No Material News. Euro Credit Concerns Spook Investors. Early Low and Bid Will Firm Up Late

Handicapping a financial crisis is almost impossible. Last week the EU "beefed up" its bailout reserves by 200 billion Euros. Spain released its 2012 budget and the market was satisfied with the austerity measures being taken. Earlier in the week, the EU posted a better-than-expected PMI. In the blink of an eye, European credit concerns are back in focus. Euro markets were down more than 1.5% overnight. There wasn't any major news to justify the move. Spain had a weak bond auction and interest rates moved higher. Some analysts believe that European banks have purchased all of the sovereign bonds they can and the rest of the world will have to pick up the slack. When I read last week that European central banks might not accept PIIGS debt as collateral, I got a little nervous. However, Germany's central bank dispelled the rumor this week. Here is what I do know. When European interest rates start creeping higher, they won't reverse. LTRO3 would be a temporary fix. Eurocrats pledged to reform fiscal policies and incorporate them into the EU treaty back in December when the @#$% was hitting the fan. Their goal was to have the plan in place by March. They have not even scratched the surface and I don't believe they will ever pass a meaningful plan. Today's selloff simply reminds us that danger looms. Once the Q1 earnings euphoria wears off, the focus will return to Europe (May). During the last two years credit concerns have escalated during the summer. Eurocrats have responded with urgency by going on vacation. I am not ready to hit the panic button this morning, but I will be flat before May. China's market has been closed all week and it will reopen tomorrow. Their PMI came in better-than-expected earlier in the week and the PBOC should lower bank reserve requirements in the next couple of weeks. That would be a shot in the arm. This morning, ADP showed that 209,000 jobs were added to the private sector in March. That was slightly less than the 217,000 that was expected, but it was still a decent number. Later this morning, ISM services will be released. It came in much better than expected last month and it should be strong today. Private sector service jobs in the ADP report grew considerably. Initial jobless claims should be decent tomorrow and the Unemployment Report on Friday should show steady job growth. I was looking for a substantial beat out of the ADP report and now it looks like the jobs numbers won't produce the breakout I was looking for. Earnings season starts next week and there have been very few warnings. This morning, SNDK warned of lower revenues and profit margins. That will weigh on tech stocks initially. This is the only substantial warning I've seen this week. Yesterday's FOMC minutes sparked selling. They simply reiterated that QE3 is off the table for now. This was not anything new. From my perspective, it is a sign of strength. The Fed feels that the economy is on strong enough footing that it no longer needs to nudge it along. The market always wants more and in the absence of other news, stocks declined slightly. Overall, I don't like the price action because I predicted a rally on the ADP report and we are not getting one. I am not ready to hit the panic button when there is no material news to justify the decline. Credit concerns in Europe have flared up a bit, but interest rates still have a long way to go before they become problematic. The focus will clearly shift to our economy and Q1 earnings next week. Asset Managers will pull their bids this morning. They will see just how far the market can fall before they step in. I am expecting the lows to be established by mid-morning and then buyers will start to nibble. I am long calls and I am not hedged. If the market makes a new intraday low late in the day, I will buy VXX to hedge my positions. I don't want to bail out of all of my call positions ahead of earnings season, but I do want to hedge myself in case Friday's Unemployment Report misses. There is strong support at SPY 139 and I doubt we will test it. Asset Managers have been anxious to buy into this rally. Today we will be able to gauge their appetite.

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