Keep A Close Eye On Spain

The market is lower this morning, despite positive action in Asia overnight and a host of better than expected earnings reports.

Asian markets were up across the board last night even though China posted a GDP number that was below expectations. Chinese GDP for Q1 is estimated to have grown 8.1%, which is below the 8.4% expected. Most likely the reason Asian markets didn't selloff is that investors expect lower GDP for China to give the govt. cover to ease monetary policy more.

The good mood in Asian overnight didn't carryover to Europe this morning, where markets are down. The big concern once again is Spain, where bong yields have been rising recently and stocks have been swooning. Recent data shows that net borrowing by Spanish banks from the ECB surged to 228 billion euros in March from 152 billion in February. If Spain spirals out of control like Greece I would expect global markets to come under pressure.

In economic news in the US, the Univ. of Michigan Consumer Sentiment survey declined to 75.7 in April from 76.2 the prior month. But April's decline was the first in the survey since August 2011.

The dollar is rallying vs. the euro today, and that is weighing on commodities. Oil prices have fallen back to $103 and gold prices are lower near $1668. Copper and silver prices are lower as well.

The 10-year yield is back below the 2.00% level at 1.99%. And the VIX is up 9% to 18.75. I suspect if the market continues to selloff we will see the VIX get back above the 20 level.

Trading comment: There is an old adage in the market that says its not the news that's important, its the reaction in the stock. So it is not a very good sign that all of the companies that beat estimates last night (JPM, WFC, and GOOG) are all lower this morning. I don't want to make too much out of a single day's action, but if this turns into a trend it won't be good. On Tuesday I said that the market was grossly oversold and due for a bounce. We got that expected bounce the last 2 days, but on relatively light volume. Currently the S&P 500 is testing that 50-day average support again near the 1376 level. If we can't hold that support, it is likely that the market will correct more.

KAM Advisors has long positions in GOOG, JPM, and WFC