Tighter Monetary Policy From China's Central Bank

The markets are nicely higher in early trading, nearly reversing Friday's sharp selloff. Kraft (KFT) has acquired Cadbury (CBY) for a $19.4 billion mix of stock and cash after several months of negotiations.

Citi (C) reported another quarterly loss, but it was roughly in-line with expectations. The stock is slightly higher on the news, and the financial stocks are mostly mixed with banks lower on average while brokers are higher.

Healthcare stocks are leading the action amid speculation that a Republican could win the vacant seat in the Massachusetts Senate, which could stall healthcare reform. It's funny that the market really wants gridlock in Congress. Just don't mess things up anymore, huh?

IBM reports earnings after the close, and I think it should be a solid report. I am interested to hear what they say about the nascent tech upgrade cycle, as well as the global economic recovery.

In Asia, the markets were mixed. China's central bank has refueled fears of tighter monetary policy with higher yields on its auctioned Notes for a second week. Even long-time bill Jim Rogers is sounding a cautious note on China. The situation in Japan is the opposite, with the BoJ Govenor pledging to keep monetary policy easy to help pull the country out of deflation.

The dollar is higher today, but that isn't weighing on commodities too much. Oil and gold are roughly flat near $77.85 and $1130, respectively. The 10-year yield is up slightly to 3.71%, and the VIX is down a bit more to 17.69.

Trading comment: Despite Friday's selloff, the market is mostly moving in a sideways fashion while working off the latest overbought condition. This has been the hallmark characteristic of this "stair-step" market, and if the market does make a move to new highs again, I think it will leave a lot of investors on the sidelines who have sounded a cautious note lately.

I agree that investor sentiment has become a bit too complacent recently, so I find myself in the cautious camp as well. I just want to admit that it is a crowded camp right now, and we know the market loves to zig while others are zagging. I think the key will be to keep an eye on leading growth stocks, which have already been correcting, to see if they can resume their leadership or need more time to consolidate.

long IBM