Fed Chairman Bernanke spoke yesterday on Capitol Hill and his mixed signals sent shockwaves through the markets as both Stocks and Bonds plunged. Mr. Bernanke's text read that QE will not be halted, but when the Q&A session began, he did say that if the economic environment improves, the Bond purchases could be tapered by the next Fed meeting in June or July. Really? Besides the Fed's dual mandate of maximum employment and price stability - they have a responsibility to provide clarity, maintain calm and do their best not to roil the financial markets. Yesterday's mixed messages did not meet that goal - at all!

The Bernanke effect was felt around the world as global Stock markets plunged. Adding to the negative tone, China's manufacturing fell for the first time in seven months.

Stocks are getting hurt again so far today, despite Initial Jobless Claims coming in lower than expected. Let's be clear - Stocks are lower for one reason and one reason only - continued fallout from yesterday on fears that QE3 will taper in coming months.

This just in...New Home Sales rose to an annual pace of 454K units, above the expected 425K. This knocked Bond prices well off their highs and cut into some of the losses in the Stock markets.

Yesterday's negative Bond Market reaction was overcooked. At the end of the day - if there is fear of tapering QE3, Stocks will have trouble moving higher, giving Bonds some support. And when you consider all of the global landmines that exist - Europe and now Japan, which we have been saying for some time could hit the wall in 2013 - these are fundamental reasons for relatively low rates.

A potential bad sign in near-term...the highs of the day came right near that $102.09 area, which acted as support for a long time. We really want to see prices jump back above this $102.09 level in the next couple of days - otherwise it will serve as resistance. This would mean rates are going to remain higher.

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