Is This The Start Of A Correction?

Markets are lower across the board this morning.  The weakness started overseas and has carried over into US trading.  Of course, the market is up a lot recently and investor sentiment has grown more bullish.  This has us wondering if today's pullback is the start of a new correction for the market?

Asian markets were lower overnight after reports suggested the PBOC in China may tighten policy amid rising inflation pressures.  Adding to the weakness were reports that Chinese banks tripled their debt write-offs during the first half of the year.  Overnight SHIBOR rates in China spiked higher, with the one-month rate climbing to 4.81%.

Europe's markets are also lower today.  Spain declined -1.7% after the Bank of Spain said the country's economy expanded 0.1% in Q3, ending a long period of contraction.  Elsewhere, the Bank of England voted unanimously to maintain interest rates at 0.50% and keep in place its asset purchase program.

Stocks rising on earnings: AEP, BA, LLY, NOC, NSC, DPS, LL

Stocks falling on earnings: BRCM, CAT, WLP, EAT, GSK, TUP, GD

Commodities are lower even as the dollar is fairly steady today.  Oil prices are falling further to the $96.50 level.  Falling oil prices could give a boost to the consumer if the declines flow through to the pump prices.  Gold is also lower today near $1333.

The 10-year yield continues to slide, falling below the 2.50% level to 2.47%.  Yields haven't been at these levels since late July.

After reaching very low levels last week, the volatility index (VIX) has bounced.  Today it is up 4% to the 14.0 level, which is still a pretty low level.  It will likely get back to the 15 level in the near-term.

Trading comment: In recent days we have seen reports about money market balances declining to very low levels, margin debt levels rising, and investor sentiment growing more bullish.  All of these are signs that complacency has entered the market equation, and most often that leaves the market vulnerable to a correction.  Calling for any correction this year has been an act of futility, but at the very least we want to give the market some room to consolidate recent gains and not chase stocks that have moved markedly higher already.