Trader Talk

Investors look east to China trading link

Floor traders monitor share prices during afternoon trading at the Hong Kong Stock Exchange.
Bobby Yip | Reuters

China stocks rallied, with the up 0.8 percent and the up 2.3 percent overnight. After years of discussion, the Hong Kong Stock Exchange and Shanghai will finally open a formal stock trading link on Nov. 17.

Many mainland China firms already dual list in Hong Kong, mainly large state-owned enterprises, but this trading link will open up many more smaller companies.

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Hong Kong investors will be able to buy and sell an additional 568 Shanghai-listed equities. Mainland investors will be able to buy and sell 268 Hong Kong-listed stocks. This opens up many domestic Chinese stocks for the first time.

Some fund managers were already allowed to invest in Chinese stocks through a quota system that was capped at $105 billion. But the new system will allow most investors to buy shares on the Shanghai Stock Exchange, opening up the $2 trillion market fully to foreign investment, though there will be some quotas on inflows into China that will still be applied.

Elsewhere:

1) Not only are earnings holding up, but margins are, as well. S&P 500 margins are at 9.7 percent for the third quarter, near a record, according to S&P Capital IQ.

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2) Toll Brothers reported preliminary revenue and orders data. Revenues of $1.35 billion were ahead of expectations. Orders were up 10.2 percent for its fiscal fourth quarter, short of most analyst estimates, although on a dollar level it appeared to be a good number.

3) Oil rig provider Transocean announced $2.6 billion in writedowns on Friday due to a decline in day rates for its rigs, but its earnings report overnight showed earnings of 96 cents, well above expectations of 83 cents. Revenues were higher as well.

4) It's a big week for retailers. Wal-Mart reports on Thursday, with expectations fairly low. How low? The company earned $1.14 in the third quarter of 2013; for Q3 2014 it is expected to earn $1.12, two cents less. Same-store sales have been flat.

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JC Penney will report Wednesday, and the only good news is the retailer will likely lose a lot less. In the third quarter of 2013, it lost $1.81; this time, the loss is expected to be down to 81 cents. JC Penney has cut losses more than half, but there's still a long way to go.