The title of yesterday's missive was, "Is There Really a Crisis in Emerging Markets? Or..." The primary point made was that although stocks are off their recent highs and things have become much more volatile this year, the charts of the greenback, gold and bonds did not seem to confirm that the U.S. stock market is currently in all-out crisis mode.

We looked at charts of the corresponding ETF's and pointed out that gold was not soaring, the dollar was barely moving, and that bond yields, while down, did not suggest that there was any big flight to safety occurring. And to be honest, yesterday's report had been written while the Turkish lira was rallying and futures were pointing higher. As such, perhaps the expectations for a hump-day rally infected the thought process.

Let's Review The Primary Issues

In case you are not up on the latest happenings, Turkey's central bank acted in defiance of the prime minister and hiked rates from 7.75 percent on Tuesday to 12.00 percent at a special midnight meeting. This was above the expectations for an increase to 10.0% and was intended to send a message to the markets. In short, the hope was the move would be viewed as Turkey breaking out "the bazooka."

As expected, the lira rose strongly against the dollar after the move. So, with markets rallying in Asia, the idea that the crisis might be over wasn't far-fetched.

However, sixteen hours later, the gains in the lira were gone and the Turkish currency ended Wednesday down 0.22 percent against the dollar. So much for that bazooka, eh?

But Wait, There's More To Know About Turkey

Part of the problem here is that Prime Minister Erdogan is in the middle of a corruption scandal in Turkey right now. Thus, it was politically expedient for him to accuse the central bank, which is considered to be a not-so independent entity, of trying to harm the economy. According to Reuters, one government minister said that the surprise hike in interest rates benefited those who wanted to "suck Turkey's blood".

So, perhaps the failed rally in the lira wasn't a case of the emerging market crisis expanding or growing more intense. Maybe it was traders voting with their feet due to the political turmoil taking place.

The Jury Is Still Out

The key point this morning is that the jury remains out as to whether or not there is a new emerging markets crisis taking place in the stock markets of the U.S. and Europe.

Looking At The Charts (Again)

Although Gold didn't exactly explode higher, the yellow metal did finish Wednesday at a new high for 2014 and you have to go back to mid-November to find a higher close. Therefore, it is acceptable to argue that the fear trade may be at work here. But, it isn't blatantly obvious on the charts at this point.

The bond market is a different story, however. Yields on the 10-Year plunged 2.6 percent on Wednesday and have now given back almost 11 basis points in just two days. In addition, it is important to note that the yield on the 10-Year finished at a new low for the year, broke through its 150-day moving average, and is at the lowest point since early November - which was before yields started to move up in anticipation of the taper.

However, it is also possible that the dance to the downside in bond yields is still being sponsored by the mother of all short-squeezes amongst the fast-money crowd that had bet heavily on rates continuing to rise.

Then there is the dollar. While the action in gold and bonds would seem to suggest that we do indeed have a crisis on our hands, the UUP (PowerShares US Dollar ETF) barely budged yesterday. So, those arguing that the crisis is "on" can't put the action in the greenback on their side of the ledger.

What Are Investors To Do?

So, what are traders and investors to do here? Should they just make a bet one way or the other as to whether or not they believe there is a crisis at hand? Should they guess as whether or not the outflows in the emerging markets will further impact the U.S. stock market? Or is there a better way?

Consider Letting Price Be Your Guide

It usually pays to utilize an inter-market analysis approach to try and find answers. But as we've seen, looking at stocks, bonds, gold, and the dollar doesn't yield a clear message here.

So, when times get tough in the market and you don't know which way to turn, letting price guide your decisions is pretty decent alternative. Sure, price can fool you. Yes, you can get whipsawed trying to stay in line with the trends of the market. But the positive is that when the market does make a major move, staying in tune with the trend will get you on the right side early.

Currently the S&P is perched right at an important juncture on the charts. Therefore, the next move in the price of the index will likely be quite telling. For example, if the S&P were to break below 1770 to any meaningful degree (below 1760 for example), one could argue that the crisis is indeed affecting the U.S. market and moving to a defensive position until the storm blows over might be a good alternative.

On the other side of the coin, if the S&P were to rebound right here, right now, and move back above 1820, well, it might be safe to say that an all-clear signal had been given.

So, while some may view it as taking the chicken's way out, letting price be your guide here is probably a pretty good way to play.

Looking for Guidance in the Markets? We can help...

The Daily Decision: If you want a disciplined approach to managing stock market risk on a daily basis - Check the "Daily Decision" System. Forget the fast money and the latest, greatest option trade. Investors first need is a strategy to keep them "in" the stock market during bull markets and on the sidelines (or short) during bear markets. The Daily Decision system was up 30.3% in 2012, is up more than 25% in 2013, and the system sports an average compound rate of return of more than 30% per year.

The Insiders Portfolio: If you are looking for a truly unique approach to stock picking - Check out The Insiders Portfolio. We buy what those who know their company's best are buying - but ONLY when they are buying heavily! P.S. The Insiders is up over 30% in 2013 and has nearly doubled the S&P 500 since 2009.

The IRA/401K Advisor: Stop ignoring your 401K! Our long-term oriented service designed for IRAs and 401Ks strives to keep accounts positioned on the right side of the markets. This is a service you really can't afford not to use.

The Top 5 Portfolio: We keep things simple here by focusing on our five favorite positions. This concentrated stock portfolio employs a rigorous custom stock selection approach to identify market leaders. Risk management strategies are built in to every position.

All StateoftheMarkets.com Premium Services include a 30-day money-back guarantee!

Looking For Money Management Help?

If you are looking for help with money management, check out Heritage Capital Management's Active Risk Manager Service - or call Heritage for more information at (630) 250-4700.

ALL NEW: The next generation of the Daily Decision system is now available to clients of Heritage Capital. The new and improved approach (which is not available in subscription form) utilizes swing trading during neutral market environments, multiple indices for long positions, incremental moves in and out of the market, multiple managers and multiple strategies - with the overall goal being reduced volatility and a smoother ride. Contact Heritage for details at (630) 250-4700.

Turning To This Morning... Asian markets followed Wall Street lower overnight, partially due to weaker-than expected HSBC China PMI data, which confirmed contraction in the manufacturing sector in January. European bourses are down fractionally. And U.S. traders are in a relatively upbeat mood in the early going. Before some important data (U.S. GDP will be a key release at 8:30) futures are once again trying to rebound. 

Pre-Game Indicators

Here are the Pre-Market indicators we review each morning before the opening bell...

Major Foreign Markets: 
- Japan:      -2.45% 
- Hong Kong:  -0.48% 
- Shanghai:   -0.83% 
- London:     -0.31%
- Germany:    -0.34%
- France:     -0.34%
- Italy:      +0.05%
- Spain:      -0.18%

Crude Oil Futures: +$0.32 to $97.68

Gold: -$7.70 at $1254.50

Dollar:  lower against the yen, higher vs. euro and pound

10-Year Bond Yield: Currently trading at 2.709%

Stock Futures Ahead of Open in U.S. (relative to fair value):
- S&P 500: +8.15
- Dow Jones Industrial Average: +81
- NASDAQ Composite: +29.63

Thought For The Day...

You cannot prevent the birds of sorrow from flying over your head, but you can prevent them from building nests in your hair -Chinese Proverb

Are you getting all the market research you need?

Remember, you can receive email alerts  for more than 20 free research report alerts from StateoftheMarkets.com including:  

• State's Chart of the Day - Eeach day we highlight a top rated stock with a positive technical setup
  
• The Risk Manager Report - Stay in tune with the market's risk/reward environment
  
• The “10.0” Report - These are the REAL best-of-breed companies
  
• The Insiders Report - See what the people who know their company's best are buying
  
•  ETF Leaders Report - Looking for the top performing ETF's? You've come to the right place.
  
•  The SOTM 100 Portfolio - The top rated stocks in each market sector
  
•  State's Market Models - Each week we quantify the "state of the market" with a series of models
  
•  The Focus List - Think of the focus list as your own private research department. We do all the work and highlight our top picks each trading day

Our Mission Statement:

At StateoftheMarkets.com, our goal is to provide everything you need to be a more successful investor: The must-read headlines, market commentary, market research, stock analysis, proprietary risk management models, and most importantly – actionable portfolios with live trade alerts.

Finally, we are here to help - so don't hesitate to call with questions, comments, or ideas at 1-877-440-9464.

Follow on  Twitter: @StateDave

---

The opinions and forecasts expressed herein are those of Mr. David Moenning and may not actually come to pass. Mr. Moenning’s opinions and viewpoints regarding the future of the markets should not be construed as recommendations. The analysis and information in this report and on our website is for informational purposes only. No part of the material presented in this report or on our websites is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed nor any Portfolio constitutes a solicitation to purchase or sell securities or any investment program. The opinions and forecasts expressed are those of the editors of StateoftheMarkets.com and may not actually come to pass. The opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security nor specific investment advice. One should always consult an investment professional before making any investment.