Monday Morning Musings

Markets are higher in early trading and seeing a nice bounce so far.  Its hard to pinpoint a catalyst today so this could just be month end and quarter end effect in action.

Over the weekend, Putin called Obama to discuss the Ukraine situation.  While no big news came out of it, at least the dialogue can be viewed as a step towards diplomacy.  But the news didn't lift Asian markets or have much of an effect in Europe, so we can't look at that as the catalyst for stocks today.

In economic news, the Chicago PMI for March ticked down to 55.9 from 59.8.  So that isn't boosting the market either.

Fed Chairman Yellen spoke this morning and reiterated that the Fed remains short of its employment and inflation goals and that the economy requires 'considerable support for some time'.

Asian markets were mixed overnight.  Japan's manuf PMI fell to 53.9 from 55.5.  China was lower after continued reports about nonperforming loans weighed on investor confidence.

Europe's markets are slightly higher today.  French GDP rose 0.3%.  German retail sales rose 1.3%.  And the president of the Bundesbank said the eurozone is not in a deflationary cycle, which would decrease the odds of the central bank enacting an asset purchase program.

The 10-year yield is higher today to 2.74%, trading back above its 50-day average.

The volatility index is lower by 3% back to the 14 level. 

Most commodities are lower today with oil down slightly to $101.45 and gold lower near $1292.

Trading comment: Last week we saw a continuation of many leading stocks breaking down and entering corrections.  Most of the time that means the broader market is also likely entering a correction.  The Nasdaq is already below its 50-day average support, and the Russell 2000 is struggling around its 50-day.  So we want to maintain a somewhat defensive posture here and give the markets more room.  The S&P 500 looks to be in good shape technically, which could be from sector rotation out of high growth stocks into more dividend-type value stocks.  But we would still like to see how things shape up past quarter end and as we get into April and approach tax season.

Flirting With YTD Losses

The markets opened on a lower note today, with the S&P 500 breaking below the 1848 level where it started the year.  That makes the market basically flat for the year so far, which is probably not the expectation most investors had for the stock market coming into the year.

We still expect positive returns from stocks this year, but it is not all that surprising to see the market digesting last year's outsized gains.  We also expect to see more volatility in 2014 vs. 2013, which could manifest itself in deeper corrections that we saw last year.

In economic news, the final reading for Q4 GDP settled at 2.6%, just below previous estimates.  But the real final sales component rose to 2.7% and that was the strongest reading for this component since 2Q 2012. 

In corporate news, Baxter (BAX) is higher after saying it will split the company into two separate businesses.  Citi (C) is lower today after the Federal Reserve rejected the big bank's capital plan to increase share buybacks and dividends.

Asian markets ended mixed.  Most were lower but Japan rallied on continued stimulus expectations.  The Economy Minister said the Bank of Japan can maximize the impact of easing measures by surprising the markets.

Europe's markets are mostly lower.  Great Britain's retail sales rose 1.7%.  And French consumer confidence rose to 88 from 85.

The 10-year yield broke below its 50-day average and is a bit lower again today down to 2.69%.

The volatility index is hovering right at the 15 level which often marks the level above which markets are usually in correction mode and below which they often are in rally mode.

Trading comment: Yesterday we talked about being a little more defensive.  The market reversed its early gains and closed on its lows yesterday.  The Nasdaq and the Russell 2000 are both now trading below their 50-day averages.  This increases the likelihood that the S&P 500 follows suit.  The 50-day support for the SPX currently resides near the 1834 level.  So this bears watching and could mean that the markets are in store for another correction.  Most corrections for the last 2 years have been shallow, likely due to the effect of QE by the Fed which has increased liquidity.  So we want to maintain a cash cushion to be able to take advantage of the opportunities a pullback could present.

Is Window Dressing Propping Up Stocks?

Markets are higher again in early trading.  Yesterday we saw the market give up its early gains midday but gain some back again into the close.  This morning's early rally is showing some of the same patterns.

The rallies have come on lighter volume while selloffs have shown increasing volume.  That type of action isn't very bullish, leaving us to wonder if quarter-end window dressing might be propping up stocks?  Something to watch as we head into April.

In economic news, the February durable goods report showed a 2.2% increase.  That is a nice gain, but most of it was from aircraft orders.  Ex-transportation, durable goods rose 0.2%.

In corporate news, Facebook is lower this morning after announcing it will buy Oculus for $2 billion.  Also, FIVE and PVH are both higher after reporting earnings.  Not bad for a couple of retailers, an industry where there hasn't been much positive reactions lately.

Asian markets were mostly higher overnight.  China was down a bit as expectations of more stimulus from Beijing is being met with skepticism.  In Japan, the PM said that if the April consumption tax hike weighs on the economy the govt stands ready to announce additional easing measures.

European markets are also higher today.  The Bank of England said that the British economy is improving with visible gains in wages.

Oil is higher again near $99.75 while gold is lower again to $1305. 

The 10-year yield is trying to hold above its 50-day support at 2.72%.  And the volatility index is lower again, breaking below the 14 level to 13.88.

Trading comment: The market is mostly trading sideways again.  We have seen this pattern for the last couple years, and most of the time it has resolved itself to the upside.  But distribution days are piling up with selloffs coming on higher volume.  Again we just want to take a slightly more defensive posture and are using excess cash balances to add to things like alternative funds to keep portfolios diversified.

Does The Bounce Have Conviction?

Markets are higher in early trading, as dip buyers step in to take advantage of the 2-day selloff in stocks.  But stocks quickly made a high after the open and have been fading since.  We will have to see if buyers step up and can keep the market in positive territory by the closing bell.

Bulls did get some positive economic reports this morning.  The Case-Schiller Home Price Index rose another 13.2% for January, even though this is backward looking data.  And Consumer Confidence rose to 82.3 in the latest reading from 78.1 last month.

The 10-year yield is pretty steady around 2.74%.

Asian markets were mixed overnight.  Europe's markets are higher today after Bundesbank President Weidmann said that a discussion about the pros and cons of a quantitative easing program are needed.  This would be an interesting development.  The US is scaling back its asset purchase program, Great Britain is likely next, while Japan is still in the middle of theirs.  So Europe would be a little late to the party, but it could still improve sentiment and help boost asset prices.

Oil prices are lower today to $99 while gold prices are getting a small bounce to $1315.

The volatility index is down -4% and back below the 15 level we often cite to around 14.50.  With the VIX below 15, it seems traders aren't expecting an immediate pickup in volatility again.

Trading comment: We said yesterday that market selloffs don't come in straight lines, and that comment seems apropos today as the markets bounce.  It remains to be seen how much conviction is behind the buying but so far the Nasdaq is back above its 50-day average (while the S&P 500 never broke its 50-day support).  It could be that the selloff in biotechs and other market leaders is a precursor to more broader market weakness down the road.  Or it could be that we will see market rotation into other sectors and that will mitigate the downward pressure on the overall market.  But right now we want to be a little more defensive and wait to see which scenario plays out.

Leading Stocks Rolling Over

Markets are lower in early trading, following on the heels of Friday's selloff.  Many leading stocks have started to roll over and are already well off their highs.  The one group seeing the hardest selling is the biotech sector, which had been a huge winner already this year but is seeing intense profit taking for a second day.

Social networking stocks from Facebook to Twitter to LinkedIn are also selling off hard, as are big winners such as Netflix.  In the past when you have seen leading stocks start to take it on the chin it has usually been a precursor to a larger market correction.  The S&P 500 is not off nearly as much as the Nasdaq yet, but bears watching.

Asian markets were higher overnight, despite China's HSBC PMI manuf. reading falling from 48.5 to 48.1.  The cause proxima was a PBOC official making comments that Beijing would provide fresh stimulus to combat the slowdown.

Europe's markets are also lower today after the Eurozone manuf. PMI fell to 53.0 from 53.2.

Bond yields are pretty steady so far with the 10-year yield hovering near 2.74%.

The volatility index is on the rise, up 6% so far near the 16.0 level.

Oil and gold prices are diverging again, with oil nearing the $100 level while gold is falling back towards $1317.

Trading comment: We have been in 'buy the dip' mode, but we have to admit that the selling action the last 2 days has given us pause.  While we still favor equities, we think that the heavy volume selloff in leading stocks likely means more a correction is in store for the market.  These corrections never come in a straight line, and we would not be surprised to see some bounces possibly corresponding with quarter end this week.  But corrections usually take time, so we want to exercise some patience here and try to adopt a more defensive strategy with regards to putting excess cash to work in the weeks ahead. 

Was Yellen Really More Hawkish?

Markets fell yesterday after Fed Chair Yellen's press conference, in which markets interpreted her remarks as slightly more hawkish.  I didn't really get that sense, and still feel like the Fed will remain data dependent in their timing of when to hike interest rates.

But when she answered a question by saying the Fed may hike six months after the tapering ends, many interpreted that to mean April of next year vs. current fed fund futures estimates of mid-2015.  So did she intentionally move up the possible date for the first rate hike?  Or was she just still using broad brush stocks and general guidelines to give the markets continued transparency?

Our markets started off today lower as well, but after some economic data came out markets bounced back into positive territory.

February existing home sales hit 4.60 million units, which was only slightly below the previous month's rate.  Leading indicators for February rose 0.5%, better than expected.  And the Philly Fed Survey for March rose to 9.0 from -6.3 the prior month.

Asian markets were lower across the board overnight.  China's State Council announced plans to speed up construction projects in order to stabilize economic growth.  Europe's markets are also lower today.

Bond yields shot higher yesterday after the FOMC, with the 10-year breaking above its 50-day average to 2.77%.  Its steady so far today.

The volatility index also reversed higher to get back above the 15 level.  It sits at 15.25 currently.

Trading comment: Our sense is that yesterday's selloff was more just a reaction to some confusion about whether the Fed was changing its tune at all or becoming more hawkish.  We think this bearish sentiment is likely transitory and short-lived, and would continue to use weakness to add to our positions and continue to put excess cash to work.  The stock market is up less than 1% on the year so far, something we don't expect to last too long.

Will Yellen Continue To Instill Confidence In Markets?

Markets are pretty subdued in early trading, which is not really the pattern we have seen recently.  Investors are awaiting the latest FOMC announcement today, where it is expected that the Fed will continue its 'taper' to the tune of another $10 billion.  Of course, that still leaves $55 billion a month in asset purchases.

Afterwards we will hear the first press conference from new Fed chair Janet Yellen.  It is always interesting to hear a new fed chair's communication style.  Investors hope that Yellen will continue to instill confidence in the markets as this bull market enters its sixth year, long in the tooth by historical standards.

In corporate news, FedEx missed earnings estimates but the stock is being given a pass given weather issues during the quarter.  Oracle also missed estimates and its stock is lower today.

Asian markets were mixed overnight.  Japan's trade deficit narrowed.  Europe's markets are also mixed today.  Eurozone labor cost index rose 1.4% vs. last year.

Commodities are mixed again, with oil prices bouncing to $100 and gold pulling back further to $1339.

The 10-year yield is slightly higher around 2.69%.  And the volatility index remains below the 15 level at 14.45 so far.

Trading comment: I don't think that Yellen will have any surprises for the market.  She likely wants to maintain an even tone and not cause any volatility at the moment.  Getting out of the quantitative easing game will not be an easy task, and I'm sure Yellen will have to answer questions about it, whether the economy can handle it, and when she thinks the Fed will start to raise rates.  Stocks continue to hang in there and trade in benign fashion.  Bond prices remain high and with the 2.60% level holding again recently as a floor, we could see bond yields creep higher from here.

Do Investors Trust Putin?

Markets are in rally mode for a second day.  There were a couple of economic reports this morning, but none that would account for the bullish mood among investors.  Futures did get a boost this morning after Putin made comments that Russia does not want to see a breakup of Ukraine.

There are reports in the news that the Russian forces continue to make aggressive moves.  And we haven't seen the full extent of the sanctions that the International community wants.  I guess the question for investors at this juncture is, do you really trust Putin?

In economic news, housing starts for February fell -0.2% to 907,000.  They had been above a million for the last two months.  And inflation remained low with the CPI rising only 0.1% in February.

Asian markets were higher overnight.  China's housing prices rose 8.7%, although that was a bit below expectations.

Europe also is sporting modest gains.  Eurozone ZEW economic sentiment declined to 61.5 from 68.5.  And the German Constitutional Court confirmed the legality of the European Stability Mechanism.

Commodities are mixed with oil prices bouncing to $99 while gold prices are sliding today to $1356.

Bond yields are down a tad with the 10-year yield trading at 2.68%.

And the volatility index continues to fall, down -7% today back below the 15 level we like to watch and down to 14.50 currently.  Traders don't see an immediate uptick in volatility again following last week's market decline.  Usually the VIX below 15 has coincided with further rallies in stocks.

Trading comment: One knock on yesterday's rally was that it came on much lower volume.  Bulls like to see rallies come on higher volume to signal conviction behind the buying.  But lots of rallies in the last couple years have come on lighter volume, so we can't ignore the price action.  Although the indexes are not yet back at new highs, we will be watching leading stocks to see if they can lead the market and breakout to new highs in the near future.  This is usually a good indicator of the market's health.

Monday Morning Musings

Markets shot out of the gate higher this morning after the vote in Crimea in favor of being annexed to Russia.  While the International community is not in favor of this and is considering sanctions, it looks like there was a sigh of relief in the market that military force was avoided.  This likely also led to some short covering which exacerbated the spike higher at the open.

The President spoke this morning and EU officials are meeting to come up with a response that is likely to include sanctions of some sort.  This could take some of the air out of the rally if the news comes out during market hours.

In economic news, the February NAHB Housing Index rose to 47 from 46 last month.  Also, the Empire Manuf. Survey for March rose to 5.6 from 4.5 last month.

Asian markets were mixed overnight.  Hong Kong's unemployment held steady at 3.1%.  And the People's Bank of China said they will allow the yuan's daily trading band to expand to 2% from 1%.

Oil prices are a little weaker today near $98.60.  And gold prices are roughly flat around the $1379 level.

The 10-year yield is bouncing a little to 2.67%.  And the volatility index, which spiked as high as 18 on Friday over Crimea concerns, has fallen back to the 16 level so far, down -10% today.

Trading comment: The stair-step market to a couple of steps back last week on the geopolitical concerns with Russia.  We has some higher than normal cash balances from recent profit taking as well as bonds that continue to be called by the issuers.  So we started putting some cash back to work into last week's weakness and continue to do so today.  The major indexes still trade above their rising 50-day moving averages and we would not be surprised to see performance anxiety among portfolio managers continue to exert its influence as we approach quarter end next week.

China Tries To Calm Default Concerns

Markets opened higher but have since reversed lower and given up their early gains.  It's still early, so we will have to see if sellers can gain any traction today or if the market drifts higher into the close as seems to be the pattern lately.

In economic news, retail sales for February increased 0.3% after a negative reading in January.

Overnight, Asian markets ended mixed with China bouncing back 1.1%.  Economic data out of China was softer than expected (retail sales, industrial production, fixed asset investment) but the Premier spoke and said the government will not let systemic risks evolve out of the defaults they are seeing.

European markets are little changed today.  New Zealand became the first developed nation to hike rates since the global recession, raising its key interest rate 0.25% to 2.75%.  The Bank of Korea left its rates unchanged at 2.50%.

The 10-year yield is fairly steady so far today at 2.72%.  And the volatility index is up slightly to 14.70.

Commodities are mixed again, but this time its oil trading higher to $98.25 and gold prices easing back to $1367. 

Trading comment: Without any big price action in the markets, we don't have any changes to our near-term investment strategy.  The market continues to trade in narrow ranges with more sideways action than down following rallies.  The longer this goes on the larger the chance that too much complacency sets in a bigger correction ensues at some point.  We are getting closer to quarter end when performance pressure on portfolio managers could result in chasing stocks.  But we wouldn't be surprised to see another pullback of some sort in April.  But for now we are taking things into account as we see them unfold.

Is Copper Still A Good "Tell"?

Markets are mixed again in early trading.  Most indexes are lower, but the Nasdaq is slightly higher and bucking the overall weakness.

Again there is not much in the way of market moving data in terms of economic news.  There were a couple of retail earnings reports this morning showing the same weakness we have seen lately.  So markets took their cue from overseas action which has been mostly to the downside overnight.

One thing that has come into focus has been the weakness in copper prices.  Copper is often seen as a barometer for the global economy, but in recent years its price fluctuations have been distorted by heavy buying from the Chinese.  So the fact that copper prices have fallen to lows not seen since mid-2010 has some questioning if this is part of the China slowdown thesis.

Emerging markets are not trading well this year.  And China has dropped some hints that growth is slowing, even as some govt officials try to hold on to the 7.5% growth thesis.  So this theme bears watching, and includes the triumvirate of how copper, China, and emerging markets trade going forward.

Asian markets were lower overnight, led by a -2.6% drop in Japan.  The Japanese yen strengthened overnight after some hawkish comments from the Bank of Japan.  Also, S. Korea's unemployment jumped to 3.9% from 3.2%.

Europe is also mostly lower today.  Eurozone industrial production fell -0.2%.

Oil prices have fallen back below the $100 level to $98.47 currently.  And gold prices are higher near $1365.

The 10-year yield had gotten above its 50-day yesterday but has fallen back below that resistance to 2.74% so far.  And the volatility index was above 15 earlier but has also eased back to 14.50.

Trading comment: Lots of folks continue to come on CNBC calling for a big pullback in the market.  Yet the stair-step action continues.  We are still operating under the same theses that we have written about recently.  Adding to leading stocks on pullbacks, staying away from broken stocks and laggards, and trying to keep our fixed income purchases short in duration as we anticipate a pickup in economic growth in 2H14 and a concurrent rise in bond yields.

Still Hovering Near New Highs

Markets are mixed this morning with the Nazz slightly higher and the S&P just fractionally lower.  Since breaking out to new highs last week the major indexes have traded in a mostly sideways fashion.  For the last couple years this pattern has usually resolved itself with another move to new highs.  We call it the stair-step market.

There hasn't been much in the way of market moving news here in the US.  There is no economic data to speak of today.  There were a few retailers that reported earnings, and most of the results have been pretty lackluster.  Retailers are trading mostly lower as a result.

Asian markets ended higher overnight.  The Bank of Japan made no changes to its policy course.  In China, the PBOC governor said interest rates are likely to rise by market forces as the country continues on the path towards rate liberalization.

European markets are mixed today.  Great Britain's industrial production rose 2.9% year/year.  And Italian GDP ticked up 0.1%.

Commodities are mixed again.  Oil prices are weaker near $100.66, while gold prices are higher around $1348.

The 10-year yield is pushing up to 2.80% and trying to break above its 50-day average.  And the volatility index is lower again to the 14.0 level.

Trading comment: Market leaders continue to push higher.  Waiting for the big correction continues to be a frustrating strategy.  Sector rotation has kept most pullbacks small.  Among ETFs, the gold miners (GDX) look like they have consolidated and might be ready for another push higher.

KAM Advisors has long positions in GDX

Monday Morning Musings

Markets are lower in early trading today.  There hasn't been much in the way of corporate news or economic data here in the US, which leaves the markets to take their cues from overseas markets.

Over the weekend, China reported a trade deficit of $22.98 billion when a trade surplus of $14.50 billion was expected.  The discrepancy was due to a surprising decline in exports, which fell -18.1% vs. an expected gain of 6.8%.  China is saying there were some adjustment issues surrounding the Lunar New Year, but markets are being cautious.

Material stocks are down the most, as they are most sensitive to an economic slowdown in China.  Defensive utilities are down the least so far today.  Shares of Facebook (FB) are bucking the weakness on a new analyst upgrade that carried a price target of $90.

European markets are mixed.  Eurozone investor  confidence improved to 13.9 from 13.3.  And Spanish and Italian industrial production both rose.

Commodities are mixed so far.  Oil prices are weaker and falling back to $101.  Gold prices are firmer and rising to $1343.

The 10-year yield is slightly lower to 2.78% after a big spike higher last Friday on the stronger than expected payrolls report.  The 10-year on Friday rose above 2.80% for the first time since late January.

The volatility index is also higher today and rising back above the 15 level.  It recently tested the 13.5 level three times but never broke below those levels and is now bouncing.

Trading comment: Just a little ebb and flow in the market.  This looks like a healthy digestion of recent gains and we would still be looking to add to market leaders on pullbacks.  The one area we are growing a little cautious is biotechs, since they have had such big runs and could be susceptible to larger pullbacks is sector rotation causes funds to flow out of that sector in search of areas that aren't up as much in price in recent weeks and months. 

Are Stocks Getting Bubbly?

Markets are higher again in early trading, with most major indexes pushing to new highs.  The consistent uptrend in the markets has some asking whether stocks are getting too bubbly?

There are a few sectors where things seem to be a little overheated.  Biotechs with little profits have been trading higher nonstop.  So this is one area of concern.  And social media stocks also trade at crazy valuations.  Not as bad as the dot.coms, but certainly frothy.  But outside of those areas most things look healthy to us.  Corrections can come at anytime, but we don't see rampant speculation in stocks, we don't think the average stock is overvalued, and judging by the interest rate cycle and the business cycle its hard to say we are in the later stages.

What makes forecasting this cycle more difficult is the fact that we have never seen the Fed hold rates at zero for this long.  So it is making the cycle both elongated and irregular.  No one is sure how it will play out.  One Fed official said he sees the first rate hike coming in 2015, and that would at least get us on a more "normal" path that investors have seen before.

This morning both the ECB and the Bank of England kept policy steady and held interest rates at 0.25% and 0.5%, respectively.  So the Fed isn't alone it its ZIRP policy.  But it will certainly make the next few years interesting.

Asian markets were higher overnight.  China's Finance Minister said that GDP growth should be in the neighborhood of 7.2%.  This is lower than the 7.5% figure that we have seen most Chinese officials cite.  Are they trying to talk down their growth rate??

Oil prices are easing back a little further to $100.85.  And gold prices are higher around $1349.

The volatility index continues to hover at low levels near 13.75.

Trading comment: The stairstep market continues, and we feel like we have been saying this for almost 2 years now.  More stocks are becoming extended, and we don't like to chase that type of price action.  But we remain comfortable adding to stocks that are breaking out of consolidation patterns after digesting some recent runups.

New Highs Abound

Markets rallied strongly yesterday after news that Putin let much of the air out of the escalating tensions in the Ukraine.  Most major indexes powered to new highs.  Overnight there were no further developments on the Ukraine.

This morning stocks have been hugging the flatline and we will have to see how the market digests yesterdays outsized gains.  We did get some economic data this morning that was on the weaker side, but some will still question how much the inclement weather effected February's data.

The ADP Employment report for February showed the private sector added 139,000 jobs, below expectations.  And the ISM Services Index for February fell to 51.6 from 54.0.  The services sector is the largest part of our economy, so this figure will be watched closely to see if it bounces back in March.

Bond yields on the 10-year were higher in early trading, rising to 2.71%.  But the weak ISM survey knocked them back down and yields are currently hovering near 2.69%.

Asian markets were mixed overnight.  China fell -0.9% after the National People's Congress said its GDP target for 2014 is 7.5%, the same as in 2013.  The market viewed this as a bit disappointing, but we think it would be a victory if China could sustain that rate.

Europe's markets are also mixed, with peripheral markets outperforming.  Eurozone GDP rose 0.5% on a year/year basis. And the Eurozone services PMI improved to 52.6 from 51.7.

Commodities are mixed.  Oil prices are down a touch to $102.66, while gold prices are up a tad near $1339.

The volatility index which plunged yesterday from 16 to 14 is down a little further to 13.95 so far.  This is a pretty low level for the VIX, although we have seen it get down to the 12-13 level if the market keeps rallying.

Trading comment: No change in our thoughts from yesterday.  The market continues to hang in there and frustrate the bears.  Fresh breakouts in quality stocks can be bought, and leading stocks pulling back to support is another attractive entry point.  With bond yields this low, most areas of fixed income remain unattractive for the long-term investor.  This is still a frustrating environment for income investors, but we are still hopeful that as the economy slowly gains strength into the second half of the year bond yields will rise and offer some better opportunities.

Putin Stands Down, Stocks Stand Up

Markets are rallying around the globe on a relief rally amid a de-escalation of the military tensions in Ukraine.  Putin decided to recall his troops that were conducting exercises on the country's border with Ukraine.

Asset classes such as stocks which were down yesterday are rallying the most today.  The Dow Jones is up almost 200 points in early trading.  Of course, its still early.  And safe haven assets such as Treasuries are selling off, pushing yields on the 10-year note up to 2.66%.

Commodities are also lower amid decreased fears of supply shocks.  Gold prices are lower near $1335 and oil prices are pulling back to $103.40.

The volatility index which also had a big spike yesterday is down 11% so far, back below the 15 level to 14.25 as of now.

Asian markets ended mixed.  The Reserve Bank of Australia held interest rates steady at 2.50% as expected.  Europe's markets are rallying across the board. ECB President Draghi said that inflation remains well below the ECB's target.

All sectors are rallying this morning.  Small-cap stocks are bouncing the most, and among the ETFs financials are getting a big boost as well.

Trading comment: What a difference a day makes.  Yesterday folks were talking about a new correction unfolding and identifying downside targets.  Today most indexes are at fresh new highs.  We continue to like the strategy of adding to fresh breakouts from consolidations or recent breakouts that have pulled back to support area.  But there are plenty of stocks that remain extended after big rallies that do not look attractive to add to until they digest their recent runups.

Monday Morning Musings

Markets are lower this morning amid tension in the Crimean Peninsula.  Over the weekend, Russian forces seized control of several points in Southern Ukraine.  International powers have called on Russia to stand down, but so far to no avail.

This type of military tension is weighing on investor sentiment for now, but when you think about it this type of event is not really one that is likely to impact corporate profits here in the US.  So it will probably prove to be a short-term blip, at least for stocks.

The volatility index is really reflecting the concern, with the VIX up over 14% to the 16.0 level.  Treasuries are also seeing a bit of a flight-to-safety trade, with bond prices up and yields moving lower to 2.62%.

In economic news, the February ISM Index rose to 53.2 from 51.3.  So there is some good news in the manuf sector, despite the inclement weather we have seen.

Separately, both personal incomes and personal spending rose in January.

Asian markets were mixed overnight.  China rose after its HSBC manuf PMI ticked up to 48.5 from 48.3.  The non-manuf PMI also improved to 55.0 from 53.4.

European markets are also lower across the board despite some upticks in regional PMI readings in the Eurozone.

Trading comment: Markets have been strong lately, with fresh breakouts to new highs and strong leadership.  Events like what is happening in Ukraine are usually emotional events that rattle investors in the short-term but don't have a lasting effect.  Actually most military conflicts turn out to be good buying opportunities in hindsight.  The market had reached overbought conditions, so this pullback isn't a bad thing.  We will likely use this weakness to put cash to work in recent breakouts that are pulling back to logical support areas.