Remember never forget the power of greed and fear, and the propensity for investors wanting to own stocks (taking long-side) and fund managers chasing performance as we saw today especially if they think the bull-train is pulling away they will want to hop on board.  Please, remember when in doubt as to market conditions/direction CASH is always king (or queen depending on your gender J ) please trade cautiously and be quick to protect your profits. I’m guessing that this the days ahead we will become embroiled in a major bull-bear battle as we head into the end of the second quarter.  This is pre options expiration week, so we need to expect the unexpected… as we could see some early rotation out of and into new positions, on we could see a doubling down! I would be very cautious about new positions (as the whipsawing could be extreme this week) so I would only look to buy strong support and sell significant OHR as the volatility is likely to continue until traders become immune to the daily news from Europe. Sentiment has been significantly damaged, and its not easily repaired! **There is a 35-45% probability (unless we see some intervention of a looming market crash, and the probability is increasing each day...I like to observe a phenomenon called my 90% panic volume indicator...basically it shows true supply/demand, fear (90% down days) and euphoria (90% up days)...and since the turn in and around April 16th there have been (9) 90% down-days and (4) 90% up-days, so we have been seeing some massive panic in the markets; and I have not seen since I started seriously trading (1999) this type of action! This type of action is showing not only massive price swings and divergences, but extreme volatility, and the better than 2:1 ratio of selling panic days (on heavy volume) to buying panic days on moderate volume are forecasting a crash type near-term capitulation scenario....so please be very careful!   This is why I believe this heaving selling and panic selling is setting up for more than a healthy correction as is hyped daily on the bubblevision networks...the trend is our friend right now and when we see the formation of lower highs and lower lows on significantly heavier volume than the interspaced relief rallies, we have strong established down-trend ! (I will expound on my directional bias, next weekend when I have more time!)

I am have some difficulty even becoming the least bit positive on the market for this week…though technically we are closing in on a significant relief rally that will likely be fueled by newbie-bear-cubs shorting critical support! Unfortunately there are way to many reasons ahead of options-X left should the market want to trend lower to test critical support levels (see my technical assessment below) and there are new ones cropping up every day; and from my vantage point right now there is no overriding reason to be taking on significant long-positions in this market right now (we will have some selective longs, but to expect a trend reversal is still to premature) as there right now limited potential bullish events on the horizon that could be construed as very positive; and unfortunately there are far more events that could provide a further negative bias. Sentiment is increasingly negative and the path of least resistance is still down; and until my indicators show me otherwise I remain extremely cautious of any bullish-pops.

Remember my premise of late, when the markets (and large players within, those that stand to benefit the most from their positional hedges and options/derivatives) want to take the indexes and stocks down it/they will always find an excuse to hit the sell-buttons or execute the sell-programs! The markets right now are still embroiled in a distinct bearish trend; and until Wednesday and Thursday of this week it had not been able to post two consecutive daily gains since late April. Every slight bearish news crossing the headlines is turning into the bearish-main-course of the day, and the bears have been feasting well, and we are in this bear market turn-down until really we see that some of this dismal news is ignored; and the bulls step up and start to buy! And unfortunately for the herd of bulls the bad news is likely to get far worse before it reverse this awful tonality; as evidence is growing from multiple economic releases that have started to show that our economy is weakening.

Our equity markets suffered their second largest selling-event of the year on Friday after a proverbial double whammy of fresh concerns about Hungary's sovereign debt issues, and the disappointing U.S. employment report (big miss, see my section below on the report), in essence the report showed little in the way of private sector job creation. But Friday's debacle (selling) was likely a result of the sharp decline in the euro that really took the indexes/high-beta stocks on a nasty plunging rollercoaster ride as the indexes followed each dip in the Euro down on the slippery slope…the euro closed the week at $1.1966, its lowest level since March, 2006; and it could have been far worse, if not for the closing bell.

The abrupt arrival of Hungary as another potential debt crisis of near equal status to Greece and this contagion is not such a big deal (they rank 50th n the nominal GDP-scale….though it does show again other looming warning signals that many European countries are not stable; as we have seen Greece arrive in April, Spain in May and now Hungary in June; who will be the next to pop up in July. I believe that European countries are spending themselves somewhat into a crisis but they are very quickly deflating themselves into a serious cesspool of a debacles; as most of European nations are still in a recession and the more austerity measures that they are forced to implement the closer they will delve into a serious deflationary environment; as its very difficult to dramatically cut domestic spending and raise taxes even more significantly and expect that these regions will grow. And with the European Union forcing a new round of austerity measures on the weaker countries with ballooning debt levels growth within the Eurozone will surely be diminished. I have been writing about the European Union banks not wanting to lend to each other because of their balance sheet contagions of owning too much of the PIGS debt. On Friday the European Central Bank reported overnight deposits from member banks reached a record 320.4 billion euros…they are just purely hoarding deposits and not lending a deteriorating situation!

To make conditions even worse on Friday the infamous Dick Bove (the dude buying the financials all the way down into the cesspool of despair) suddenly turned bearish as he implemented a major downgrade of the financial sector. Richard Bove cut the price target and earnings estimates for Goldman Sachs and Morgan Stanley…he is very late to the game in my humble opinion as he cut Goldman's target to $182 from $200 and he reduced his earnings estimates this year for their earnings per share to $17.17 from $18.72. Dick Bove said the quarter had been very bad for trading in both equities and bonds in the investment banking arena and that it will likely be a bad quarter for Goldman. He followed his Goldman downgrade with lowered earnings targets for Morgan Stanley (MS) and said this environment will ultimately impact JP Morgan (JPM), Citigroup (C) and Bank of America (BAC).

The weakening euro could continue to act like a heavy anchor on the various indexes (especially the European folks) this coming week as investors continue to be very skittish about potential contagions from Europe's sovereign debt crisis and the potential for a bigger setback in the U.S. economic recovery.

During this week, our markets would normally be focused on Fed Chairman Bernanke's testimony before a House committee on Wednesday, as he testifies before the House Budget committee....I would be extremely surprised to see him dramatically changing his positional views. He likely will be asked about Europe and will probably address it briefly in his prepared remarks so these comments will be watched very carefully. I would expect him to continue to sound reasonably upbeat on the economic outlook but sight headwinds as a reason to be cautious.  As well as monthly retail sales on Friday and several other key economic reports, but the focus will likely be on news across the pond as well, and the weighing on this news could trump the rest. Over this weekend, G-20 finance minister will be meeting in Korea of all places; then early in the week, euro zone finance ministers will be meeting in Luxembourg all of these folks will be focusing on various sovereign debt issues! Also Hungary is expected to release a new budget after the EU turned down the government's request to run a higher deficit…will these economies (we are just as bad) every learn that you cannot correct severe debt issues by issuing more debt in a lamebrain fashion).

I think the combination of the European contagions, and the disappointing U.S. jobs data forced some fund-managers to the side lines and makes them and others question how strong a recovery we should really be anticipating to develop (prior to the selling we had priced in an euphoric recovery).

This Friday we saw a dismal jobs report….as our economy (US) added a mere 431,000 jobs in May; still it was the most since 2000 as the bubblevision networks proclaimed but the numbers were distinctly boosted by 411,000 temporary government census jobs; and worse yet the ever mystical, fuzzy math operator called the birth death model added in a whopping 215,000 additional jobs. The unemployment rate slipped from 9.9% to 9.7% but this was due to fuzzy math computations. The street had expected a much stronger gain of 540-570,000 (and the whisper numbers were running around 650-680,000) and as I stated in my report late on Thursday….the best was priced into this release [and that the stage was set for a sell the news-release] and that any negative variance and we should expect that the market participants would trigger the sell-buttons in a significant manner and that we would likely reverse all of Wednesday's euphoric short squeeze rally. The estimates for the payroll numbers were being revised higher right up until the numbers were released; and we saw the surprise as even Goldman Sachs revised their estimates to 625,000 late last week. President Obama and Vice President Bidden were bragging in televised blips about the strong jobs growth expected in May; obviously all the talking-head punch was spiked.

The report showed that the private sector gained only 41,000 jobs, compared to last month’s weird surprise wherein they stated a 218,000 gain.  So at first blush it appears that April's NFP (non-farm payroll) gains were a head fake and that the true trend is lies closer to the May number, (as seasonally hiring should be increasing). After 24 months of job losses, the US economy has gained jobs in six of the past seven months, but the rate is anemic compared with the rate of job destruction.

Construction employment, which had jumped by 26,000 in April, resumed its declines in May, as the industry lost 35,000 jobs (whipping out all of April's gains) during a period when construction should be starting to reverse during the spring/summer months. The drop-off could have been exacerbated by the end of taxpayer giveaway program called the homebuyer tax credit. What disturbs me greatly is that since last May(this is when Cramer and others shouted at the top of their voice that the bottom was in for housing and commercial real estate was in the construction sector construction (where many good paying jobs reside) has lost more than 515,000 jobs.

The report was disheartening even more as the average length of unemployment rose again in May, from 33.0 weeks in April to 34.4 weeks, indicating the vast difficulties people who worked in industries particularly hard hit by the economic crisis (construction, real estate, manufacturing) are having in finding new jobs.

Worse yet this past week, once again after a relief rally we saw that significant technical support levels were breeched to the downside again and despite the stupid rhetoric, I have heard on the various bubblevision networks by brain-dead fund-managers talking up their various books, technical really do matter; and support levels do matter as we blown through some of them very easily on heavy downside volume. I think what's really going to drive the markets this week prior to Option-X (as we tend to see quite a number of option contracts being unwound the week before) are headlines emerging from Europe, so what I will be watching are credit spreads, Libor, interbank lending and the flow of credit, along with currency action.  Another significant contagion and/or catalyst, for directional tonality that needs to be watched closely will be the various governmental bond auctions especially in the Euro-zone.

U.S. debt also rose this week as the government prepared to sell $70 billion of notes and bonds, compared with $78 billion at the last sale of similar securities, marking the biggest drop in the total sale amount since global credit markets collapsed [Our government (US) will sell $36 billion in 3-year debt, $21 billion in 10-year notes and $13 billion in 30-year bonds on three consecutive days beginning June 8.] . The yield on the two-year note dropped 5-basis points, to 0.73%, and this was  the big weekly drop the price of the 0.75% security due in May 2012 increased 3/32, or 94 cents per $1,000 face amount, to 100 2/32….this is some very serious coin! An increase of more than 1 point in the price of the 30- year bond pushed the yield down 8-basis points to 4.13%, while the benchmark 10-year note dropped 9 basis points to 3.20%.

Other economic data that could be market moving this week includes wholesale trade Wednesday and international trade Thursday. The beige book is released Wednesday and weekly jobless claims are reported Thursday. Later in the week, the European Central Bank holds a rates meeting and news briefing. There is also fresh data from China on its trade balance early Thursday, and the highly awaited retail sales, and Michigan consumer sentiment.

We have some geopolitical looming on the horizon…..and when I reflect on these contagions, I'm very surprised that the markets held up so well this past week; as when you really look at all the plethora of potential negative events looming on the horizon it's very amazing to me that we did not experience quite a lot more selling. We had the contagion over IDF soldiers killing nine people. North Korea warned that war could erupt soon, and this is a very serious threat as these folks are fanatics and their society is primed for a war as so many are basically starving! I believe that this present situation within the Korean peninsula is grave and unfortunately way too many governments are ignoring the contagions right now.

Since 1972, my research has shown that when the indexes have been embroiled in a very giddy uptrend with all the indexes trading above their respective 200dsma's in excess of 6-7 months in a row or longer (and this has surely been the case) we undoubtedly get this type of nasty correction, which slashes and beats up the bulls we almost always get this kind of a nasty pullback, we find some very decent relief rally buying opportunities, as we often get a massive short-squeeze!  But this type of situation appears to be distinctly different this time.

Several of my primary indicators are now flashing several reversal yellow-cautionary flags, as I am seeing some signs that a relief rally could happen very soon; but this market is hardly normal and if the recent bear market taught me anything, it is: don't fight the tape…and try to anticipate the turns…being light/nimble; as if we are right we can see some very large gains (I prefer to trade short term options on the pro funds to exploit the potential directional bets]. To become over-leveraged could be a nasty-development as these markets are unbelievable volatile with craziness in the currency, bond, commodity and equity markets almost on a daily basis! So simply put these crazy-whipsawing markets will do what they want to do when these overleveraged positions (like the carry trade are unwound), and trying to defend your market posture with technicals, worse yet fundamentals or the desire to proclaim your bias on logic will not always clearly matter in the short-term and as I have been preaching of late, continue to develop hedges your long and/or short positions in this very volatile market (using put/call writes, or by using spread-trades)

An interesting technical tidbit worth noting…. we went the whole month of May without seeing back-to-back positive days for the SPX-500 then on Wednesday and Thursday we saw that the SPX-500 was up 2.58% and 0.41% respectively and these were the first consecutive up days since the last two days in we saw in April; the lack of bullish consecutive trades was a whopping 22 trading days; that's only the 13th streak of that length since 1972…the last time we saw such extremes of a streak like that occurred in back in October 2008; and in my research this trend is setting up for a huge selling event, as such I remain on extreme guard for such a development! 

Volatility has sure come back with a vengeance during the past couple of weeks (great for us traders as the more volatility and volume the better I can extract money from my Wall-Street ATM machine....

Volatility is the major play of the past few weeks…..As almost every trading day for the past 5 weeks, the SPX-500 has made at least a 1.0% intraday move. It's very apparent that we're in a situation now where the VIX (the so called fear indicator) has been battered about with some massive swings (20.43% move up on Friday alone) to close at 35.48 right in the middle of the recent high/low range….well off the 5-26-2010 lows of [24.10]; and well off the 5-21-2010 highs [48.20]  With a rising VIX, and some serious technical damage the SPX-500, Dow and now the Nasdog all trading below their 200dsma; the horizon is littered with red-flags (sell-signals) for a lot of technicians and fund managers and hedge fund managers, as many will actually act on the loose of these critical levels especially if all 3-indexes drop below the 200dsma! 

As a technician we are always watching for what we call a broad bullish pattern called the "golden cross" this occurs when the rising 50sma of the underlying (asset, stock etc.) moves up above the rising 200sma. Conversely when the opposite happens on the downside, I like to call it the "kiss of death cross" the $64,000 is whether this technical pattern have any meaning as it applies to an indicator or statistic-indicator, like, the VIX (as the VIX is an optional indicator hence bets are being laid out daily on this sentiment indicator)!

Please remember that if you believe there is a correlation and it's indeed bullish for the VIX, then it's bearish for the market due to the inverse relationship. Like the golden-VIX-cross during the Bear-Sterns debacle (we have to ask whether the PIGS/Greece is the new Bear-Sterns); we saw a dismal pattern, as the last time we saw a golden cross on the VIX it took place on 9/17/2008, after which the market imploded 18.66% over the next month, and 21.79% over the next 3-months **(so please watch this indicator very closely as this could be a preemptive signal for potential mega weakness on the SPX-500).

However unlike an equity or other asset; it does not for the most-part (except for its option activity) have the same supply and demand characteristics as it doesn't directly trade, it simply calculates sentiment via option activity, but I still believe this trend bears watching closely!.

As I had previously forecasted The U.S. dollar has been embroiled in a very decent relief rally these past weeks/months as it has been enjoying a respite from its declining trend over the past several years, as evident on the dollar index charts below, it bounced from the 74.24 level as I had forecasted it would.  I'm expecting another bullish run in the near-term....back up to $86.00-87.00 (which is exactly what we saw this past week)  seen this before the next leg down starts...(ands we are very close to this level) if they break out the greenback out above $88.50 its clear sailing to $90.50....we gained 1.58 points on the week....or 1.82% .we are still in a bull-confirmed mode however this bullish  rally is getting tired a reversal here could help put a floor under commodities and the sector they support...I have written during the past several weeks that we must remain very diligent and watchful of this dollar index.

The bottom line is the Dollar has broken out above the 38.2% retracement on the daily chart (see below) from within of its own bear market on 2 separate occasions. As I previously wrote when it breaks through the $81.69 (as it has done) it could easily make a run for $86.20 level (we hit this level this past week) if the rally keeps on due to the weakness in the  Euro and Euro-zone then $88.06 is the next level of OHR, as then the probability shifts to an anticipated longer term target of the 38.2% retracement from the 120.24 highs to the 71.75  which was the 2008 lows) thereafter the 32.8% retracement comes into play at 90.27..(where I would reverse into a SHORT-position)  then we could easily retrace the move back to $80.75-81.25 in my opinion!.