Here we are again .   Last week, on " 13,000 Thursday – Nasdaq Poised to Fail Critical Support " we talked about the non-transient inflation and how it will EVENTUALLY become an overriding concern for the markets.  Based on that macro and getting into the 2nd half of earnings, where the small caps begin to tell tales of woe AND based on the ridiculous valuations in the leading stocks, I had this to say: The Nasdaq faces a critical test of the 13,000 line and, after falling from 14,000, a weak bounce is at 13,200 and a strong one at 13,400.  Finishing the week below 13,400 indicates we're likely to fail 13,000 next week – continuing the downtrend.  In an early sign of a bursting bubble, tech stocks that don't actually make money yet (the kinds I keep telling you to stay away from) have fallen almost 20% this year. As you can see from the chart, we tested 13,400 on Friday and again yesterday, before plunging back to 13,000 where, according to the 5% Rule™, we are likely to fail (after a bit more bouncing) and then on our way to 12,000 with a hopefull pause at 12,500 (the 200 dma) that will really excite the dip buyers.  I will do my best to seem surprised when I write about it next week.  I mean, who could have seen it coming? Yesterday we discussed our SQQQ hedge in our Earnings Portfolio and that is still probably the single best hedge you can have in this market.  It's about to get a lot more expensive so do make sure you have some sort of protection in your portfolio – just in case.   As we also noted yesterday, the economy is at a bit of an inflection point here, where the gains from the economy are offset by the threat from the Fed, and that seems to be about 4%. Higher bond yields switch from being good for stocks to being bad for stocks, and the market focuses on the danger of inflation.   The 4% logic isn’t written in stone, but it has reasonable historic support. Since the S&P 500 was created in 1957 U.S. inflation has risen above 4% nine times , and in eight of those cases stocks …