Stocks Bounce From Yesterday's Sharp Selloff
The stock market is getting a nice bounce in early trading, but we don't really like strong opens. Up opens in the market often leave too much time in the day for sellers to emerge and knock it down again. It's usually more bullish when a market opens weak and then builds strength late in the day to leave a positive reversal.
Overnight action can't really account for the bounce we are seeing in US stocks. Asian markets declined overnight, with Japan swooning -4.2% and China still closed for Lunar New Year. Japan's monetary base rose 51.9% vs. year ago. And the Reserve Bank of Australia held its key rate steady at 2.50%.
In US economic news, December factory orders fell -1.5%, but this was better than forecasts.
Gold prices have been firm lately, but are sliding today to $1251. Oil prices have also been firm and are trading higher near $97.35.
The 10-year yield slid quite a bit yesterday, but is bouncing today to 2.62%. Quite a ways away from the folks who were calling for 4.0% in short order to start 2014.
And the volatility index spike higher yesterday to close above the 21 level. That's about a 14-month high for the index and indicative of a quick spike in fear among investors. Today the VIX is settling down and is 10% lower to 19.12 currently.
Trading comment: While the stock market has experienced a quick correction to the tune of 5% give or take, that doesn't mean it is over already. Normal corrections in the market come in both price and time. For price, a 5% correction is healthy but given how long it has been since we have seen a 10% correction we think that this pullback likely has more in store. Additionally, normal market corrections usually last for 4-8 weeks before they fully run their course. So that means we could continue to see volatility for this whole month before seeing a firm bottom. Right now its too early to predict how things will unfold, so we just play defense and hold higher cash balances and wait for a better buying opportunity. Again, patience is the key at this juncture.