Pent-up Selling Starts The New Year

The markets are getting off to a weak start in 2014, but this is not all that surprising.  December was a strong month for stocks, and we saw them levitate into year-end without any pullback.  That makes it likely investors were hesitant to take profits late in the year and were waiting for the calendar to turn so that they could defer another year of capital gains taxes.

So today you have than pent-up selling being unleashed.  But the selling appears orderly and there is no sort of panic in the air.  Volume levels are likely to remain below average as many participants remain on vacation this week.  So we should see normal healthy volume levels return next week.

In economic news, the December ISM Index fell to 57.0 from 57.3.

Commodities are mixed with gold prices bouncing to $1225 while oil prices are weaker near $96.40 after a Libyan field is expected to come back online which would increase supply.

Asian markets were mixed overnight, with Japan closed.  China's HSBC Manuf. PMI held steady at 50.5.  Singapore's GDP rose 4.4%.

Europe's markets hover near their lows.  Eurozone manuf PMI held steady at 52.7 with Spain getting over the 50 level (50.8) for the first time in many months.

The 10-year yield is hovering just below the 3.0% level.  Preferred stocks seem to be getting a small bounce from all the year-end selling.

Trading comment: The market is overbought and certainly due for a pullback.  But that doesn't mean the overdue 10% correction everyone is looking for is bound to occur this month.  We are still in a favorable seasonal period for stocks and there is still likely money being reallocated into the market.  It would surprise us to see a small pullback in the near-term followed by a return of dip buyers.  Trying to time a 10% correction in the market is extremely difficult to do for anyone, but our guess is that today is not the start of said correction.