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UPDATE: False Rumor Sparks Bond Sell-Off

Where there's international tension and headlines, there's sometimes fire...and sometimes not.

Traders were quick to jump on rumors of an Iranian naval engagement just before 9 am ET today. The rumor carried some pretty graphic details about a U.S. Navy ship being hit by an Iranian anti-ship missile in the Persian Gulf. There were also rumors that some news agency was about to report the story as being true.

That's what was swirling in futures pits and on trading desks as bond yields moved to their highs of the day. Our Rick Santelli alerted us to the talk. Our friends at NBC News quickly spoke to their contacts at the Navy who denied the rumors. When NBC News got the denial, our Erin Burnett reported it on "Squawk on the Street."

"For good or for bad, it totally distorted the trading day," says Santelli. "We had yields moving up aggressively on strong housing data, specifically yields on two year notes reaching fresh five month highs. The rumor caused quick losses to those positions and those sellers have been reluctant to come back into the market place."

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The Dow and Nasdaq, like two hands on a clock, are pointing in different directions today. The Dow looks to be higher while Nasdaq is heading to a lower opening, pulled down by tech, a trend we've been watching this week. Earnings news and testimony from the Fed chief will be the big focus today.

HOUSE OF PAIN: You've heard Jim Cramer say that, and now he's saying it about a lot of names in tech. Last night, he went negative on semis, cell phones, software, storage and handheld computers because he expects intense competition and seasonality to pinch those sectors for the next couple of months. He warned of the "January sell off." Ouch. He still has a few best of breed favorites that have very strong products and earnings. But if you look at the Nasdaq, he's not alone.

We are seeing Wall Street gang up on some tech names. (some of the ones Jim likes!) Apple is losing its shine after reporting its first billion dollar profit yesterday. Traders seem to be focusing on its forecast for a weaker than expected outlook for fiscal Q2. Wall Street is also down on Cisco . Remember Cisco was on a nice little run at the beginning of the year. Yesterday, Merrill Lynch slashed it to neutral from buy after similar cuts at Prudential and Bank America Tuesday. Merrill said it dropped its buy rating based on earnings prospects, price compared to peers and worse comps ahead.

Tech names reporting today are IBM and Motorola , both after the bell. Merrill Lynch earnings are out this morning and it appears the firm beat Wall Street's estimates.

INFLATION DATA:Traders will be eyeing consumer inflation data (CPI) this morning to see if it shows the same surprise pickup in prices that showed up in PPI yesterday. Food was one of the segments of the PPI that showed increases, and concerns about food inflation are picking up this week for a couple of reasons. Corn, since last week's crop report, has been hitting 10 year highs because of the high demand from ethanol manufacturers. Corn is eaten by chickens, and the price of young chicks is higher. Couple that with the images of frozen fruit we're seeing on the news. When it's snowing in Malibu, there are real concerns about the fresh fruit and produce from California. Food inflation is a trend we'll keep an eye on.

OIL DATA: Inventory data at 10:30 am could help set direction. Oil turned higher in late trading yesterday and is a bit higher this morning. European markets are higher and Japanese stocks closed higher, shrugging off a Bank of Japan decision to keep interest rates unchanged.

BIG BEN: Federal Reserve chairman Ben Bernanke testifies before the Senate Budget committee. This is his first testimony before the new Congress, and you can watch it live on CNBC. He will start speaking sometime after 10 am and our Hampton Pearson will give us the headline. Our Steve Liesman will stand by to provide analysis as Bernanke is questioned by Congress. Liesman points out this is Bernanke's first time before a Democrat led Congressional panel and it could be very interesting. "Typically the things the Democrats want to hear are not the things the Fed chairman wants to say," Liesman said. "The hearing could be interesting from a political point of view, not just an economic one."

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