The market rally continues. Tuesday was the first decline of the year for the S&P 500. Traders bought the dip but there was some uncertainty this morning. Investors had a lot of stories to sift through. Google might leave China. Bankers were questioned in Washington. Oil inventories and mortgage application data was released. Yesterday afternoon the capital of Haiti suffered the worst earthquake in 100 years.

Asian markets were down across the board and on big volume. This seems to be a reaction to China's decision to raise bank reserves by 0.5%. The Chinese Shanghai index lost 3.0%, its biggest one-day drop in seven weeks. The Hong Kong Hang Seng fell 2.59%, its biggest loss in six weeks. Volume was strong, which makes this move even more bearish. The Japanese NIKKEI lost 1.3% in spite of a stronger yen. It was Japan's biggest volume day in seven months with over 25% of the volume coming from one stock - Japan Airlines. Investors were dumping shares of Japan Airlines on bankruptcy fears and the stock was lock-limit down -30 yen for the second day in a row and closed at seven yen.

European markets were mixed in a somewhat volatile sideways session. Investors are worried that Greece and Portugal may end up defaulting on their debt obligations. The Greek Prime Minister said they would not leave the euro zone nor would they ask for help from the IMF. Meanwhile British industrial production came in higher than expected thanks to rising oil production. The German economy, Europe's largest, probably stalled in the fourth quarter, according to Germany's Federal Statistics Office. The French CAC-40 closed up 0.02%. The German DAX gained 0.34%. The English FTSE lost 0.4%.

U.S. investors were a little nervous this morning as executives from several big banks were questioned in Washington at the Financial Crisis Inquiry Committee. Executives from Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Bank of America were some of the major players talking to congress. When it seemed that there wouldn't be any serious fireworks the banking stocks began to rally. Both the BKX and BIX banking indices are up more than 1.5% on the session. JPMorgan (JPM) is due to report earnings on Friday.

Elsewhere in the banking industry the Mortgage Bankers Association (MBA) said mortgage applications for both refinancing and purchasing homes were up 14.3% to 528.1 last week. A year ago this index of applications was at 1,324.8. Refinancing applications showed the biggest jump last week. According to industry insiders this is the tightest (toughest) market to get a mortgage in memory. Lenders are being very strict.

One of the big stories today is news that Google (GOOG) is threatening to leave China, the world's biggest Internet market. Google and China have been fighting over censorship of its search engine in China for months. The company now claims that very sophisticated cyber attacks originating from China targeted several major U.S. corporations and a number of human-rights activists. As of this morning Google has reduced the amount of censorship of its Chinese operations.

If Google did leave China it would only amount to 2% - 5% of its annual revenues (around $600 million). However, investors are concerned that GOOG would be giving up huge growth opportunities. There are an estimated 338 million Internet users in China's population of 1.3 billion. For reference the total population of the U.S. is just over 303 million. Wall Street seems to be divided on the GOOG story. Many believe GOOG will not leave China and they're just playing hardball with the Chinese government. Others suspect they will leave and shares of Baidu.com (BIDU), GOOG's biggest competitor in China, gapped open over $50 this morning to $442 a share.

In other news investors watched another U.S. bond auction of 10-year notes. The bid to cover was very strong at 3.0 versus the average of 2.67. Wall Street will also be watching for the Beige book out this afternoon, which provides an overview of economic activity by region. In non-market news the capita of Haiti, Port-au-Prince, was devastated by a 7.0 earthquake, the worst one in a century. Nearly two million of the country's ten million inhabitants live in Port-au-Prince and early estimates put the loss of life at over 100,000.

Currently the U.S. market is seeing a widespread rebound. The S&P 500 has rallied back above the 1140 level. The NASDAQ composite has bounced back above the 2300 mark. The Dow Industrials actually hit a new high midday at 10,687. The small cap Russell 2000 is up 0.8% at 641. Yesterday the SOX semiconductor index was one of the market's worst performers. Today the SOX is bouncing with a 1.2% gain, off its best levels of the session. Semiconductor giant Intel (INTC) reports earnings tomorrow. Commodities were mixed. Oil dipped to $78.37 on a bearish oil inventory report that showed a build of over 2 million barrels yet oil has managed to rebound intraday back above $80 a barrel. Gold futures are up almost $4 to $1,133 an ounce.

Chart of the S&P 500:

Chart of the NASDAQ:

Chart of the Dow Industrials:

Chart of the Russell 2000 index:

I am not seeing much movement in the OptionInvestor.com play list but I did note that our aggressive bearish trade on SHLD has been stopped out.