Stocks Reverse Early Gains

Stocks bounced in the first hour of trading, but so far the enthusiasm looks short-lived as the indexes have given up their early gains and trade back in negative territory.

Earnings season has started, and results this morning were mixed.  On the positive side were bellwethers like KO, JNJ, and SCHW.  But negative reactions to earnings were seen in INFY, PBY, SXT, ZBRA, and NTRS.

Economic data wasn't great either.  The April NAHB Housing Index rose one point to 47, but that was below expectations.  And the Empire Manuf Survey for April fell to 1.3 from 5.6 the prior month.  CPI data also showed that housing costs rose 2.7% over the last 12 months, the largest yearly increase since March 2008.

The economic data and market action looks to be weighing on bond yields.  The yield on the 10-year Treasury has dropped back to 2.62%.

There are also more reports out of the Ukraine that are worrying investors.  Obama spoke to Putin last night by phone, but the call was said to have produced little in terms of results.

Asian markets were lower overnight, with China down -1.4%.  China releases Q1 GDP tonight and some economists now expect them to miss the 7.5% target.

Commodities are also lower today.  Gold is not seeing any flight to safety and prices are dropping back to the $1300 level.  Oil prices are only slightly lower near $103.75.

The volatility index is not up as much as we would expect given the backdrop, and is only 1% higher currently to the 16.25 level.

Trading comment: Yesterday's rally and this morning's bounce came on low volume.  The SPX rallied up to its overhead 50-day average before running into resistance.  This is textbook technical action and tells us that the market still has more work to do in this correction.  News out of Ukraine continues to cloud the geopolitical landscape, as does the hard landing talk in China.  We continue to adhere to our defensive stance, have added to some hedges in certain instances, and think a better buying opportunity will come.