Oh boy, did that Bear Fund blow-up get some people's attention.

And while the "mainstream TV media" did try to ignore it, it didn't work very well.

See, this funny thing called the Bond Market didn't ignore it at all, breaking out back upward.

Last night I commented that it was "do or die" for the 10 in terms of direction. Looks like the decision was "do" - at least for now.

The reaction in the market as it started to tick up was instantaneous - the parabola took off and so did the market - south. Then the rate moderated, and the market rebounded.

So far.

The hedgie blowup is nothing to ignore. This is a big deal - a really big deal. The 10 is poking back at the uptrend channel, and there's an interesting "second-level wedge" that may be setting up on the yield. If so, then the march north on rates is about to resume - it just may happen at a slightly slower pace. Still, up is up, and higher borrowing costs are what they are.

This is why I commented the other day that this was not decided on the 10's fate in terms of heading south, and that one had to watch - very carefully - that bond, because it was at a decision point, or, if you prefer, it may have been "building a base". To those who think the bond is "done" and headed down - be careful buying into headfakes!

Well, it looks like that base got built, and we're headed back north on those rates. We shall see.

Now the fun begins - did people read Bloomberg this morning? Or The Wall Street Journal? Or just the ticker? :-)

In other words, is fear back? Risk being repriced?

Not sure. But calling this "consolidation", which Bob Pisani did on CNBS, might be a bit premature. The latest sentiment reading has the lowest Bearishness since 2004. That's a contrary indicator - when everyone thinks the market is going up, guess what happens? Yep. The market is great at catching people offsides and extracting the maximum amount of pain from your wallet if you attempt to chase it rather than trade it based on what's actually happening in the fundamentals. The latter, while often short-term frustrating, is almost always right in the longer term.

Look at Home Depot for an example of idiocy. Their customers can't afford the products, the company is in fundamental trouble, they spin off their wholesale supply line and then buy back more than a quarter of their stock, levering up in the process! Why? To prevent a share price collapse. But - while this gives you a nice short-term pop in the price when announced, you'd be wise to take that profit now, because the fundamentals of that company, to be blunt, suck, and if interest rates do continue to head higher, those borrowing costs will too, which will put even more pressure on their balance sheet.

The latest on the Bear Stearns hedgie blow up as of 10:15 ET - apparently other primary dealers are selling their subprime bond assets already, trying to figure out how to get through the door before the they choke on the smoke! The fire sale started ahead of Merrill's auction, as people started to get.... well..... nervous. This is likely to continue and is now threatening to become a stampede. This leads to the obvious question - will these marks to market kick off a tsunami of margin calls at other hedge funds? Hmmm..... Latest update at 2:15 PM: JP Morgan apparently has pulled their auction, but Merrill's still appears to be on for 4:00 PM.

In other news, Bloomberg is starting to run stories that sound pretty ominous on the broader economy - and housing. "Blood bath"?

"The jump in 30-year mortgage rates by more than a half a percentage point to 6.74 percent in the past five weeks is putting a crimp on borrowers with the best credit just as a crackdown in subprime lending standards limits the pool of qualified buyers. The national median home price is poised for its first annual decline since the Great Depression, and the supply of unsold homes is at a record 4.2 million, according to the National Association of Realtors. "

Is that good?

Oh, and mortgage applications are down. That's good too, right? You don't think higher interest rates might have something to do with that, do you?

Weekly oil inventory data came in with crude stocks way up, 6.9 million barrels - much bigger than expected. Gasoline supplies also up big, 1.8m barrels. Refinery utilization declined however. This caused an almost-immediate $1/bbl downtick in prices. But - gasoline is going to remain a problem with refinery capacity issues...... Looks like the 7 handle is on hold for a short bit.... but I wouldn't hold my breath on "for how long".

Then - wow.

I go out for a few hours to help a friend with his boat, leaving all my shorts sitting out there naked and raw, and boy, did they get a nice suntan - the profitable kind! Holy smokes!

I saw it happening on my mobile (ThinkOrSwim guys - awesome, including a VERY NICE mobile platform that works on data-enabled PocketPC phones!) and just kept chuckling.

And look at how the press spun this:

"NEW YORK (AP) -- A surge in Treasury yields rattled Wall Street Wednesday, forcing stocks to give up early gains and drive down the Dow Jones industrial average more than 140 points."

God I hate liars.

Guys, the 10 hit its peak for the day at 12:30 CT today, at 5.142%. It closed at 5.123%.

But the plunge in stocks did not happen until nearly an hour later, starting just after 1:00 PM CT, or 2:00 PM ET. I was at my trading terminal at the time!

So what really happened here?

I'll tell you what I think - although I can't prove it. I think the market reacted to the impending implosion of the Bear Stearns funds, deciding that it had enough of the obfuscation, and as a result we saw a selloff.

And who else thinks that might have had something to do with it? Bloomberg. The only straight-shooters in the room.

"June 20 (Bloomberg) -- Financial shares tripped over higher bond yields, sending the Standard & Poor's 500 Index to its steepest drop in two weeks.

Growing concern that losses in mortgage securities will spread helped drive down shares of JPMorgan Chase & Co., Citigroup Inc. and Bank of America Corp. Moody's Corp., the inventor of credit ratings, fell to its lowest in two months on speculation bond issuance will slow.

Rising borrowing costs may intensify a slump in the housing market that helped spur losses in two Bear Stearns Cos. hedge funds this year. Merrill Lynch & Co.'s decision today to seize and sell $800 million of bonds held as collateral for loans to the funds added to worries that the fallout from the subprime crisis may worsen. "

Wow, someone's being honest!

Then there's Marketwatch, which clearly is saying this is not over!

"An auction by Merrill, one of several investment banks that lent money to the funds, was completed late Wednesday, but more sales are planned on Thursday, the
person added. The assets for sale include mortgage-backed securities, collateralized debt obligations and credit default swaps. "

As for our friend the ABX, it did not have a good day today, and tomorrow may be worse. Much worse. Ominously, the CMBX BB index, which recovered some yesterday, went parabolic again today. Who is out there in the commercial space that is in trouble? I am still trying to find out and still have no answer. But this much I am quite certain of - someone is!

Ok guys, let's look at this a bit in the larger market context......

Is this "the trigger"? I don't know. Nor am I going to prognosticate on that specifically. What I will give you are some "trigger points" that you can look at to know if "the big one" is starting, and I remind you that all big stock market blowups are initiated in the credit markets. So while this is not "proof", the scenario fits! The trigger events that will convince me that we either are entering or about to enter a period of severe trouble are:

• The S&P closes under the 1490 level. That's second-level support, and has been approached several times recently - but it has held.
• China blows up (stocks). If their parabolic ascent is to be believed, this may occur within the next week or so.
• Goldman, Merrill, and Bear Stearns all close under their 50s. Both Merrill and Bear have. Goldman is all that's left.
• HGX has broken trendline support (today!) This is a marker. On technicals, it appears this may continue downward.
• The Nasdaq Composite breaks the 50. This occurs at roughly 2559. The Nasdaq usually breaks down first.

So far we are not there, but if this subprime mortgage stuff spreads, we will get there and in a big hurry. With the exception of China, we could hit all the other triggers within the next two or three days. If the triggering events are all, save China, satisfied Friday, we are at risk of a really nasty Monday morning - one that could come absolutely without warning - and I will be taking my "Hail Mary" trades Friday afternoon!

Now on a chartist's viewpoint, we've got some important things going on that I want to illustrate.

Here's the Russell. Head and shoulders, verrrry bearish. As I mentioned, a break above 855ish would invalidate the pattern. We didn't get there, truncated and headed down. Thus, the pattern is still in effect. The target is thus at least 790 on the downside.

Now here's our 10 year chart, with another trendline shown there. You can't see the whole thing but it dates back to early March, and is ascending.

I had this brought to my attention a few days back, but wasn't buying it at the time, because I want to see some sort of chart support first. But, this scenario may be playing out. If so, then the trend upward is not over, it has just resumed at the longer-term rate, which is slower than the hyper-ascent that was previously in force.

If true this means "its not over" on rates. I am still not sold, because we have only two data points in the current period on-line - but we held today and yesterday, so here you have it.

We're back to "two possibilities".

Here we are as I see it.

• We saw the top. The markets are being derailed by higher interest rates and jitters in the credit markets. Soon they will have even more to worry about, and the problems will ratchet up precipitously. If the above markers continue to sprout, the odds go up significantly that this has occurred.
• We have one more stab at all-time highs, perhaps to accomplish them in the Dow and S&P, before things roll over. Yes, this means that I'm not yet buying that "this is it", even though today sure looked like a panic to me once it got lit off. In fact, the afternoon looked an awful lot like the screaming part of a roller coaster!

The next couple of days will be tremendously important.