Stocks Bounce Back From Drubbing

The selling really picked up in yesterday's session for the biggest down day we have seen in awhile.  Of course, with the S&P 500 pulling back -1.3% yesterday it doesn't rank as a big selloff its just that we haven't seen much selling in the last several months.

This morning stocks are bouncing back nicely.  One economic report that helped was the December retail sales report that showed retail sales rose 0.7% ex-autos, which was better than expected.

In earnings news, two of the biggest banks - JPMorgan and Wells Fargo - both reported earnings that beat expectations.  JPM is trading higher while WFC stocks is lower in reaction.  JPM had a bigger beat, but both banks showed large declines in mortgage originations.  ISRG is trading higher after issuing upside guidance; ditto for ACT.

Asian markets ended mixed overnight.  China was higher while Japan got hit for -3.1% on the rising Yen.  In China, 5 companies that were set to come public have delayed their IPOs.

Europe's markets were also lower this morning.  Eurozone industrial production rose 3.0% vs. a year ago, which was better than expected.  EC President Barroso said the Eurozone recession is over but complacency must be avoided.

The 10-year yield is a bit higher to 2.85%.  Oil prices are higher around $92.40 and gold prices are firmer as well near $1253.

Yesterday saw a big intraday reversal in the volatility index.  We commented yesterday morning how low the VIX looked at 11.82.  As the day wore on the VIX spiked as much as 15% to a high of 13.65 as the selloff in stocks picked up steam.  Today it is down nearly 8% back to 12.25.  We think it will bounce around in this 12-15 area so we are probably near that lower bound currently.

Trading comment: After yesterday's higher volume selloff, it is likely that the market has more work to do.  Probing additional downside would not be surprising in the near-term, but at the very least some additional sideways consolidation is in the cards.  So we think we can be patient and not chase anything.  Extended stocks are starting to pull back while others are starting to complete their recent consolidations and could start looking attractive again in short order.

KAM has long positions in ACT, JPM, WFC