Testing Shorts Here

Europe is up strongly today. Futures look strong. And I'm testing shorts at 1290.50.

1292 is my stop. We've come back to kiss the trend line from 1/20 from below. And we're at the .786 retracement of the Friday lows.

The risk trade seems back on in full and many are passing off Friday's move as a one-off. It's rarely that easy.

Rather, bulls should notice the warning light that is blinking on the dashboard. Deflationary psychology is starting to take hold.

Feb. 1 (Bloomberg) -- Bank of Canada Governor Mark Carney’s plea for households to cut debt, which surpassed the U.S. for the first time in 12 years, is starting to get through to homeowners like Gary Taitt. That may crimp earnings at the country’s biggest banks.

Taitt, a Toronto realtor, said he plans to cut his C$40,000 ($40,000) credit line at Toronto-Dominion Bank in half and pay off the C$25,000 balance on his CIBC Aerogold Visa this year.

This is significant because Canada is often portrayed as having avoided the housing and debt problems that the US and Europe have been experiencing. If credit starts to contract there, these same problems will be just beginning.