As of 3:50 p.m., there was $210 million to sell market on close.

Banks have reversed from a strong morning as the magnitude of the market's drop has intensified.

I would give the group another day or two before buying.

At least that is my plan.

Look for more volatility and more random moves from the market without memory from day to day.

To me, the price action is still supportive of the view that the market is in a broad topping process, which is something I have been writing about for several months.

For those who are quick traders with a short time frame, Mr. Market will give you a lot of opportunities in the next few months.

For those who are investors with a longer time frame, stay more liquid than usual and err on the side of conservatism. Your time will come, but perhaps from lower levels.

Though a lot of stocks, such as Yahoo (YHOO), Alibaba (BABA) and others, and indexes, such as IWM, are hitting lows, there will be continued opportunities on the long side. Banks are my favorites.

Speaking of financials, the relative strength suggests that today's decline is not "the big one, Alice." Though history doesn't repeat itself, it rhymes, and stocks rarely collapse when banks are market leaders. 

Finally, today is another lesson, especially with regard to the direction of bond yields, that those who are self-confident and even glib should not be listened to. They should  be locked in a closet away from children and from money managers who behave like children, as their "forecasts" tell you more about them than the projections themselves .

Be logical, balanced, do your own homework and make your own investing and trading decisions.

• Again, from Sir Arthur Cashin:

Russell gives back all of Friday and Monday rallies and is threatening to pierce the Thursday selloff lows. Starting to weigh on other indices.

With two-and-a-half hours left in the trading day, the market decline is turning into a market rout. A market without memory from day to day.

I am raising my closed-end municipal bond fund exposure to over 15% now.

• From Sir Arthur Cashin:

U.S. stocks try to rebound after European markets close. Watch Russell and Nasdaq Comp.

Run rate at 12:30 projects to an NYSE final volume of 800/880 million shares.

I took in more of my Apple (AAPL) short under $127, to move from medium to small-sized.

• Midday musings from Sir Arthur Cashin:

Given the carnage in Europe, losses in U.S. stocks are quite modest. Nonetheless, another downdraft could do some real damage to the charts. The volume on this selloff is again higher than it has been on rallies.

Run rate later.

Over the last several days, the bond vigilantes have emerged from their caves after several decades of hibernation.

The dreaded "Ah-Ha Moment" in which market participants lose confidence in the Federal Reserve and the world's central bankers' policies could be ever closer at hand.   

I don't think we go straight down. Financials don't typically behave this well if we were going to.

I see an irregular move lower over the course of 2015, punctuated by numerous long AND short opportunities.

The Fed has made a grave mistake in not hiking interest rates earlier, when it could have. Now the FOMC is caught in a corner.

It is my view that the domestic economy cannot absorb much more of a rise in the 10-year U.S. note yield (currently near 2.20%).

The rise in interest rates will first be seen in an abrupt drop in home refinancings. New housing activity will soon follow as it grows clearer that our society (private AND public sectors) have become addicted to low interest and mortgage rates.

U.S. growth expectations remain too optimistic, as do the projections for corporate profit growth.

Err on the side of conservatism and trade opportunistically. Unlike Warren Buffett, I plan to stay away (with some exceptions) from long-term investments for now.

The investment slope is slippery and the investing street is full of (policy) potholes.  

Tactically I plan to short strength/rips and buy the dips for now.

Mid-morning musings from Sir Arthur Cashin.

Bulls are on defense.  Dow tries to save 18,000, S&P 2100 and critically watch the 1216/1217 in the Russell (Friday's low).

With the stability/strength in financials, coupled with another five-handle drop in S&P futures (to down 15 points) and the 55-handle drop in Nasdaq futures, I have moved from a slightly net short to market neutral now.

This compares to my more-than-modestly net short position at Monday's market close.

I have added to my longs in Radian (RDN), Ford (F). GM (GM) and I am bidding across the board for closed-end municipal bond funds and for my regional bank package.

With the 10-year yield on the U.S. note rising to 2.18% (a 60 bps advance in several months) I have been  expanding my closed-end municipal bond funds (while maintaining my bond short) aggressively.

I am staying reactive and responding to my market tells.

The continued strength in bank stocks and selected financials (again today) suggest that the down move might not be that deep today and this week.

Accordingly, I am moving my SPY and QQQ shorts from medium-sized to small-sized on this morning's schmeissing, for a gain.

As a result I will be back to modestly short.

Peter Boockvar on the economic data.

The ISM services index for April unexpectedly rose to 57.8 from 56.5 in March. The estimate was 56.2. It's the best level since November and follows prints in the 56 range all thru the winter months of December thru March. General business activity rebounded to 61.6 from 57.5 and puts it back above the 6 month average of 60.3. New orders rose by 1.4 pts to 59.2 and has almost gotten back what it lost in February and March (14 saw growth vs 15 in March). It was at 59.5 in January. Backlogs were up 1 pt to 54.5. Ahead of Friday's payroll report, the employment component was little changed at 56.7 vs 56.6 in March and compares with the 6 month average of 55.6. Export orders (only some service companies report exports) was a big miss as it fell to 48.5 from 59. It's the first time below 50 since March. While the headline ISM services read was up m/o/m, 14 of 18 industries saw growth, the same total seen in March. The ISM said "the majority of respondents indicate that there has been an uptick in business activity due to the improved economic climate and prevailing stability in business conditions."

Bottom line, Q1 GDP will most likely be negative but today's services index does point to a rebound in Q2 with the degree being the question. This said, I see no reason to expect full year GDP to be any different than the last few years. But, something is now changing and that is the direction of interest rates. In Q2 last year when the economy rebounded sharply, treasury yields went down counter intuitively. Now, we are spiking out of a multi month range and major froth is coming out of the European bond markets. We are witnessing the first, potentially major, signs of the air coming out of the bond bubble. Italian, Spanish and Portuguese bonds are spiking by 25 bps each today alone. The German 10 yr bund yield is back above 50 bps vs 4 bps just a few weeks ago. The US 10 yield is just 4 bps off the highest level of the year. The US bond market is not waiting around for the Fed to hike rates, it is doing it themselves. I repeat again also for the umpteenth time, commodity prices are bottoming. The CRB index is at the highest level since December 30th on a closing basis. For US stocks ex commodities, mediocre growth and now rising interest rates (albeit still historically very low I fully acknowledge but the trend should now be a focus) is not a good combination.

With QQQs trading down to $108.05 (and Nasdaq futures 47 handles lower) I would take the balance of the Trade of the Week short off now for a $1.40 gain.

See you next week!

For those that participated in the QQQ short (Trade of the Week) and have a very short timeframe, taking off one half for a $1.15 gain makes some sense.

By contrast, I am sticking with this short, reflecting my overall bearishness.

The Gospel According to Peter Boockvar

The Spanish 10 yr note today has fully given back the entire proposed (January 22nd) and actual ECB QE (began on March 9th) rally and then some with its yield backing up another 12 bps to 1.63% vs 1.53% on January 21st. The Italian 10 yr is within 4 bps of doing the same with its current yield at 1.65% vs 1.69% on January 21st. The 5 yr 5 yr Euro inflation swap rate is at a 5 month high on a closing basis at 1.78%. Weighing on Spanish debt in particular was a larger than expected drop in unemployment in April. On a seasonally adjusted basis, the fall of 50k was the most on record in the month of April and on a NSA basis, the drop was twice that was expected. The historic global bond bubble created by central banks will be undone by the same central banks if they gain any traction in creating the inflation they so desire. Also a factor is the FT reporting yesterday that the IMF is threatening to end debt support to Greece unless the EU takes a big haircut on their Greek debt holdings. I don't see Merkel telling her German populace anytime soon that she forgave any Greek debt. Eurozone Finance Ministers meet again on May 11th. In the US, with the 10 yr yield at 2.12%, the 2s/10s spread is just off the widest in 5 months. For all the so called 'patience' that the Fed has had with respect to getting off zero on the short end, the 10 yr note has essentially tightened by 25 bps over the past week and a half.

The Reserve Bank of Australia cut interest rates another 25 bps to 2% as expected and said "the Board judged that the inflation outlook provided the opportunity for monetary policy to be eased further, so as to reinforce recent encouraging trends in household demand." As the statement gave no hint whatsoever that we'll see another cut anytime soon, the Aussie$ is actually rallying as this could be it with rate cuts for a while. The ASX also was flat overnight after initially rallying on the cut. I consider the RBA one of the few responsible central banks out there as they don't believe in the policy of negative real interest rates and haven't had a recession in 25 years. Instead of studying just Japan and the Great Depression and how monetary policy was historically conducted, Australia's experience should be a test case too.

The Shanghai index got slammed by 4% overnight with the H share index in Hong Kong down by 2.6%. The Securities Times in China is reporting that Chinese officials are looking into initiating a transaction tax on stock trades. Bloomberg is also reporting that "the official People's Daily said on its website yesterday that the bull market doesn't just mean one way gains and that there will be twists and turns." Lastly, the Shanghai Securities News reported that two brokerage firms in China raised margin requirements. This in addition to a possible flood of IPO's took some froth out of the parabolic move higher. The recent peak in the Shanghai index put it a whopping 58% above its 200 day moving average and this index is due for a major correction. The H share index was 30% above its 200 day moving average. After a well deserved correction, China should be bought as the bull market still has much catching up to do with the rest of the world over the past 6 years.

The UK construction index in April fell to 54.2 from 57.8. It's the weakest since June '13 and Markit is blaming pre election jitters for the weakness. They said "the uncertain general election outcome appears to have put grit in the wheels of decision making. Construction firms widely noted delays with clients' budget setting and a reduced propensity to commit to new projects."

The US ISM services index is expected to be little changed in April at 56.2 vs 56.5 in March. The trade deficit for March is also released and could influence Q1 GDP revisions.

And parsing through the data:

The March trade deficit widened to $51.4b, well more than expectations of $41.7b and up from $35.9b in February. It's the biggest deficit since October '08. The main culprit was the 7.7% m/o/m increase in imports led by spikes in consumer goods, automotive and capital goods. Imports of petro also jumped but after a sharp drop in February. Exports were up by .9% m/o/m but after 4 straight months of declines. The West coast port strike has wrecked havoc on the trade and inventory data so we must smooth out the months to limit the distortions. For Q1, the trade deficit averaged $43b vs $42.3b in Q4 and $41.3bin Q3. Bottom line, notwithstanding the smoothing which puts the deficit at a level not much different than the two prior quarters, Q1 GDP estimates will have to be revised lower, possibly sharply. Back of the envelope I estimate as much as a 6-7 tenths reduction which would put Q1 with a negative print all else equal.

I want to spend a brief amount of time emphasizing my Trade of the Week, what I am trying to accomplish and how I go about coming up with an idea.

The most important thing is that I filter out all my short-term trading ideas to come up with only ONE Trade of the Week. In other words, I give it a lot of thought.

My Trade of the Week is in recognition that we have subscribers with substantially differing timeframes and risk profiles. We have traders and investors and hybrids!

So, the Trade of the Week is documented in order to satisfy the traders that we have.

For me, I try to integrate both trading and investing in my investment lineup.  

Yesterday's Trade of the Week, shorting QQQ at $109.60, is off to a good start this week.

If you are shopping for common stocks, choose them the way you would buy groceries, not the way you would buy perfume. -- Benjamin Graham

Following the Woodstock for Capitalists in Omaha, Neb. last weekend at the Berkshire Hathaway (BRK.B) Annual Meeting, it is reasonable to consider whether there exists a reasonable margin of safety in the U.S. stock market.

The principle of a margin of safety was popularized by Warren Buffett's mentor, Benjamin Graham, who is known as the father of value investing. The principle is based on the notion that one should purchase a security when the market price is significantly below its intrinsic value. This strategy provides room for error, but doesn't necessarily ensure a successful investment.

The calculus of defining intrinsic value is subjective as it involves the estimate of a company's earnings and different ways of calculating intrinsic value.  

Add the accumulated intrinsic value of all companies and we get a view on the overall stock market''s intrinsic value.

If people weren't wrong so often, we wouldn't be so rich. -- Charlie Munger at Berkshire's Annual Meeting

Despite protestations from certain market prognosticators and fast talkers, no one knows this answer for sure (I certainly don't). Neither economic forecasts nor risk ranges, quantitative models nor any other economic or technical signpost guarantees investment success in the hunt for intrinsic value. As I have written, there is no secret market sauce.

We can just try be logical, rely somewhat on history, depend on the statistical flow of economic statistics and, from there, make an educated guess, as there are few certain truths in the investing and trading games.

So far, I have been wrong on interest rates ... It is so hard for me to believe that you can drop money from a helicopter and not have inflation, but we haven't. -- Warren Buffett Saturday's Berkshire Meeting

Buffett told CNBC's Becky Quick yesterday that stocks are inexpensive if interest rates stay low for the next decade, but not so much if interest rates normalize. I can say with a high level of certainty that interest rates will normalize sometime in the next 10 years, perhaps sooner than later. (The yield on the 10-year note has already risen by almost 60 basis points to 2.14% in the last two months.)

As a consequence, I can say with a high level of certainty that there is limited margin of safety left in the U.S. stock market. That is, reward vs. risk is likely skewed negatively.

I can also say with a high level of certainty, as did Warren with Becky, that bonds (at a 45x P/E, inverse of 10-year U.S. note yield) are more overvalued than stocks (at 18x P/E, the price of the S&P Index divided by projected 2015 EPS). 

As I have opined, the end of the 30-year bond bull market might take place this year.  And since all asset classes (including stocks) are priced against an artificially-low-yielding 10-year U.S. note, isn't there a threat to the current 18x P/E?

Moreover, as exquisitely presented by Wells Fargo's Jim Paulsen, inflationary expectations are being buoyed by higher employment compensation and lower jobless claims, a reversal of U.S. dollar strength, rising rents and home prices, higher oil and non-energy commodities prices. As I wrote in yesterday's opening missive, "My Tactical Investing Blueprint for 2015," I have argued that many of these factors are conspiring to take bond yields higher over the last two months, despite anemic and subpar global economic growth.

We think any company that has an economist has one employee too many. -- Buffett at Saturday's Berkshire Meeting

Which raises the question: have the bond vigilantes emerged from hibernation after being absent for years/decades and, if they have returned, what is the impact on equities? 

I can finally say with certainty that over almost any future timetable, the yield on the 10 -year U.S. note is overvalued and that, with almost every asset class being priced off of it, means that stocks are overvalued.

With interest rates rising, profit margins at a 60-year high and about 2.7 standard deviations above the average historical margin coupled with nearly every valuation metric (extended Shiller's CAPE, Warren Buffett's favorite valuation measure Equity Capitalization/GDP, etc.) there is limited margin of safety today.

Being rational is a moral imperative. You should never be stupider than you need to be. --  Charlie Munger on CNBC

Yesterday's market advance was interpreted by many, including Jim "El Capitan" Cramer, as a halo effect that followed Berkshire Hathaway's Annual Meeting in Omaha on Saturday and made investors more comfortable with stocks. 

From my perch, Warren should have been less of a cheerleader for equities at his Woodstock for Capitalists and he should have been more of a realist. 

After all, according to The Oracle, "price is what you pay, value is what you get."

Yesterday I wrote the following critique about Warren Buffett's Woodstock for Capitalists.

Has the Berkshire Bell Rung?

These comments on the weekend's Omaha festivities got me thinking about whether the event rang the bell for a market top.

After all, when you have to sit in the balcony, head for the exit -- 40,000 attending and 16,000 allowed -- and the overflows were overflowed, it makes one think.

"They" never ring a bell.

What was, at one time, good investment advice has become self-serving aphorisms. 

As they say in the fashion world and likely at last night's Met Gala, Warren is post peak.

And as they say in the Navy, there are always the 2% who don't get the word!

I start the day with the highest net short exposure I have had in months, with most of my additional shorts put on in the rally over the last two weeks.

Coming up, let's continue the thread and ask whether there is a margin of safety (Ben Graham and Warren Buffett's favorite phrase) in the U.S. stock market?