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.  Institutional money managers, hedge-fund managers with lackluster records and mutual-fund managers appear to be propping up the market into the end of the second quarter so their June 30 quarterly bull-crap-statements do not alarm their clients to badly and make them head for the fall-out shelters…resulting in redemption calls. The lack of participation, as evidenced by the anemic volume of late, really draws into question the validity of the 7.5% rally in the SPX-500 since the June 8th potential double bottom lows.

Currently the various indexes sit at the precipice…as they are treading on thin air like Wiley Coyote, before he realizes the power of gravity and falls off a cliff. They could be at the beginning of a multi-day/week reversal from this past week's selling, or they could fall off a cliff into the end of the quarter ahead of the jobs-report ; we have some conditions that are ripe for a potential water-shed plunge …now please do not infer from these comments that this scenario means there will be a crash starting on Monday over the next few day/weeks, so please I caution you not to go out and place short-orders-trades with reckless abandon.

However what the charts are telling me and the action of the tape is that there is a large growing risk of a potential crash occurring and the probability is higher than normal, as from my experience and extensive research we have more than a couple conditions in existence that have developed prior to stock market crashes in the past that exist currently…the internals since the April top have been and still are deteriorating; and crashes are born out or divergent moves off of significantly deteriorating technicals (meaning that crashes usually happen after lackluster volume parabolic moves). Sentiment has been significantly damaged (though I was a bit surprised to see that the final reading of the University of Michigan Consumer Sentiment Index in June was revised up to 76.0 in June from a preliminary reading of 75.5, as I expected a drop…never the less investor confidence is not easily repaired!  **There is a 30-45% 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 (10) 90% down-days and (4) 90% up-days, as such 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!)

Traders and investors (not prop-trading or program traders as they care less about data as they mostly attempt to manipulate momentums) will anxiously await some very crucial/critical potential market moving economic data this week (see the full calendar at the end of this report)!  We kick off the parade of reports on Monday with a report that I watch very closely, personal spending/income, along with the PCE and expectations are higher than I am forecasting, as I expect a negative reading on spending and a reading on personal income reading near zero! The Friday release of the June jobs data this week will be the biggie as many hope that it will provide clues on how the U.S. economy is weathering the recent storms that drove Wall Street's major indexes down for the year (expectations are still more bullish than I'm expecting, as I expect a huge surge in July thru October as the Obama folks attempt to pad the books ahead of mid-term elections!). Friday's jobs report will wrap up a week that is fully packed with potential market moving economic data, including consumer confidence and pending home sales. Non-farm payrolls are forecast to shed 20,000 to a gain of 50,000 jobs in June when the pro forma Labor Department's report is released on Friday, most of the decrease is being attributed to the government laying off half of its temporary Census workers, however I believe the drop off in employment could be very hot at a negative 195-225,000 and as such another weak reading for private-sector hiring will surely disappoint investors if I'm right as our economic health always comes down to job growth (quality jobs) as our economy is based on consumption 63-67% and most cannot consume with what they do not have! Without real quality job creation, we're in for a very tough time and the dominos could start to fall in a dismal manner, and I mean real job creation, not temporary job creation, not part-time job creation **real quality job creation….not Wal-Mart jobs.  Our unemployment rate is forecast to increase to 9.8% in June from May's rate of 9.7%, according to many a brain dead economists; I'm forecasting a rise to 10.1% which is not far below the peak U.S. jobless rate of 10.2%, reached last October, after an economic debacle and nuclear meltdown driven by massive greed and lecherous activities by Wall Street, which has started one of the worst recessions in decades (I stated started, as I do not believe we have emerged from the recession as so many have).  Without real growth in hiring, the U.S. economy is likely to limp along at best as many American consumers are being forced to continue to refrain from spending on anything but the very bare necessities. The precursors to Friday's jobs report will be released on Wednesday called the ADP survey, it's expected to show private-sector employers added 75,000 jobs in June then we have the weekly initial jobless claims on Thursday; and new claims are expected to fall slightly to 460,000.

It's very likely that political risk will also be on traders/investors' minds this week; as after our idiot congressional folks hammered out a so called compromise historic overhaul of financial regulations in Friday's early morning hours, Obama urged world leaders to follow his lead on regulatory reform at the G20 summit in Canada this weekend.

Volatility could continue to rise this week, as many fund managers start to sugar coat their books selling their losers and buying recklessly winning stocks to pad their portfolios to suck in new-investing bag-holders into their funds at the end of the quarter. Historically volume comes to a crawl before a long holiday weekend and even more so on the 4th of July Independence Day, and as such this could really increase market volatility.  If we do not see a pickup in volume at the end of the week, we could easily see a dramatic move off of any new lows established this coming week as we will have a small number of participants (especially prop-desks and large trading firms) could move things very briskly. And as a result this could make for some very anxious periods for both bullish and bearish traders when many are focused on market technicals especially after the SPX-500 failed to hold above its 200sma. Some traders/investors are of the belief that a move below that level is a very bearish signal (I am not always in that camp as I hate to run with the herd). Right now the herd of analysts are expecting great earnings as on average they expect that the SPX-500 firms will post earnings in excess of 27% (many expect 38-40% growth) in the second quarter *But earnings mean little as the markets are a forward pricing mechanism, and its guidance and future earnings that matter most*.

On Friday we saw that the final reading on 2010Q1 GDP revision came in at 2.7%; while the estimate was for a 3.0% gain, and many feared it could have plunged significantly further after the last revision; this is the final revision to the 2010Q1 numbers and analysts will now begin focusing their inept analytical guessing skills on the preliminary 2010Q2 numbers due out at the end of July. And right now expectations for 2010Q2 and 2010Q3 are sliding down the slipper path toward the cesspool of despair with 2010Q2 estimates averaging 2.7% and 2010Q3 around 2.3%; my forecast is for 2010Q2 are 1.0% - 1.2% and a 0.2% - 0.5% reading for 2010Q3. Even their optimistic rate of growth is not sufficient enough to maintain current employment levels never mind showing gains. The Fed says that there is no inflation so we do not need to worry right….wrong as I am somewhat worried over the current stealth inflation rate, as the core PCE inflation component (is way to low) in the final reading for GDP in 2010Q1 ended at 0.7% on an annualized basis and it is expected to fall again in 2010Q2; as the markets should be sniffing out the terrible "D" word…. a deflationary environment ahead.

A major contagion heading full steam ahead of us is the looming end of our mega taxpayer stimulus. By January the $787 billion from the current stimulus bill will have been mostly spent 88-90% and unfortunately state and local governments are still bleeding red as they are also quickly running out of money they have received and their deficits are ballooning!  Right now the most under-reported story is that we have almost 45 out of our 50-states running nasty PIG style deficit contagions! And with stimulus money from Washington drying up like the Mojave Desert these poorly run states will be facing significant fiscal budget shortfalls despite some miniscule budget reforms. Many states will be forced to enact some very painful budget cuts and many will likely have to raise taxes to fund the existing shortfalls and these actions will no doubt negative impact growth in the months and quarters ahead, and with employment still deteriorating and consumers ability to continue spending in a very diminished state sales and income tax revenue will likely continue to drop as it has already fallen for five consecutive quarters; which is another un/under-reported story as it is the first time since 1962 that such a dismal trend has developed; and this has a negative domino affect; as it will likely require more significant budget cutting by the states and more economic pain for consumers, and the cycle will go on till the recession tightens on the economy like a huge anaconda!  

On Wednesday we saw that sales of new homes dropped off a cliff to a record low in May, according to pro forma government fuzzy-math figures providing a very dismal gauge of the housing market and their huge dependence on a taxpayer-give-away federal stimulus programs. The Commerce Department reported that new single-family homes sold at a seasonally adjusted annual rate of 300,000 in May, down a staggering 32.7% from the revised April rate of 446,000! These numbers were plainly awful as analysts had expected sales to fall to about 400,000 in May after our taxpayer give-away governmental tax credit for new buyers which expired at the end of April. This massive 32.7% drop was the largest since the government started compiling the data that goes back to 1963, surpassing the huge 23.8% plunge in January 1994. The May sales rate is now 18.3% below that of May 2009, when the figure was 367,000.

This plunge underscores how important the federal stimulus had been in propping up the housing market, suggesting that the stimulus had masked true economic weaknesses within the housing sector. And I believe this is just the tip of the iceberg as I believe for the foreseeable future we are going to see some weak numbers and of course home prices have to come down further as there just too much supply. It is going to be quite a struggle into the end of the year and into 2011.  Home sales usually offer invaluable insight into the state of the real economic environment that we are embroiled within and of course into this so called economic recovery because of their implications for real consumer spending and the way they reflect the health of the jobs market and ultimately discretionary spending.  This dismal report followed extremely weak report about existing home sales, which also plunged in May compared with April.

The seasonally adjusted estimate of new houses for sale at the end of May was 213,000(which is the lowest level since 1970, semi bullish for builders), representing a supply of 8.5 months at the current sales rate, the pro forma government report showed; while the median sales price of new houses sold in May dropped 9.6% from a year ago to $200,900, while the average sales price was $263,400. The data shows that the sliding prices for new homes doesn't bode very well for prices on existing homes; as new-home prices turn down toward used!

Existing home sales unexpectedly declined to 5.66 million in May from 5.79 million in April. The payback period following the expiration of the homebuyer tax credits may have began a little bit earlier as first-time homebuyers made up 46% of all purchases in May. I expect that a large percentage of these buyers were in the market for distressed properties (as several of my friends were). Banks have been overwhelmed with applications for foreclosed and short-sale properties (however many folks are non-qualifiers) and whereas before the housing crash sales would only take about four weeks, it now routinely takes 8-10 weeks or longer for homes to close.  As such this weak report could be followed by a stronger June report (unlikely but probability). It's also possible that buyers were aware of the delays regarding distressed properties and signed contracts for non-distressed properties so that they would make sure they closed before the June deadline. In this case, closing should not take longer than four weeks and the quick drop-off in May could signal a weaker June report. However, the NAR announced that 180,000 buyers (2.16 million annualized) have signed contracts for distressed properties in April that which may be delayed well beyond the June deadline. With such a large quantity of potential purchases we could see a potential reversal. The government stimulus program which ended in April, and so far there has been no signs of a Congressional extension. has pulled forward sales; as such I anticipate a payback period will develop over the next 4-6 months as the supply of potential buyers has been significantly drained as they rushed into the market to buy a home before the rebates expired.

The Case-Shiller Composite 20 house price index shows the relationship of existing home monthly supply to home prices (supply/demand function). When monthly supply is below 6 months, house prices are typically increasing; and when supply moves above 6 months worth of existing supply, home prices are usually dropping (a purely very general basic guide). As I have previously written, I believe it was inevitable that after the tax credit (taxpayer bailout) program ended (pulling forward demand) the months of supply will likely increase, and the ratio could be close to double digits later this year. That level of supply will put additional downward pressure on house prices, and as such I am predicting that home prices could continue to slip down the slippery slope, nearing the cesspool of despair for many!  The $64,000 question will be how high will monthly supply rise during the next 6-12 months as banks are forced to put foreclosure upon homes on the market that they have been holding onto as they do not want to take the hit on their balance sheets!

We saw this past week that The NAR report for May Showed a decent number for existing home sales but the numbers are still retrenching as Existing-home sales, which are completed transactions that include single-family, town-homes, condominiums and co-ops, were at a seasonally adjusted annual rate of 5.66 million units in May, down 2.2% from an upwardly revised surge of 5.79 million units in April. May closings are 19.2% above the 4.75 million-unit level in May 2009 (thanks to the taxpayer giveaway and homebuyers scooping up perceived bargains); April sales were revised to show an 8.0% monthly gain, as many raced to lock in the tax-credit!      On a bullish note total housing inventory at the end of May fell 3.4% to 3.89 million existing homes available for sale (however the banks are holding onto a plethora amount of foreclosed inventory), current inventory represents an 8.3-month supply at the current sales pace, compared with an 8.4-month supply in April.  According to the NAR, inventory decreased to 3.89 million in May from 4.04 million in April. The all time record high was 4.58 million homes for sale in July 2008. Despite the hype on the various bubblevision networks this was a very weak report!

The FOMC meeting

Was a bit anticlimactic. No one expected the Federal Reserve to raise rates and they didn't. The market already knew that the U.S. recovery was shaping up to be an uneven one and the Fed's comments only confirmed that. Officially the Fed left the overnight interbank lending rate in their target zone of 0.00%-to-0.25%, which is where it has been since December 2008. The media was quick to point out that the Fed did not mention Europe specifically but certainly hinted that the drama overseas has had an effect.

We saw the release of a worse than expected FOMC statement that once digested the dovish tone could weigh on the indexes…. The FOMC acknowledged a faltering pace of our so called pro forma economic recovery on as they renewed their vow to hold benchmark interest rates exceptionally low for an extended period (this is a horrible situation for fixed income investors, and those with money in money-market's or savings accounts, their actions as forcing folks to take on riskier plays to chase yield they need to live! The Fed scaled back their assessment of the pace of recovery, taking note of pockets of weakness, and also issued a cautionary note about volatile financial markets in light of Europe's debt woes. But for some strange reason they stuck to their numbskull illogical assessment and expectation that the economy has and will continue to gradually emerge from the worst recession in decades.  "Financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad," the central bank said in their statement. **(Hardly bullish, and very dovish, one reason the indexes likely turned down on Wednesday and bleed off until we saw some short covering into the weekend!)**   The Fed-heads stated that the economic recovery according to their guess (hell they have a real nasty track record of getting growth right) was "proceeding," clearly a down grade from their assessment in April when it said the economy had continued to strengthen. The Fed-heads also after weeks/months of deteriorating data finally acknowledged a slowdown that has become evident now to these idiots in housing. In April, they had noted that housing starts had "edged up," but on Wednesday they said only that starts "remain at a depressed level" wow what a difference!  The Fed also reduced their view of consumer spending, saying it was "increasing but remains constrained by high unemployment [hell the Fed is supposed to strive to maintain full employment to date they have done little to stimulate employment], modest income growth and lower housing wealth" while in April, it said spending had picked up.

The risk of recession is rising, as again we saw this past week that the trend for the weekly ECRI numbers continues to be down it's not 85-100% confirmed as yet if the risk is the real deal or an a passing threat; though what is clear is that the rate of growth in the economy is slowing significantly as the stimulus spending slows… according to ECRI's weekly leading index, which fell again this time 5.7% this past week following a drop of 3.7% the previous week; and despite what you hear on the various bubblevision hype networks this is a significant downturn and is to this old trader a very pronounced economic negative; and right now what's missing to seal the double dip deal in terms of making a precise and definitive call with 100% accuracy of a double dip recession is a further trend-drop; but I'm going out on a limb as I will not wait another 4-6 months to forecast what I believe we are already in! The clues are everywhere and they are more than obvious to even a casual economic watcher.

The fact that economic growth is slowing and accelerating to the downside isn't all that surprising to me or my readers; as I have been discussing this trend on these pages for some time, and that a potential double dip recession is probably inevitable. We've had a "V" recovery, built on smoke and mirrors; and an historic amount of governmental stimulus here and abroad; and unless the spigots are turned on high-volume forever the rebound cannot last, at least not at the brisk pace experienced over the past year. To sum it up, this is a jobs issue and they are still disappearing at an alarming rate despite the hype of job creation and the ECRI leading indicators unfortunately continue to point to labor market weakness and a downturn in the overall growth rate will likely threaten the so called pro forma rebound in jobs. This is a potential nasty contagion as if growth continues to slow more significantly an outright recession "double-dip" would only compound the contagion.

According to the pro forma reporting by our Federal Reserve, money market fund holdings of households has sharply declined by about $380 billion since the end of 2008. (and according to the AMG money flow data I have reviewed, all money market mutual funds have posted net outflows of about $1 trillion during this same time period, not very bullish at all or is it) as when I see such large out flows like this I have to ponder where the money is going! Hell I doubt that it's going into bank accounts, as checking, and savings deposits are about flat during this period and they pay next to nothing in return.

I'm guessing that a portion of this money has made its way into bonds, as many are chasing even miniscule yields in the form of savings; but the net outflows of cash from money market mutual funds dwarfs the net inflows into bond mutual funds, so this premise has only accounted for some of these outflows. As despite the run up in Treasury holdings, total credit market investments by households is only up about $160 billion, or a mere 4%, which is probably mostly capital gains and not new money being placed into these funds (JMHO).

If we watch money flows in equities we see that it’s not going into stocks, either, as volumes have been anemic and retail has not participated in reality during the past 6-12 months in equities!  There has been an increase of over 30% or approximately $1.9 trillion in the balance sheet holdings of corporate equities (their longer-term investments) and mutual funds shares, but the vast majority of this gain is related to capital gains realized from the March 2009 bottom! It's also interesting that AMG reports that flows into equity mutual funds has been practically zero over that time period as well (2009 to present).

One probability (high) as I see it is that the drawdown in the vast amount of cash holdings by individual households is going to maintain their vast consumption. Take a look at the following two graphs below (presenting data from 1959 through April 2010). The first is a graph of the broad components of personal income (wages and salaries, income from assets, proprietors’ income and government transfer payments) vs. (consumption of goods and services). You can see that the ratio of these two lines is a little over parity right now. While the second graph backs out government transfers from the adjusted income number, to show what real working folks basically have to live on before any government assistance (food, stamps and other taxpayer give-backs).

Without these government transfers, we see that income only covers 84-87% of consumption a very unhealthy situation as it falls short by $1.24 trillion (when government transfers total $2.24 trillion). Now, let’s make develop another premise 59-66% of government transfers flow into is Social Security and Medicare, which mostly goes to the elderly and disabled; as such we could infer that these two graphs could be further broken down by demographics to exclude the income and spending of people over the age of 60, it would show an even deeper spending hole that is not covered by these governmental transfers. That cesspool of a hole used to be filled by cash from borrowing against home equity and realized capital gains from the stock market, but this is not the case as 2000-2009 was a lost decade for the markets and personal home ATM machines have run out of money a long-time ago for the vast majority of Americans.  Today, in the post-dot-com and post housing-bubbles created by the Federal-Reserve's lamebrain actions and the resulting tightening of credit (almost as dry as a desert). One can infer with strong conviction that the cash that is moving out of money market funds to sustain the lifestyles of average Americans and this stream is drying up!

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).

This past week we saw that the VIX gained 4.58 points or a whopping 19.12%....(bad for the markets) .as I sated last week when we closed in on the 22.00-23.00 level we were cl.ose to a bearish reversal in the markets and I stated that a spike down to 15.75-18.00 on any giddy buying would be a huge warning signal that the relief rally was stalling BIG-time!

As I had previously forecasted the dollar has been embroiled in a very nice rally these past weeks/months as it has been enjoying a respite from its declining trend over the past several years, due to geopolitical contagions abroad, as evident on the dollar index charts below, it bounced from the 74.24 level as I had previously forecasted it would (bottom of a falling wedge pattern).  And as I stated several weeks ago I was expecting another bullish run in the near-term....back up to $87.95-88.75 (which is exactly what we saw week)  now as I predicted last week I am expecting an orderly retreat (a leg down) however if some huge geopolitical event occurs it could result in a break out the greenback out above $88.95 then it could be clear sailing to $90.85....this week we lost 0.30 points adding to last weeks 1.82 point loss....nevertheless we are still in a bull-confirmed as we closed out at 85.28....however as I stated last week this bullish rally is getting a tad bit tired as we slide back to test near-term support at $85.00 if this level fails to be support as I believe it will not (near-term) than a reversal could be just days/hours away....a reversal would help put a temporary bullish floor under commodities (and mitigate the trend of recent selling we have seen), and this could help buoy the stock market as well as many sectors of the SPX-500 that are commodity related, and this scenario has a 65-70% probability of playing out....it is  my current technical assessment/premise, that a weaker dollar could help alleviate the stock market selling and help spur a bullish reversal into the 4th of July holiday and possibly through 7/15...I have written during the past several weeks that we must remain very diligent and watchful of this dollar index as its very overextended due to geopolitical tensions and debt issues!.   You can see within the weekly CRB-weekly chart below that we have started to see a turn up this week in commodities as the index gained 6.98-points or 2.73% this past week, and commodities are attempting to stage a reversal break-out

The BULLISH trend....the Dollar has broken out above the 38.2% retracement on the daily chart (see below) from within of its own bear market on several occasions. As I previously wrote when it breaks through the $81.69 (as it had done as I had forecasted it would ) 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 (we topped at 88.71 this past week) and then the probability shifts to an anticipated longer term target of the 38.2% retracement from the 120.24 highs to the 71.75 lows  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!.

I have repeatedly focused on two distinct and very important moving averages (at least for me), that I have through my many years of trading have consistently keyed on as indicators, from which I have derived my bias of the regarding the market's overall health, and I have written several times during the past several weeks after the so called flash crash plunge and the subsequent declines in the days and weeks thereafter. 

One that has served me well has been the SPX-500 160 monthly simple moving average; this is of course a very long-term indicator as it has shown to be very significant as it indicated support at the 2002-2003 lows and once it was broken back in October 2008 the subsequent purge/plunge off a cliff ensued. During the past month or so I have referenced and cautioned my subscribers that a drop below the 160Msma at 1,169+/- would be very bearish, and once this level was breeched to the downside we saw a huge pick up in subsequent selling!  Now that it has been breached to the downside I believe that until regained we are in a bear-market, and all subsequent relief rallies are opportunities to be sold into!  

The SPX-500 monthly 200sma unlike the 160-month, is an extremely slow moving average that is essentially a huge technical analysis tool I use as I always buy this level of support till broken, as once broken on significant volume we historically are in store for another 15-20% or greater drop!  Currently the monthly 200sma = 1048.65 and we have bounced several times at this level after regaining this level!   

We also have the SPX daily 200sma which is very widely followed indicator as the vast majority of herd based investors/traders from street market technicians to amateur traders/investors alike and even by many fundamental analyst type folks without real meaning; hence I almost never initiate or close trades based on this moving average (as its way to crowded an indicator to speak, and it way to often creates fake signals), as such from years of trading and in depth research it has moderate to little psychological significance for the index to successfully navigate back above this level because of the vast widespread agreement that it is an indication of its health; it as I have said before is to often a head fake indicator! The SPX-500's 200sma comes in as of Friday's close came in at 1,107.95 the likely target for the bulls on any additional bullishness! 

That said, I am now a very old and seasoned/savvy trader (at least I think I am) as such I have a better indicator when coupled with others provides me some considerable insight into the so called health of the markets….simply put it’s the Russell 2000 Index as it to me is the play-ground of fund-managers, hedge funds, and high-beta seekers and it holds even greater importance than that of the SPX-500 in many ways; because this index holds the true sentiment/conviction of most fund-managers across a broad spectrum of players! If you look at the charts below of the Russell-2000 you will find that the majority of the strength of the rally off the March 2009 bottom was concentrated in the small/mid cap arena, as the index moved higher fund managers were forced to chase performance; and the subsequent breakdown in this leadership area of the market has provided negative contagions.   

I also like to follow several little known ETF's of significant interest (iShares Lehman 20 Year Treasury Bond called the TLT….[the bearish side of this play is the TBT], these ETF's are an indicator  and measure of our government's (USA) bond performance. If you reflect on the charts (daily) of the TLT you will see that early in May (5-06-2010) we saw a huge spike on the TLT to 100 and later on 5-25-2010 at the first lows we saw that the TLT again nearly toughed the 100-mark, and on both occasions we saw very strong rejections at that level (these levels are where I suggested buying the inverse ETF called the TBT) as bonds and stocks have been moving for the most part in an inverse relationship, as currently bonds are being sought as proverbial safe haven assets to which investors flock to when there are huge periods of uncertainty and FEAR (fear is often defined as False Evidence Appearing Real). It's also important to recognize that at these extreme levels the TLT trading volume exploded and when we reflect on volume during the past 8-years it was the most significant volume easily exceeding volume even during the 2008-2009 TLT price spike during that melt-down…that was related to the financial debacle/crisis and the subsequent stock market plunge off the proverbial cliff. This recent mega TLT volume spike to me strongly suggests an increasing level of fear among investors which is in my opinion quite disproportionate to the relatively extent of the stock market pullback, which for the most part suggest to me that a near-term market bottom (on the recent retest of the lows) may well have been put into place this past week!