Is Japan In A Bear Market Already?

The markets were roughly flat at the open and have since pushed slightly into positive territory.  If you're like me and you check the futures before you go to be each night, you are probably breathing a sigh of relief given how negative things looked last night.

Asian markets slid across the board, led by a -6.4% plunge in Japan.  The volatility in Japan has been severe, and the Nikkei is now down 20% from its recent peak.  Technically that qualifies as a new bear market.  But I think it needs to be put in perspective.  The Nikkei was up over 50% in just the last 6 months since the BoJ announced its new quantitative easing program.  That program isn't over, so I suspect the Nikkei will find its footing at some point.

In economic news, May retail sales rose 0.6%, which was better than expected.  Ex-autos, retail sales were up 0.3% implying solid auto sales as well.  Weekly jobless claims also came in lower than last weeks tally.

China was also lower overnight to the tune of -2.7% after reopening following a 3-day holiday.  The World Bank lowered its growth forecast of China for 2013 from 8.4% to 7.7%.  But I'm not sure how good the World Bank has been with its forecasts.

In Europe, the ECB put out its monthly bulletin which singled out Italy for failing to control its deficits.  Peripheral bond yields in Europe have been on the rise, but hopefully the ECB has tools in place to prevent another flare up like we saw last year.

Commodities are lower today despite dollar weakness.  Oil prices are lower near $95.60 and gold prices are down to $1382.  Copper prices are weak today also.

The 10-year yield is easing back to 2.18% so far.  This positive move lower in bond yields seems to be trumping a stronger Yen today (at least so far).  Traders are worried that a rising yen will unwind the carry trade in Japan and hurt stocks.

The volatility index closed at 18.60 yesterday which was its 2nd highest close this year.  But today it is down -6% to 17.40.  We continue to watch the 15 level for an all-clear sign that the market might be ready to rally again and test its recent highs.  The longer we continue to hover with the VIX above 15 the higher the chance that the market breaks below recent support.

Trading comment: Traders are watching the S&P 500 1598 level for support.  That is the level the SPX hit last week.  It is usually not a great sign to see the market retest support levels that quickly.  The SPX came within 10 points of that level this morning.  But the market can do anything at any time and we are still leaning towards the scenario that favors the market making another push higher into quarter end.  If this were not to occur and the SPX broke back below both its 50-day and recent support levels it would likely indicate the summer correction  we said could be on the horizon may unfold sooner rather than later.  So for now the market looks okay, but watch SPX 1598 if and when.