Markets are down for a third day in a row, the first three day decline (if the trend holds today) in 2 months. Japan's Nikkei down 4 percent, and the yen hit a six-week high against the dollar. You can blame it on worries that the Federal Reserve will begin tapering in September, but the fact is the market is looking a bit tired.
On that note, a few factors that I noted yesterday still hold true:
1) Market leaders (such as transports, biotech, etc.) look fatigued;
2) the breadth of the rally has been poor: there have been fewer new highs even as the major indices hit new highs;
3) complacency is high, with the CBOE Volatility Index (VIX) near a 6-year low; and
4) U.S. economic strength is not being mirrored in Asia, although Europe is starting to perk up.
What's it all mean? We are so used to the markets going up that a brief pause is being met with the usual hand-wringing. Simple fact is we have thin liquidity and much of the volume for the next several weeks will be among the lightest of the year. In other words, don't read too much into what happens.
Remember: the S&P 500 is stretched, better than 10 percent above its 200-day moving average.
1) Three out of four ain't bad: there's good reason to think the Fed might begin tapering in September. Economic news in July has indeed been better than in prior months:
a) Trade Deficit narrowed sharply;
b) ISM Services beat; and
c) ISM Manufacturing beat, but yet;
d) Nonfarm payrolls missed.
No wonder Chicago Fed President Charles Evans, an uber-dove, was open to tapering. No doubt what will happen when hawk Charles Plosser, head of the Philadelphia Fed, speaks on Wednesday 12:30 PM Eastern.
Bottom line: the hawks and doves are all on the same page on reducing tapering before the end of the year. This is now widely discounted by the markets.
2) YouMe (YUME) a provider of digital video brand advertising solutions, priced 5.1 million shares at $9, below the $12 — $14 price talk. This will be a busy couple days for IPOs: see my Trader Talk blog, "IPO Market Heats Up," for more.
3) Time Warner beat, and raised full year guidance
4) Disney: let up on The Lone Ranger already! I was surprised how much focus there was on the disappointing movie, and little on the tremendous metrics the rest of the business put up: Parks EBIT was up 9 percent last quarter, affiliate cable fees up strongly, and cash ad sales at cash cow ESPN were up 11 percent so far in this quarter, according to analysts. Even film wasn't so bad: Monsters University was a big hit.
DIS is the fourth best performer in the Dow this year, up 35 percent.
5) Colony Financial, which owns a portfolio of commercial real estate mortgage loans, reported earnings well above expectations and insisted the rebound in real estate had just begun. "The fundamentals for U.S. commercial real estate are improving across the board consistent with the macro U.S. economy," the company said.
—By CNBC's Bob Pisani