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.