Stocks are retreating from their morning highs. Financial media is suggesting that investors are selling the news that a South Korean navy ship has been sunk off the western coast of North Korean. Odds are it's just a convenient excuse to take some money off the table with stocks at overbought levels. Investors are also digesting the latest consumer sentiment numbers and the Q4 GDP revision. Meanwhile strength in the euro is driving the dollar lower yet commodities are not seeing much of a bounce. Crude oil is off 1% at $79.70 a barrel. Gold futures are up just over $8 to $1,102 an ounce.

Asian markets were in a bullish mood. The Japanese NIKKEI index surged to an 18-month high thanks to a weaker yen boosting exporters. A few analysts were suggesting this is a year-end rally since Japan's fiscal yearend is over at the end of March. Both the Chinese Shanghai and the Hong Kong Hang Seng were up 1.3% on Friday thanks to positive comments from central bank governor Zhou. Mr. Zhou was quoted in an interview that China would not risk removing all of its stimulus until it was clear the economy would not suffer a second dip. Elsewhere in the region the focus has turned to rising geopolitical tensions with north and south Korea. A S. Korean navy ship sank off the western edge of N. Korea thanks to an explosion at the rear of the ship. Reports at this time cannot confirm if it was a torpedo or not and S. Korea is focusing its efforts on rescuing the 108 crewmen. However, S. Korea's president is holding an emergency meeting today to review the event. (UPDATE: current reports are suggesting that there was an explosion below the waterline, which would strengthen suspicions it was an attack.)

European markets pared their gains after hitting new 18-month highs on Thursday. The two-day meeting in Brussels by EU regulators over how to solve the debt crisis in Greece continued today. It looks like a general agreement was made late last night that will include the IMF but only as a last resort. EU regulators (mostly Germany) wants Greece and other struggling economies to do all they can to raise money on their own first. There were some analyst comments making the rounds suggesting that Greece's economy would likely be stuck in a recession or possibly a depression for a long-time to come. Greek banks were in rally mode anyway with most of the big banking stocks up 6-to-8% on Friday. The European markets managed to close up for the fourth week in a row. For the session the French CAC-40 and the German DAX both lost 0.29%. The English FTSE slipped 0.48%.

There were a couple of economic reports out this morning but investors seem to have forgotten them. Consumer sentiment figures improved. The Reuters/University of Michigan consumer sentiment index for March was adjusted to 73.6 from its earlier reading of 72.5. Economists were expecting a rise to 73.0. The six-month expectations component slipped from 68.4 to 67.9 while the current-conditions component strengthened from 81.8 in February to 82.4 in March. Elsewhere the final revision to Q4 GDP ticked lower. Economists were expecting the rate of growth to remain unchanged at +5.9% but the government revised its Q4 numbers down to +5.6%.

One of the big headlines today was the Obama administration's new loan-modification program. The White House will use about $14 billion of its $75 billion foreclosure-prevention budget in a new plan to help homeowners who are under water. The government wants to entice banks to write down the principal on the loans to help lower mortgage payments and keep consumers in their homes instead of walking away. To qualify homeowners need to be current with their house payments. The program also has a provision to help unemployed homeowners with reduced monthly payments for up to six months. I don't think this is going to have much effect on the housing market. The biggest headline in this story was a comment from Diana Farrell, a White House economic adviser. Diana suggested the country could see between 10 and 12 million foreclosures over the next three years. That is DOUBLE previous estimates of five to six million foreclosure over the next three years. That's the real story right there but I haven't seen anyone pick up on it yet.

At the moment the major averages are off their best levels of the session but losses have been mild. Stocks are not seeing much follow through on yesterday's bearish reversal but today's weakness doesn't help either. The best performers today are gambling stocks (+1.99%), homebuilders (+0.77%), gold and mining stocks (+1.1%), airline stocks (+0.75%). The worst performers are healthcare (-1.1%), natural gas (-0.7%), drug stocks (-0.7%), and the semiconductors (-0.6%).

Chart of the S&P 500:

Chart of the NASDAQ:

Chart of the Dow Industrials:

Chart of the Russell 2000 index: