U.S. Stocks Follow European Markets Lower

The market is sharply lower in early trading following sharp losses in Europe yesterday while our markets were closed. The debt issues in Europe continue to worry global investors, and the piecemeal solutions have done little to quell those concerns. 2-year Greek notes are yielding 55%, so you can see there is a lack of confidence.

Overnight, Asian markets were mixed with Japan down but Hong Kong bouncing. But that was little comfort to U.S. investors where sentiment remains downbeat.

There was a good piece of economic news this morning in the form of the ISM Services Index which rose to 53.3 in August from 52.7 the prior month. That reading was better than expected, and led to a brief rally in the markets.

The dollar is higher today, after the Swiss National Bank said that it will fight the appreciation in its currency at all costs. The SNB called the swiss franc "massively overvalued" and said it is willing to purchase foreign currencies in unlimited quantities to alleviate this condition. So far today, the Swiss franc ETF (FXF) is down -7.8%.

The flight to safety trade is alive and well today, with buying in the dollar, Treasury notes, and gold. The yield on the 10-year note has fallen to 1.95% currently, and gold prices have reached $1900. Interestingly, silver is lower today. As are oil prices, back near $85.50.

The volatility index (VIX) is spiking +16% today back near the 40 level. But as you can see in the chart below, it looks like the VIX is putting in a series of lower highs. At some point this could lead to a sharp move lower in the VIX, which would coincide with a move higher in the market. I'm just saying.

Trading comment: My recent cautious stance seems more than warranted given the sharp 3-day slide we are in the midst of. I am certainly glad we remained defensive and didn't get sucked into those low-volume rallies that made some folks feel complacent that the selling was over. That said, earnings estimates have held up remarkably well so far. And I think something needs to give. Either estimates start to get cut later this month, to justify the move lower, or the market will likely have a nice snapback rally into quarter end.