exposure to defense. Resistance at this level allows for an entry point below $230, and possibly as low as $210. Likely? That's not what this is about. This is about where the increased exposure to this industry makes enough sense to me to manipulate my model. Remember, all factors lead to price discovery. Know your levels for individual names on your list. Not "the" levels. "Your" levels.

Thoughts on Crude

OK, gang, this is it. Again, WTI tries to take on the $50 level. Again, it looks impossible. You have the rig count this afternoon. You already saw a dramatic draw on gasoline stocks this week. We have also seen this week production numbers out of OPEC that showed success in scaling back for the month of August. What does this all mean?

Not much, if OPEC can't sustain these cuts. Not much if these levels attract more production form the kids in the Permian. Not much if China successfully steers its consumers toward electric vehicles. The again, how much do we need for a squeeze? A break and hold at $50 appears to allow for $51.75. That level itself appears to be a doorway to prices between $54 and $55.

Am I long and wrong the space? Yes, but not nearly as long as I was several months ago, and the two long positions that I did not panic on, are raising their ugly little heads. Talking my book? Of course. Now that that's out of the way, I am talking about the class of oil services, Schlumberger (SLB) , and that severe disappointment from last quarter, Apache (APA) . You can give up on Alpine High. You can give up on low break-even points. You can give up on them based on free cash flow. Here I plant my flag. They are going to pay their dividend. They are going to have no problem meeting short-term obligations. I think they are in a sweeter spot than do most analysts that I read. They are coming off an awful bottom that indicates to me more upside than downside risk. See Natural Gas trading at 3.12? Hmm. Just sayin'.


08:30 - Retail Sales (August): Expecting 0.1%, July 0.6% m/m.

08:30 - Retail Sales less autos (August): Expecting 0.5%, July 0.5% m/m.

08:30 - Control Group (August): Expecting 0.3%, July 0.3% m/m. What's the most important series in our universe? I mean after job creation, wage growth, and consumer inflation? Why, it's this one right here. This data matter, gang, especially in the wake of the bottoming CPI numbers that we saw yesterday, and with the FOMC meeting next week. We already know that auto sales have been soft, but retail sales at the core are looking for a second month of size-able growth. This release will impact equity markets today.

08:30 - Empire State Manufacturing Survey (Sept): Expecting 19.1, August 25.2. After a negative May, manufacturing in the New York region has performed robustly. The strength has been precisely where you need it, in new orders. This is our first look at the manufacturing sector for September, and sets up the more highly focused on "Philly Fed" next Thursday.

09:15 - Industrial Production (August): Expecting 0.1%, July 0.2% m/m.

09:15 - Capacity Utilization (August): Expecting 76.8%, July 76.7%. It may not be saying much, but industrial production in the U.S. is looking to stay out of month-over-month contraction for six months in this August data. That "strength" has been backed up by data out of the ISM, as well as all of the regional surveys. The proof in the pudding comes from capacity utilization. That slice of information has been showing steady improvement not only since the election, but going back to last summer.

10:00 - Business Inventories (July): Expecting 0.2%, June 0.5% m/m. We expect something of a drop-off for this item. That will not be due to another fine month of inventory building at the wholesale level. More likely that we'll see some weakness in retail inventories as that line of business has had to learn to operate in a leaner manner in recent months. This item does impact GDP expectations.

10:00 - U of M Consumer Sentiment (Sept-adv): Expecting 95.5, August 96.8. Sentiment remains key at the small business and consumer levels. These soft type surveys are the one spot where there has been noticeable improvement since November that has never really faded. Folks really do expect continued improvement in the economy, which can sometimes be half the battel.

13:00 - Baker Hughes Rig Count (Weekly): Last Week total 944+1, oil 756-3. After crude tried to tackle and ultimately failed to take the $50 level again on Thursday, this rig count will be looked at closely. It always is, but in the wake of the recent storms that hit the Gulf of Mexico, this is the one item that could ultimately decide whether this level remains resistance, or become support.

Sarge's Trading Levels

These are my levels to watch today for where I think that the S&P 500, and the Russell 2000 might either pause or turn.

SPX: 2513, 2506, 2498, 2491, 2482, 2470
RUT: 1445, 1436, 1428, 1422, 1417, 1410

There are no quarterly earnings results scheduled for Friday.

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At the time of publication, Stephen Guilfoyle was long LMT, RTN, KTOS, APA, SLB, although positions may change at any time.

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