Talking Points:

– Signs of significant risk aversion increased again last night as Treasury yields dropped lower and stocks sold off. TheS&P has just set a fresh 21-month low.

– Chair Yellen's Congressional testimony continues today, and this could certainly prod volatility in either direction. Remain nimble on shorter-term strategies, and for longer-term strategies, manage that exposure.

– We're seeing major volatility in the Yen (covered in 2nd point below). Be really careful if trading anything with the Yen.

Chair Yellen's Congressional testimony yesterday was fairly neutral. She didn't back off of rate hikes in any way, and she alluded to global pressures being a risk for the American economy. This is very much seemed to be what the market wanted to hear: Had she backed off of rate hikes (or even just March), that could be seen as a significant sign of global weakness. If she didn't mention global pressures that could be seen as just dangerous and risky analysis. So, she did a great job of balancing her statements while being approached with a really wide range of questions.

While she was speaking to Congress, the S&P found support and traded higher up to resistance in the most recent bear flag formation (shown below). But after she finished later in the day, stocks started falling again into the US close, and once Europe opened up in the overnight, the major selling took over once again and the S&P throttled down to a new 21-month low.

The major theme here was overall risk aversion. European banks were leading the moves lower, and the flight-to-quality run has continued to pick up: Treasury prices are spiking higher (yields lower) as investors around-the-world duck for cover. So while we may get small rallies higher in equities and other risk assets, the overall tone across global equity markets remains bearish and afraid. As we mentioned a month ago, the favored ‘buy the dip' strategy in US stocks (on the back of QE) has turned into ‘sell the rip,' under the premise of tighter monetary policy.

We looked at the context of this situation with some background in US equities last week with a specific focus on the S&P. The chart below is the updated version of that setup with most recent price action applied.