Correction Still Small So Far, Watch Investor Sentiment

Sorry for the lack of posts yesterday, my 3-yr old had to have his tonsils out and I wanted to be there for the little guy. It figures that the one morning I have other matters to attend to the market would fall out of bed and Obama would make remarks to scare investors.

I don't want to make a political statement, but I think Obama's remarks will turn out to be more bark than bit. When Barney Frank came on CNBC later in the day, he hinted that it is unlikely something like the President is proposing could pass. Nonetheless, the bank index continues to sell off, and brokers like Goldman/Morgan have really taken it on the chin as uncertainty with respect to their business model has entered the picture.

So first we had China tightening monetary policy, which hit the commodity/materials sector. Then we had Obama making comments that hit the financial sector. And in the meantime, we have had a "sell the news" reaction occurring with many earnings reports, and today that is hitting the tech sector.

Google reported a solid report last night, but some investors were looking for more upside to revenues and have decided to sell the news. Ditto for AMD, which is weighing on the overall semi index. On the plus side, Intuitive Surgical (ISRG) reported another strong quarter, and the stock is up +12%. GE had a solid report, as did McDonalds (MCD), and both of those stocks are higher.

I have commented in recent weeks how investor sentiment was growing a bit complacent, and that could result in a correction at any time. That seems to be the case right now, and once again I think we will need monitor investor sentiment to gauge the duration of this selloff. Right now, the S&P has pulled back -4% from its recent highs. It is also testing its 50-day average right now.

So far, this is just a run of the mill pullback. The put/call ratio has been elevated the last 2 days, and the VIX has started to spike also (now 22.75). If the other sentiment indicators follow suit and begin to reflect renewed bearishness, that will help the market bottom sooner. If sentiment remains complacent, then this correction could take more time to play out.

Trading comment: I didn't do any buying yesterday, and likely won't today either. But on further weakness, I would be amenable to adding to many of the tech leaders I often write about, as well as some of the emerging markets (like Brazil) that remain in good shape.

long GOOG, ISRG