European Bank Concerns Ease, At Least For Now

The market is slightly higher in early trading, after yesterday's pronounced selloff. Asian markets were lower overnight, with China -1.2%, but European markets are higher this morning after a short-term debt offering from the ECB showed low demand. This was taken as a sign that liquidity concerns related to an expiring ECB lending program may not be as bad as feared.

In economic news, the ADP employment report showed payrolls for June increased by only 13,000 (vs. 61,000 consensus). This has some worrying that Friday's jobs report could also be weaker than expected. Current estimates are for a decline of -100,000.

CNBC reported that new bank fees and taxes of roughly $19 billion have been removed from the financial regulation bill, in an attempt to get it passed.

The dollar is lower this morning, while the euro is bouncing. Oil is higher near $76.40, while gold is also bouncing to $1246.

The 10-year yield is flat at 2.96%, signaling weak economic growth expectations; and the VIX is down 4.3% today to a still high 32.65, after yesterday's 17% ramp higher. (we trimmed our VXX position into the spike).

Trading comment: I got some comments on why I had been counseling being defensive lately, but I think recent market action has pretty much justified my stance. Today should be interesting as many leading stocks are testing their 50-day averages, so if they can bounce the broad market should bounce as well. But if they fail at this key moving average, it could mean more rough sledding.

Here are some examples of the stocks I am watching: GMCR, AAPL, FFIV, VMW, AKAM, MELI, APKT, SNDK, DECK, NFLX, PRGO, RBCN

long AAPL, FFIV, VMW, VXX

China Slowdown Stirs Global Worries

The market is lower this morning after a weaker than expected leading economic indicators report in China (+0.3% vs. +1.7% consensus). China has been a big driver of global economic growth, so signs that it could be slowing are bound to have pronounced effects on markets.

There is also a concerning report out of Europe that the ECB has refused to extend liquidity measures to banks, and instead asked for billion in repayments from banks. I have commented recently that one of the reasons I remained concerned was that the credit indicators were flashing warning signs. This news seems to fit that bill.

Asian markets were lower overnight, led by Shanghai which tumbled -4.3%. European markets are also lower this morning, to the tune of -2% to -3%.

On a positive note, the CaseShiller home price composite rose 3.8% in April, above expectations. But it has done little to improve investor sentiment today.

Economic concerns can clearly be seen in the rise in Treasury prices, which today are pushing the yield on the 10-yr Note down below 3% (to 2.97%), the lowest yields we've seen in over a year.

For its part, the volatility index (VIX) is spiking higher by +16% this morning to 33.70; and the TRIN is very high at 4.19.

Oil is lower today, down to $75.80, and gold is off a bit as well. But the other 2 out of 3 flight to safety trades are higher, namely the dollar and US Treasuries.

Trading comment: I have recently warned to keep an eye on the rising VIX levels. Today we are seeing that big spike higher that often comes when the VIX hovers near that 30 level. We have been long the VIX etf (VXX), but will look to trim our positions a bit this morning.

The lowest close on the S&P 500 this year was 1050 on 6/7, so this is a very key level to watch.

long GLD, VXX

Monday Morning Musings

The stock market is a bit lower in early trading, but not on much newsflow. The G-20 leaders met over the weekend, and for the most part agreed to work on slashing deficits. No major headlines were released that really moved markets.

Asian markets were mixed overnight, while Europe is higher this morning. This despite the euro trading lower, and the dollar up as a result. Oil prices are down this morning near $78.25, and gold is just off its recent highs near $1254.

Apple (AAPL) is bucking the broad market weakness so far, after news that it had sold 1.7 million new iPhone 4's in its first 3 days. I stopped in the Apple store, and put my name on the waitlist for the new phone, which is expected to take about 3 weeks to arrive. Seems like a long time to make the customer wait.

In economic news, personal income was a bit lower than estimates today (0.5%), but personal spending was a touch higher (+0.2%), despite the savings rate also ticking higher for the month to 4.0%. It appears consumers continue to balance spending with shoring up their personal balance sheets.

The 10-year yield continues to drift lower, now down to 3.05%. This is a very low level, and likely a reflection of the economic slowdown that seems to be coming. Friday's ECRI Index supports this thesis also, coming in with a negative growth rate for the third straight week.

And the VIX is up +4.5% right now to 29.82, rising towards that 30 level again after pulling back right to its 50-day average on Friday.

Trading comment: We are very close to quarter-end, where we could see some window dressing by fund managers. I continue to think that near-term strength should be used to lighten up on marginal positions and develop a more defensive posture. The 50-day average is quickly converging on the lower 200-day average, and if and when the former crosses the latter, it will confirm another bearish indicator. There have been times when the 50/200 cross was only temporary, but more often then not it is a warning to stay cautious. I will continue to monitor this one, and post charts accordingly. Also, the sentiment indicators I follow are not flashing high enough bearish sentiment to signal a bottom in here.

long AAPL, GLD

Quote of the Day

"When I hear somebody sigh, 'Life is hard,' I am always tempted to ask, 'Compared to what?'"
— Sydney J. Harris: American journalist

With FinReg Uncertainty Out Of The Way, Can Financial Stocks Rally?

The markets are slightly higher in early trading, after Congressional leaders seeming to reach an agreement on what the financial regulation bill would look like. The "Volcker rule", which is aimed at banning banks from proprietary trading, was watered down by the Senate.

These types of sweeping regulation are often overkill in terms of regulating behavior from the paste that is probably unlikely to be repeated anyway, due to the lessons learned from the recent collapse. Nonetheless, markets hate uncertainty. So to the extent that this removes a layer of uncertainty from the financial markets, bank stocks should be able to lift.

The financial etf is up +1.25% so far, not a terribly exciting reaction. So that is something to watch.

In economic news, final Q1 GDP was revised lower to +2.7%, which is a bit disappointing. And I think its safe to assume that future quarter's growth rates will be below those levels. On a positive note, the Univ. of Michigan consumer sentiment index rose to 76.0, its highest level since Jan. 2008. So that is a bit of a bright spot.

In corporate news, Oracle (ORCL) reported strong earnings last night and its stock is higher. Research In Motion (RIMM) topped estimates, but its mixed guidance is not being well received by the market, and the stock is lower so far.

At the close today comes the annual rebalancing of the Russell indexes, which is likely to add some volatility at the close of what would likely otherwise be a quite close on a summer Friday.

Asian markets were lower overnight, and Europe was down this morning. The euro is also lower, while the dollar is higher. As for commodities, gold is higher to $1254, and oil is also up to $77.20.

The 10-year yield is off its 52-week lows, currently at 3.11%; and the VIX is fractionally higher to 29.85, just below the key 30 level that I like to watch as a red flag.

Trading comment: The market continues to feel heavy to me. I haven't done a lot of selling this week, as the market could still bounce into quarter end. I have been moving in slow steps to adopt a more defensive posture in portfolios, and I still think that is the right call.

It could be that the market will remain in a wide trading range for the near future. If that is the case, then there is still room to move lower before another good buying opportunity presents itself.

long GLD, RIMM, VXX

Soft Earnings, Guidance Hitting Retail Stocks

The market is lower in early trading. It would be interesting if we could see a reverse of the recent pattern of strong opens and weak closes, with the market opening weak today but finishing on a strong note.

The Fed met yesterday and left interest rates unchanged. But they did lower their forecast for growth a bit. The market often does not have a big move on the day the Fed meets, but then experiences larger moves the next day. That could be playing out today.

In economic news, durable goods orders for May fell -1.1%, less than expected. Orders ex-transportation rose +0.9%, and figures for the prior month were revised upward. Initial jobless claims for last week slightly better than expectations.

In corporate news, Darden (DRI) and ConAgra (CAG) missed estimates, while NKE was in-line and BBBY was above estimates. But guidance was soft, and all of the stocks are lower today. The retail index (XRT) is down the most so far, falling -2.75%.

Among the sector ETFs, financials are weakest (-1.72%) followed by energy (-1.66%); utilities are down the least (-0.10%), then healthcare (-0.58%). Real estate is also getting hit by -2.62%.

The dollar is roughly flat. Gold is higher to $1237, while oil prices are lower to $75.95.

The 10-year yield is hitting new 52-week lows at 3.07%, not a sign of confidence on the part of the bond market. The VIX is up another +9.6% to 29.50. I view the VIX over 30 as a signal that investors are expecting big whipsaws in the market.

Asian markets were mostly lower overnight, but not by a lot. Europe is lower this morning, and the bad news seems to be percolating there again, as credit default swap yields are rising, with Greek CDS near record highs.

Trading comment: I have commented that the news and credit indicators I follow were flashing caution signals. That is why I haven't gotten overly bullish recently, despite the intermittent rallies. The S&P and Nasdaq are both back below their respective 200-day averages, and the flight to safety trade (US dollar, gold, Treasuries) looks to be back in force. Be careful out there.

long GLD, VXX

Stocks Languish Ahead of Today's FOMC Meeting

The market is off to a sluggish start, after yesterday's early gains evaporated by the close and the S&P 500 finished below its 200-day moving average.


Volume will likely run light this morning, until the announcement comes out following today's FOMC meeting. I think few are expecting a big change from the Fed's language, but it will be interesting to see if they make any comments about growth moderating.


In corporate news, Jabil (JBL) and Adobe (ADBE) both reported solid earnings, but JBL stock is higher while ADBE is lower.

In economic news, new home sales for May just hit the wires, and the number was far weaker than anyone was expecting. Most analysts expected May sales to be lower after the new homebuyer tax credit expired, but the actual numbers showed a -32.7% plunge in new home sales. This is a very weak number, and the stock market has just ticked lower on the news.

Taking a look at the euro, it is down for a third straight day today. In commodity land, gold is higher to $1245, while oil prices are lower near $76.75.

The 10-year yield also ticked lower on the home sales report, with the yield now down to 3.10%, the lowest yields we have seen since October 09. The volatility index (VIX) is up +4.58% today, back above the 50-day average to a level of 28.28.

Trading comment: I kind of think the market indexes are in no-man's land right here. If we look at the recent trading range for the S&P 500, it bottomed at 1040 and topped near 1130. So the mid-point of that range would be SPX 1085, which is exactly where we are trading right now.

That said, the fact that we have fallen back below the 200-day average gives me pause, and I would likely lean toward making sales if we bounce back to the underside of that key moving average.

long GLD, VXX

Weak Home Sales Could Weigh On Economy

Yesterday's action was again disappointing, and another example of why I don't like to see strong opens. The market was nicely higher in early trading, but completely faded by the end of the day to close in negative territory.

You can see on the chart below that the S&P was getting close to its overhead 50-day, which I think will act as resistance, and might have already. The index is now back sitting on support at its 200-day, which will remain a key level to watch.

This morning, the market opened a little weak following weakness in the euro and overseas markets. The weaker than expected existing home sales report for May (-2.2%) didn't help improve sentiment any either. Home sales are an important metric for the economy, and their weakness could have pronounced effects on consumer sentiment and the economy going forward. Yesterday Meredith Whitney cited her conviction that housing would continue to be a problem.

Commodities are lower today, after yesterday's big rally. Oil is lower to $77.50 and gold has fallen to $1232, but is stabilizing.

Asian markets were mostly lower overnight, but China eked out a small gain; the 10-year yield is lower to 3.21%; and the VIX is down slightly to 24.82 after a reversal higher yesterday.

long GLD

China Relents On Currency Moves

The markets are nicely higher in early trading on the heels of an announcement out of China that it is prepared to allow its currency to move more freely. Pundits have been critical of China that their rigid peg to the US dollar was unfair to global trade. Its decision yesterday will benefit companies that export to China. It also signals confidence in China's recovery prospects, as it will raise the cost of China's own exports.

The news led Asian markets to rally overnight, with China climbing +2.9%. European markets were also higher this morning on the news.

Commodities are leading the action so far, with the materials etf up +2.30%. Oil is trading higher to $78.65, while gold is just off its highs near $1256.

The 10-year yield is higher to 3.28%; and the VIX is lower again, trading down to 23.74.

Trading comment: The recent action in the stock market has been nice, including today's rally. Plenty of leading stocks continue to act well and push to new highs. But the ECRI Index last Friday continued to point to a slowdown, and the persistent drop in the Baltic Dry Index could be signaling similar concerns.

So while I continue to play the growth names in the stock market, I also want to be mindful of what I think could be a fairly pronounced second half slowdown. As such, I don't think the recent rally signals a new, sustainable uptrend. Rather, I view it as a nice relief rally after things had become overdone on the downside. But I want to stick by my mantra to take profits on marginal positions and trim back my equity exposure as the market climbs higher. I think this will position our portfolios better for the second half if I am right about the coming economic slowdown.

long GLD

Stocks Flat, Gold Pushes To New Highs

Stocks are roughly flattish in early trading on relatively light news flow. There were no economic reports this morning to speak of, nor earnings reports. Today is options expiration, which could add some volatility to the session.

Asian markets were mixed overnight, with China lower by -1.8% after the PBOC said that the country's economic growth might slow in the second half of the year. China has been a major driver of global economic growth, so its slowdown will be felt everywhere, and could effect commodity prices, etc.

The dollar is flat so far today, with oil and gold prices mixed. Crude prices are lower to $76, while gold has hit new highs for the year near $1260.

The 10-year yield is a tad higher to 3.20%; and the VIX is another -3.5% lower, now below 25 to 24.13.

Among the sector ETFs, utilities are down the most (-1.32%), followed by energy (-0.40%); materials (-0.13%) and financials (-0.30%) are down the least, but all sectors are in negative territory so far.

Trading comment: The S&P has been holding above that 200-day average (see below), which is a good sign. The market is a bit overbought short-term, so we could see a pullback. But there is also a good chance that we see another rally into quarter-end later this month. If that occurs, we will probably start talking about the overhead 50-day average as the next area of resistance. As it stands currently, the S&P is exactly flat on the year.

long GLD, VXX

Euro Gains On Successful Spain Debt Offering

The market is lower in early trading, mostly due to some soft economic data that came out this morning. Initial jobless claims were worse than expected, and the Philly Fed Index really plunged. The Philly index fell to 8.0 (well below 20.0 consensus) from last month's 21.4.

The euro is bouncing today after news that Spain had a successful debt offering. This has helped spreads tighten in Greece, Portugal, Italy, etc. The strong euro is weighing on the dollar, which might be boosting gold today (currently higher to $1244).

The weak economic news is pushing bond yields lower too. The 10-yr yield is down a lot, back below 3.20%.

Asian markets were mixed to lower overnight; and the VIX is slightly higher to 26.25.

Among the sector ETFs, only consumer staples (+0.22%) are bucking the weakness; materials (-1.16%) are down the most, followed by energy. Homebuilders (XHB, -2.86%) are down the most among the sub-sectors, after TOL said that they were seeing a slowdown in housing. Tech is hanging in fairly well so far also, with AAPL hitting a new all-time high earlier.

Trading comment: The market still seems a bit bifurcated, with leading growth stocks making good headway, but other sectors (like financials) acting heavy and languishing. So we continue to hold those leading growth stocks, but also look to continue to use market rallies to pare back exposure to marginal names or sectors that are losing relative strength.

Sentiment is a bit mixed in here. The ISEE call/put ratio has been very low recently, reflecting high pessimism, but today's AAII survey showed considerably more bulls than bears, reversing a 3-week trend. Also, the markets are back in overbought territory in the short-term.

long AAPL, GLD

Stocks Slightly Lower Following Yesterday's Strong Rally

Yesterday's rally was pretty strong. Lots of leading stocks either broke out to new highs, or are now close to doing so. Volume was higher than the preceding day, so if you follow IBD's rules, yesterday would be considered a follow-thru day from the recent start of a new rally.

Recent follow through's haven't proven sustainable in the face of waves of bad news from Euorpe to BP, etc. Time will tell if this one holds up and leads to a nice summer rally.

The multi-day bounce in the euro looks to end today and debt spreads in Spain are widening ahead of their meeting with the IMF later this week. Rumors are that they may seek financial aid. That is pushing the dollar higher today. Oil is flatting near $76.95, and gold is down slightly at $1232.

The Producer Price Index for May fell -0.3%, showing no signs of inflation anywhere in sight. The housing reports were especially weak, and are likely weighing on the market. Housing starts for May dropped -10% for the month, and building permits fell -5.9%. Both results were below consensus expectations.

In corporate news, both Fedex (FDX) and Nokia (NOK) reported earnings and gave cautious guidance. Both stocks opened lower today.

In Asia, China and Hong Kong markets were closed, but Japan rose +1.8%; the 10-year yield is lower to 3.26%; and the VIX is up slightly to 26.25, but still well below the 30 level after a nice 4-day drop.

Trading comment: The S&P got above its 200-day average yesterday, and is sitting right on that support currently (1109). So this will be an interesting level to see if it holds.

Many of the leading stocks (AAPL, FFIV, VMW, DECK, NFLX, etc) continue to act well and make new highs. These are the names I would stick with, as only select growth names continue to work well, while many other sectors and stocks struggle. The financials really can't gain any traction, especially with financial regulation looming.

Last, two stocks that had been lagging, but look like they might have turned the corner are GMCR and PCLN. Priceline has a little too much exposure to Europe for my tastes, but that doesn't mean it couldn't rally a bit more.

long AAPL, FFIV, GMCR, VMW, GLD

Euro Higher Again, But S&P Stuck Below 200-day Average

The market is nicely higher again this morning, but as we have seen lately when the market is up strong in early trading, it often fades by the closing bell. That is why I always say I prefer a market that opens weak and builds strength into the close.

Yesterday I commented that the S&P was approaching its overhead 200-day moving average, which would likely act as resistance. Right on cue, the market rallied to that level and then stalled (see chart below). When the news came out that Greece had its debt rating downgraded, the market began to selloff and by the close had given back all of its gains.

The market is higher again this morning on another bounce in the euro, following news that Spain and Ireland both had successful debt offerings. This is overshadowing corporate news here from Best Buy (BBY), which missed earnings and its stock is lower.

The lower dollar is helping most commodities. Oil is higher, near the $76 level. Gold continues to struggle, but hasn't given back all that much from its recent highs, trading near $1223 again today.

Asian markets were slightly higher overnight; the 10-yr yield is lower to 3.25%; and the VIX is -6% lower, now well below the 30 level to 26.85. The VIX is approaching its 50-day average, so it will be interesting to see if it bounces from this level.

Trading comment: If this market is going to build on its recent rally attempts, it really needs to hang on to today's gains into the close. A lot of this feels like short covering. We know that every trader has been short the euro, so short covering there should not be surprising. I also think its likely that with all the bad news, many traders have also been short the market. So if we get above that 200-day moving average on the S&P, that could spark another round of short covering.

It's nice to see tech names leading again. This is a sector where we remain overweight, but I still don't see enough improvement in the credit gauges (TED spread, CDS yields, etc) to get overly bullish here for more than a trade. Stay nimble.

long GLD

Monday Morning Musings

The newsflow is relatively light this Monday morning, so the markets are taking their cues from overseas trading. Asian markets were nicely higher overnight, and Europe is strong this morning. Also, the euro is having a nice bounce again after a strong industrial production report in the eurozone.

The dollar is lower as the euro is higher, and that is boosting most commodities. Oil is higher near $76, but gold is lower, although still hovering around $1222. It's interesting how gold used to normally rise when the dollar was down, but lately they have been trading in tandem.

The S&P is currently above the key 1100 level, but I am keeping an eye on its overhead 200-day average which is currently at 1108.

Leading sector ETFs this morning are energy (+1.53%) and industrials (+1.34%), while financials are lagging (+0.21%). Homebuilders (+2.05%) and REITs (+1.76%) are also doing well.

Trading comment: The S&P failed the last 2 times it rallied to its 200-day, so its possible it could get through it this time. There has been a lot of bearish sentiment of late, so it wouldn't be surprising to see the market lift a little to get the recently minted bears to question their stance.

I am still keying in on the credit indicators, and unless I see a marked change there (credit default swaps, TED spread, LIBOR, etc) I am sticking with my defensive posture. That doesn't mean there won't be good trading opportunities, it has more to do with our global asset allocation and the fact that as the bull market slows, leadership has narrowed and a rising tide is no longer lifting all boats. So stick with the leaders and pare back on lagging stocks.

long GLD

TARP Figures Show The Program Actually Made Money For Government

The market had a spirited rally yesterday, but is a little lower in early trading after a disappointing retail sales report. Advance retail sales for May fell -1.2% when many analysts had been looking for a slight increase.

This pushed the futures lower and weighed on stocks at the open of trading. The next report that came out this morning reversed much of the weakness, at least for a bit. Consumer confidence for June rose to 75.5 from 73.6, and hit the highest level since January 2008. This is a good sign, as consumer confidence is key.

The dollar is higher this morning, while the euro is down. Oil prices are also lower, near $74.85, while gold is betting a little bounce near $1225.

Asian markets were higher overnight, and Spain's stock market is bouncing for a second day. The 10-year yield is lower to 3.24%; and the VIX is lower, hovering just above the key 30 level, which is a level that has acted as support for weeks.

Among the sector ETFs, healthcare is leading (+0.35%), while consumer staples are lagging (-1.14%).

It was also released this morning that the TARP program has received more back in interest than it has left in remaining payments owed. That means that the TARP program has already turned a profit for taxpayers.

I stated when the program was approved that the average taxpayer had it wrong when they viewed it as a giant $700 billion bailout. The program was designed well, and was effective in stabilizing our crucial banking system. Our banks are now in better shape than most banking systems around the world, and the taxpayers actually made money by doing the right thing.

This stands in stark contrast to the fiscal stimulus program that was enacted (the Recovery Act), where hundreds of billions were doled out to states, municipalities, and other pork with little tangible results to show for it.

Trading comment: Yesterday's rally was nice, but not enough to alter my near-term strategy of using rallies to get more defensive. Volume was lagging yesterday, which is a sign that demand isn't that strong on rally days, but has been picking up during selloffs. Additionally, the credit angst indicators I follow continue to hover in elevated territory, signaling continued distress in the credit markets.

I am certainly not outright bearish, for the record, but the recent stance I had earlier in the year of being overweight equities is being reduced.

long GLD

Energy Stocks Snap Back From Yesterday's Pasting

The market is nicely higher in early trading, but yesterday I titled my morning post "Will the early bounce for stocks hold?", and the answer was No. That's why I like to see markets that are weak early but then close strong. These daily instances of the market opening strong and then closing on its lows are signs of distribution, and not a positive indication of demand.

The energy sector was the biggest loser yesterday, on the heels of concerns about BP's ability to meet its mounting financial obligations. Today, the sector is bouncing back, by far the biggest gainer among the various sectors.

The euro is firm again today, after the Bank of England held rates at 0.5% and the ECB also held steady at 1.0%. The dollar is conversely weaker today, which is boosting oil again, but not gold. Oil is up near $75.85, but gold continues to struggle after hitting new highs the other day. It is currently down 0.8% near $1220.

Asian markets were mostly higher overnight, and European markets are higher this morning. Spain is a notable performer, after its 3-year bond auction showed strong demand. Spain has a ton of debt coming due over the next month, so it is important for its bond auctions to be met with firm demand. We don't want another Greece scare.

The 10-year yield is higher to 3.26%; and the VIX is down almost -10% near that key 30 level again. The 30 level has acted as firm support the last couple of weeks, so a breakdown below this level would be notable.

Trading comment: No change to my recent mantra. I continue to use bounces to lighten up and construct a more defensive posture in our portfolios. The S&P 500 still trades below its 200-day moving average, and its 50-day average is coming down fast. If the 50-day crosses below the 200-day, it will signal what technicians call a "bearish cross", and could signal a longer correction.

long GLD

Will The Early Bounce for Stocks Hold?

The market is higher in early trading on a bounce in the euro, for the most part. The euro is finally seeing a bounce, rising to the $1.20 level. This is boosting European markets, will all of them higher this morning.

There was also a strong economic report out of China that exports surged +50% year-over-year, easing fears of an imminent slowdown over there.

The boost in the euro is pushing the dollar lower, which is boosting most commodities. Oil is up sharply to $74.25, but gold is pulling back from hitting new highs yesterday, currently near $1230.

Chip stocks are doing well (+1.40%) after Texas Instruments (TXN) raised Q2 guidance slightly and said that they are not seeing any weakness from Europe at the moment. Among the sector ETFs, materials are leading (+1.54%), followed by industrials (+1.36%). Healthcare is lagging (-0.14%) followed by utilities (+0.10%). Real estate is also bouncing +2.18%.

The 10-year yield is higher to 3.22%; and the VIX is falling -5.8% to 31.73, but I would still like to see the volatility index get below 30 to indicate that some sort of normality is coming back to the market.

Trading comment: The big drop in the VIX is a welcome sign, if it holds. The market should enjoy a little bounce, but it has had difficulty breaking above any sort of resistance levels. At the margin, one positive anecdote is just how bearish all of these market commentators on CNBC have become. We will have to see if that bearishness makes its way into the investor sentiment polls.

Yesterday, the S&P 500 briefly broke below the February lows (1044) before bouncing. While said bounce is a normal reaction, I still think the market gave us a bearish signal with its action. Unlike past market corrections over the last 15 months that were all good buying opportunities, I am not as bullish on this one. I am still looking to use bounces to pare back equity exposure and adopt a more defensive posture while this plays out.

long GLD

Bernanke Makes Positive Comments On The Economy

There isn't a lot of market moving news this morning. Asian markets were slightly higher overnight, and the euro is a bit higher this morning.

That was enough to give our markets a small boost in early trading, but the small gains quickly evaporated and the market is currently struggling with selling again. Tech is lagging for the second straight day.

Last evening, Chairman Bernanke stated that the economic recovery remains moderate, but that a double-dip recession is not in the cards. This also seems to be the signal from the ECRI index, which called the last recession perfectly. That index has been correct in calling for a slowdown, but not falling back into recession.

The dollar is a touch lower, due to the bounce in the euro. This is boosting oil prices to near $72, and gold is also higher to $1250.

The 10-year yield is lower to 3.15%; and the VIX was lower earlier, but is currently a bit higher to 37.13.

Trading comment: The S&P 500 is currently sitting at 1044, the exact level of the February lows. This is an important level. If it does not hold, it would market the first lower low in the index since last year. That would be a change of character for this market, and one that I want to pay attention to.

I have been correctly cautious on this market, and have used bounces recently to decrease our equity exposure and get more defensive. It's always hard to know how long it will take for a correction to run its course, but I want to preserve capital and maintain the flexibility to be in a good position to take advantage of it once it finally does exhaust itself.

In terms of sentiment, while the put/call ratios have recently been very high, the investor sentiment polls are not showing the same levels of bearishness as they did in prior corrections. So I'm concerned that we need to see more bulls converted over to the bear camp. Be patient.

long GLD

Monday Morning Musings

The news is light this morning, so all eyes are on the euro to see if it can find some support.

Asian markets got slammed overnight, as the euro fell, and that had the futures market trading lower before our markets opened this morning. But the euro started to stabilize, and our markets actually opened on the plus side, albeit it slightly.

Japan was knocked lower by -3.8%, with Hong Kong and China lower also, by lesser amounts.

The dollar is flattish so far, as are oil and gold. Oil is hovering around$71.50 and gold near $1215.

The 10-year yield is a touch higher to 3.21%; and the VIX is only down slightly, trading at 35.20 right now after Friday's big spike higher. This high level of the volatility index is predicting another choppy week at the moment.

Trading comment: The Nasdaq, which had that strong follow through day last week, broke below last week's lows on Friday, on higher volume. This is a negative sign, but there is still a small chance the rally attempt is alive.

As for the S&P 500, all eyes will be watching the Feb. lows at 1044. If those lows are broken, it will mark the first instance of a 'lower low' on the charts since the March 09 bottom. Earnings estimates have been holding up, so one thing the market has going for it right now is that valuation remains attractive, and the economy is still in recovery mode, even as the pace of economic growth is slowing.

After such a huge runup from the March lows, it is not uncommon to see a 20% pullback that does not result in a new bear market. So that is what investors are grappling with. I will continue to watch the sentiment indicators, and feel that if bearish sentiment spikes again as it has during prior pullbacks, it could set the stage for another tradeable rally.

Jobs Number Disappoints High Expectations

I had a hunch that expectations were getting too high for today's jobs report. I actually think the market would have sold off on any number, just about. The consensus was for 500,000 new jobs, but yesterday there were comments coming out that the number could be 600,000 or above. So when the number printed this morning at 431,000, the market immediately began to selloff. Go figure.

The other piece of disconcerting news that the market is grappling with is comments out of Hungary where officials said their economy is in a grave situation and that talk of a default is not an exaggeration. Here we go again. The news hit the euro, pushing it down to new multi-year lows, and boosting the dollar in return. I think these types of news stories are going to be with us for a while, until each country with debt problems makes the headlines.

Oil prices are lower near $73, and gold is also down near the $1200 level. The 10-year yield is lower to 3.26%; and the VIX is up +8.0% to 31.84.

The energy sector is outperforming so far, bucking the early market weakness; industrials (XLI) are being hit hardest, -2.34%. Real estate (IYR, XHB) is also lower, as are financials.

We'll have to see if we get any short-covering into the close today. The S&P 500 needs to finish above 1189 to put in another positive week (its currently 1087).

Trading comment: There are a handful of stocks that are green this morning, and bucking the weakness. They include: ASPS, GOOG, CRM, VMW, NFLX, WLP. These are the names I would consider playing for a bounce early next week, as it appears buying interest in these names is strong.

The market is no longer oversold, but not overbought either. But with the VIX above 30, I still expect the market to remain choppy. So my trades are mostly short-term at the moment, until I see more solid signs of a bottom. Have a good weekend.

long ASPS, GOOG, VMW

Stocks Higher After Global Markets Bounce

The market is higher again in early trading. Yesterday's rally was solid, and really picked up steam into the close. Overnight, Asian markets rallied, led by Japan's 3.2% surge. And this morning, Europe's markets were higher which helped sentiment in the U.S. at the open.

In economic news, the ISM Services index for May was in-line at 55.4. Final Q1 productivity came in a little light at 2.8% (vs. 3.3% consensus) and unit labor costs fell -1.3%. Retailers also reported same-store sales figures this morning, which were somewhat mixed but most retail stocks are higher.

There is a lot of anticipation over tomorrow's jobs report. Consensus is near 500,000 jobs added, which is a big number. But we need to see how many of these were related to Census hiring vs. private payrolls. Today's ADP report came in a little light, although it hasn't been the best indicator for the big monthly payroll report.

It's not a great sign that the euro can't bounce. This is boosting the dollar in turn. Oil is higher near $73.25, while gold is lower to $1215.

The 10-year yield is higher to 3.88%; and the volatility index (VIX) is down to 29.67, after a big plunge yesterday that took the fear gauge below the 30 level.

Trading comment: The S&P 500 continues to struggle getting back above its 200-day average. You can see this in the chart below. I think the longer it stays below this key moving average, the more likely it is that we are going to see another move lower. This is one of the reasons I have not put much cash to work, and have stayed defensive.

Market Strong Early, Weak Later - Is This The New Trend?

Once again, the market is strong in early trading. But most of the time lately, when the market has been strong in the morning, we have seen it fade by the closing bell. Is this a new trend? If so, you can bet that traders will continue to try to capitalize on it for as long as it works.

There was another solid housing report this morning, with pending home sales rising +6.0% in April, above expectations. Pending home sales are up 24.6% from the year-ago period.

But the dour news out of Europe continues. All of the European bourses are lower this morning, after reports that Spain's large bank Caja Madrid has asked for funds from the govt. The continued financial strains in Europe are also weighing on the euro again, which is back to 4-year lows.

The low euro is boosting the dollar. Oil is hovering near $73, and gold is slightly lower to $1216. Bonds are also higher again, pushing the yield on the 10-year down to 3.27%. The flight to safety remains, and that means Treasuries, the dollar, and gold.

The volatility index (VIX) is down -6.2% to 33.34, but I would still like to see it get below the 30 level to indicate that the markets are calming.

Trading comment: Yesterday's action was disappointing. The S&P is still churning below its 200-day average, but above its recent lows. The market is also still very oversold, and bearish sentiment has risen a lot lately. This keeps the door open for another rally at some point. But we certainly have not seen any action that makes me want to get aggressive. A defensive posture still seems appropriate in here.

Strong Economic Data Reverses Stocks Early Slide

Stocks started off the session markedly lower, following on the heels of lower markets overnight in Asia, and weakness this morning in Europe also.

There were comments that the ECB believes eurozone banks face further writedowns over the next 18 months.

Yet soon after the opening weakness, we got some strong economic reports in the U.S., and that turned our markets around. The ISM Manufacturing index for May came in at 59.7, above estimates. And construction spending for April rose +2.7%, its sharpest increase since 1998. It's nice to see investors focusing on these economic datapoints rather than solely looking at the macro picture in Europe.

The euro is also up a bit vs. the dollar, and that is helping commodities. Oil is higher to $74.85 and gold is also up again near $1226. Despite the boost in oil prices, the energy sector is the weakest so far today, as concerns around the oil spill from BP dominate the headlines.

Tech is leading the action, followed by consumer staples. Utilities are weakest after energy.

The 10-year yield is lower to 3.28%; and the VIX hit 35 this morning, but has fallen back to 32.65.

Trading comment: The market is still oversold, and likely to see more of a bounce. After a big down month in May, I don't think June will be bad. But I still expect it to be choppy. The longer the VIX stays above 30, the more likely it is that we continue to see high volatility. But bearish sentiment is growing, and that has been a key ingredient to helping the market put in trading bottoms in the past year.