Hi Traders,

Friday was the start of something ugly.

The bond market finally broke.

Take a look at iShares 7-10 Year Treasury Bond ETF (IEF):

That's the 7-10 year Treasury bond fund, and it collapsed on Friday. With the run in energy prices pushing inflation expectations higher, this was a matter of time. It finally happened.

The VIX Just Whispered Something Important

On this break, the S&P 500 (SPX) dropped almost 100 points and it's probably heading lower. The VIX (Wall Street's fear gauge, which prices in expected stock market volatility) bottomed at around 16.50 on May 1st. The S&P was 7,120 at the time.

We rallied almost 300 points from there and the VIX went UP.

On Friday, with the market finally selling off, VIX did go up, but not the way you might expect. The S&P was down 90 and VIX didn't even hit 19. The reason: VIX was already pricing in this move, and it's pricing in more.

VIX futures were over a point above the index heading into Friday. We stayed in contango (when later-dated futures cost more than the current index, the market's normal "calm" state).

VIX futures barely moved and the spread tightened.

This sell-off was priced in. What is NOT priced in is a total meltdown in bonds. That is what you need to watch for.

I'm Buying: Intel, Below 110

Intel (INTC) (I know).

It's back below 110. If we get a sell-off on Monday and Tuesday, I'm sitting on a lot of dry powder and I cannot wait to buy this one.

If it's below 100 at some point, I'm buying with both hands.

I'm Hating: Bonds

Bonds got torched on Friday.

I expect further downside. I don't see a lot of catalysts that save bonds here, outside of a real peace deal.

I'd be looking to buy puts.

Your only option,

Mark Sebastian