Monday Morning Musings: Big Selloff In China Leads U.S. Markets Lower

The market is down across the board this morning, after large selloffs in overseas markets sparked the early weakness. The weakness in Asian markets overshadowed a positive economic report this morning, as well as news that the Fed is extending the TALF program to continue to help improve credit conditions.

Japan fell -3.1% overnight after a weaker than expected GDP report. Hong Kong markets fell -3.6%, but China dropped the most, falling -5.8% amid concerns that tighter bank lending policies could crimp liquidity. This is also hurting commodity prices, and leading to big losses in energy and materials related stocks. A higher dollar today is also weighing on commodity prices.

The positive economic report was the NY Manufacturing Index, which showed its first positive reading since April 2008. A couple of weeks ago this report would have been applauded and received a lot of press, but today it is fading into the background.

The 10-year yield is lower, falling below 3.50% for the first time since July. And the VIX is spiking +14% higher today to 27.60, and surging through its overhead 50-day average in the process. A lot of traders are forecasting higher volatility coming by September, and the VIX is starting to reflect this. But there is considerable resistance at 30, so I am not going to cry 'the sky is falling' yet.

Trading comment: Glad I closed out those long daytrade positions on Friday before the close. Today will be a good test to see if the dip buyers show up again into the close. There is some support around SPX 980. I have not done any buying today, but am still watching for opportunities to add to the likes of BAC, XLF, and RIMM.