When Will The Bombs Fall?

Markets are up again in early trading.  Of course, the Dow was up nearly 100 points yesterday morning but at one point gave back all of those gains before finishing fractionally higher.  Early strength and late day weakness is not bullish for the markets, so let's see if we can hold onto these early gains today.

The US Senate Foreign Relations Committee has approved military action in Syria, as long as the operation does not last longer than 90 days and does not require ground combat.  The market doesn't seem too fazed with this, although it has gotten oversold and thus due for a bounce.

The July trade deficit widened to $39.1 billion.  This should caused downward revisions in Q3 GDP estimates.

Asian markets were mostly lower, especially emerging markets.  Australia's GDP rose 2.6%.  China's HSBC Services PMI rose to 52.8 from 51.3.  China's President commented on local debt levels saying that current levels are controllable but the country may need to sacrifice economic growth to improve long-term economic development.

Europe's markets are mostly lower also.  Eurozone GDP held steady at 0.3%.  Eurozone services PMI slipped to 50.7 from 41.0.  Germany and Great Britain services PMI rose, as did Spain above the 50 level to 50.4. 

The dollar is lower today, but so are most commodities.  Oil prices are weaker near $107.50.  Gold prices are back below the $1400 level to $1391.  Silver and copper prices are lower also.

The 10-year yield is up slightly to 2.86% after hitting 2.90% briefly yesterday.  And the volatility index again touched the 17 level this morning but has since fallen -4.6% lower below the 16 level.

Trading comment: Yesterday's early strength could not be maintained, and it made sense not to chase the early strength. It remains to be seen if sellers will surface again today.  But big picture the S&P 500 remains below its 50-day average and as such caution is still warranted.  Our sense is that the market likely has some more work to do in this current consolidation, but we are getting closer to starting to put small amounts of cash back to work on market weakness.