Stocks were battered and beaten on Monday but they would not break. The S&P 500 (^GSPC) slumped nearly 2% before finding a low at 1,560 and then paring some losses. All three major averages closed out the manic session down 1%.
Here are three things you need to keep your eye on heading into Tuesday:
1. China is Crushing Emerging Markets
The People's Bank of China (PBOC) was behind this sell-off when it refused to inject liquidity into its banking system. "Commerical banks should pay close attention to the market liquidity situation," the PBOC helpfully suggested in a statement published on its website Monday.
The Shanghai Composite (^SSEC) dropped more than 5% overnight and captured the headlines but the real damage is being done in the emerging markets. The iShares MSCI Emerging Market Index ETF (EEM) is down 19% in 2013 and 17% just since May 8th.
2. 10-year Treasury Yield Controls Stock Moves
One month ago today the yield on U.S. 10-year notes (^TNX) stood at 2%. Today rates on the 10-year went as high as 2.67% in early trading before inching back over the course of the day.
Equity traders have become atypically obsessed with the 10-year yield since Fed Chairman Ben Bernanke's suggestion that the Fed would be "tapering" its quantitative easing program by the end of 2013 if the data warrants such optimism.
The 10-year and stocks traded in anti-lockstep today. As rates moved lower during the session stocks moved back to nearly flat. As long as that relationship holds stocks won't go anywhere without rates dropping.
3. Apple Holds $400
Apple (AAPL) was a proxy for market enthusiasm on the way higher and it's still the best available proxy for hope in the stocks. As we've said on Breakout too many times to count: Hope is not an investment thesis.
Apple dropped 2.7% today and dipped under $400 for the first time since late April. It's a key level for the stock as it marked significant resistance for much of the back half of 2011 prior to Apple's rocket move to all-time highs above $700 last September. Apple's low of the day was $398.05 and it closed at $402.29.
Obviously $400 doesn't have anything in particular to do with Apple's fundamentals as a company, but traders will key off it as an important mark.