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.