After several weeks of being mesmerized by the fascinating but relatively arcane matters of ever widening spreads in the CDS market, issues to do with how to mark illiquid CDO's and historically high LIBOR rates, asset managers can now turn their attention back to ever-growing signs of a global recession.

The action in the Nasdaq 100 (^NDX) yesterday could, in its own way, be just as problematic for equities as the freezing up of the inter-bank market. If the earnings season proves as disappointing as some are forecasting, perhaps this index will be showing us the way forward to another leg down in equities.



The long end of the yield curve is showing signs that the stress of enormously increased supply could require a healthier coupon than might be expected during a downturn in economic activity. By alleviating some of the anxiety about the integrity of other fixed income instruments, there could be a higher price to be paid on government debt as its allure as a flight to safety dissipates.



The recovery pattern in the S&P 400 Midcap index (^MID) is looking pale in comparison to its larger cap sibling and the cautious comments that were made here yesterday in connection with the Russell 2000 index (^RUT) apply to a large extent to the midcaps as well.



In yesterday's column I drew attention to the bearish potential for the sector fund IYR which reflects the Dow Jones US Real Estate index. The fund dropped by more than seven percent and a comparable move was seen in RWR which represents several of the major REIT's. This latter fund would seem to face a real hurdle in climbing above the resistance level marked on the chart just below $60.



It is still taking a large mental adjustment for me to embrace the notion that, to put it somewhat simplistically, the US taxpayers now have a stake in Goldman Sachs. The business model for this company will be undergoing a profound transformation and previous earnings growth prospects may come to seem a distant memory. Rallies up to the 50-day EMA should be seen as a good opportunity to exit the stock in my estimation.



The recovery of Morgan Stanley (MS) has been dramatic, and while some of the more pessimistic pronouncements about the stock last week and the strength provided by the tie up with Mitsubishi were clearly overdone, there is a residual sense that, in a similar fashion to the arguments about the unlikely return to halcyon days for Goldman, this stock looks to be vulnerable as it approaches the $30 level.



Schwab (SCHW) performed a rather striking reversal yesterday with an outside session that superseded all of the gains from Monday's session. There could be further corrective action to come here as prospects for the retail brokerage industry would seem to be questionable, to put it mildly.



One way to play the potential for higher yields in long term Treasuries is through the Ultra Short sector fund TBT. This will move up as prices of 20-year-plus Treasuries move down and is a two-to-one leverage play, so caution is suggested.



Clive Corcoran is the publisher of TradeWithForm.com, which provides daily analysis and commentary on the US stock market. He specializes in market neutral investing and and is currently working on a book about the benefits of trading with long/short strategies, which is scheduled for publication later this year.

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