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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 ETFs 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 U.S. 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 to 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.

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 were down fractionally. And U.S. traders were in a relatively upbeat mood in the early going. Before some important data (U.S. GDP is a key release) futures were 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: 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

Positions in stocks mentioned: none.

Source: Daily State Of The Markets: Is It Time To Move Into Crisis Mode?