It would be nice if yesterday's European Central Bank announcement had come with an instruction manual that let markets know how to react and at what pace.  I haven't seen the analytical community as confused and noncommittal in quite some time.  A lot of normally highly-convicted folks are instead in "wait and see" mode.

I'd mostly put myself in that same camp, but I'll admit that the prospect of the ECB finally getting some form of sovereign debt buying through the tangled Eurozone political system (for now, anyway) is impressive, and--at the very least--symbolically important as far as market stability is concerned. 

Will this be THE magic pill that brings about the big bounce in the European economic trajectory?  Almost certainly not.  But with that in mind, it's important to remember that QE2 wasn't that magic pill in the US, yet it preceded a truly awful bounce in late 2010.  Can we look back on 2010 now and conclude that by rolling out QE2, the Fed was giving markets a shot in the arm that it didn't truly need in order to survive and in so doing, sent a signal that they would be doing all they could to reflate the limping economy?

Granted, there are ample differences between the US in 2010 and the present day Eurozone, but the important similarity is the possibility that Eurozone QE acts as the same sort of signal as US QE2, assuming of course that QE2 indeed was a signal.  One thing's for sure when it comes to assessing this potential correlation: US markets didn't wait long for their paradoxical QE2 reaction.

So being, as we are, in "wait and see" mode, one of the best tools we have to monitor any surge in negative risks are plain old technical pivot points.  These are simply trading levels that have historically been much more likely to result in bounces vs breaks.  In other words, if rates approach a pivot point from EITHER direction, they're more likely to bounce by some indeterminate level of probability, and if they don't bounce, it's significant. 

Quite simply, if yields rise and bounce at technical pivots, all is well.  But for each pivot that breaks, we have one more notch of negativity in the outlook.  Although MBS and Treasuries have been much less correlated than normal, 10yr yields will still provide the best sense of broad momentum in bond markets.  As such it's the 10yr pivots that we'll be primarily concerned with.  These include 1.95, 2.0, and 2.04 for now.  While 2.07/2.08 is very important, a break of 2.04 would have already been more than enough justification for a highly defensive outlook.

These pivots appear in the chart below, as do a few of the mainstream technical studies.  They're finally turning negative for the first time since mid-December.  And that was largely due to light holiday trading conditions.  Realistically, this is the first legitimate negative technical turn since mid-October.  On a positive note (not pictured in the chart), if 10's manage to end below 1.83/1.84 today, everything is awesome.

Annotations:

1. Stochastics moved over the lower/overbought line, suggesting shift
out of the positive trend.

2. MACD forest bars are ascending noticeablynow and with any more weakness will cross above the horizontal line, which is a negative momentum signal.

3. RSI is giving essentially the same signal as stochastics--a shift out of overbought status, though
most technicians also look for RSI to have moved more than halfway to oversold status--the top red line--before considering the negative trendto be full-fledged).