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 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.  This Friday is a quadruple witching expiration and much of the volatility this past week could have been related to option position squaring after a month in a very serious down trend; as I stated this past week normally the volatility is experienced the week before quad expiration but there could still be plenty left for the week ahead.  

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.

Under the reader on Friday we saw that in China, the Shanghai Composite lost 1.84% (a new 52-week low) on the heels of cautious comments regarding the country's future growth by the World Bank as well as a Peoples Bank of China as Xia Bin warned the economy is likely to slow in the second half of the year and urged further measures to discourage speculation in the real estate market such as a home transaction tax; meanwhile our media and most financial so called experts have ignored the China economic contagion! The World Bank is forecasting China's growth at 9.5% in 2010 and 8.5% in 2011, while their forecast for the global economy is 3.2% in 2010 and 3.3% in 2011. However, in an effort to hedge their view the World Bank said that the run-up in debt in countries using the euro could turn into a real and contagious debt crisis; and once again this news was ignored for the most part on Friday! The contagions really threaten very fragile economies in Europe and the US, adding the risk to my dismal growth projections. Although many analysts have discarded a slowing economy in China, I believe that as China's growth slows it will significantly impact the global economy.  In Europe, chatter continues about the bank stress tests (these are just smoke and mirror tests) or their lack thereof. The stress tests are scheduled to be released next month and will assess the ability of European banks to survive more difficult economic conditions, starting with the 25 largest banks and then trickling down to smaller institutions (hell our stress tests were c rap-filled pro forma accounting trickery, filled with manipulative shenanigans like suspension of mark-to-market and other balance-sheet ricks to bolster the bottom line while doing little to nothing to alleviate the real contagions!  

I saw a WSJ published commentary from former Fed Chairman Alan Greenspam on Friday wherein the bubble-creator and economic terrorist this morning. He noted that the perception of substantial borrowing capacity in the US is mistaken and that the US and other developed countries need to alter their fiscal policies. He said that an "incremental change" in reducing debt will not be sufficient and that the US is saddled with over 3 decades of it, adding that the US needs a "serious response" to the "pending crises" analogous to Greece; so is he attempting to make peace with the economic gods, as if this is his current belief and perception was the hell was Sir Greenspam thinking when acting as our Fed Chairman from 1987 until 2006?

This past week front page headlines were dominated by news from oil giant BP. The firm's decision to fund a $20 billion victim compensation fund was a big headline for those folks at the Obama camp. While the fund does not limit their overall exposure it helps quantify (a tad) of the near-term impact. However, headlines out of Europe were what moved the market. One such headline involved an international group of regulators who announced that Greece's budget cuts and austerity measures required by the EU and IMF's bailout were on track (I was amazed at this rhetoric, on track after only a few weeks, tell me after 6-12 months or several years that they are on track, 2-weeks doesn't even take a bit out of the proverbial elephant). Another positive headline was news that Spain managed to sell 3.5 billion euros of debt (about $4.3 billion). Demand was strong for 3 billion in 10-year bonds with a yield of 4.86% and 479 million euros in 30-year bonds with a yield of 5.9% (though this was significantly higher than the last auction). Over the past few months Spain (and Portugal) has also been labeled as the next countries likely to face a debt default issues, and traders were wrongly delighted at the recent news, the results of the auctions do little to change the economic dynamics!  The fact that investors were willing to buy these bonds was taken as a huge sign of confidence. Now we don't know who bought them do we….I suspect it was the EU banks trying to put on a good show for the rest of the world but the fact remains that Spain was able to sell some debt!

Another positive headline from Europe and the Euro was news that EU regulators, at a summit in Brussels, promised to reveal the results of their stress test of the major European banks. Markets hate the unknown so the fact that they are going to disclose these results is a positive; when is the proverbial $64,000 question, yet unanswered.  Traders have inferred that the results aren't that bad because if they were bad they do not believe that the EU really reveal the results. All together these headlines helped the euro to experienced one of its biggest one-week short squeeze bounces against the dollar in over 20-months and this helped to buoy our equity markets and the commodity sectors! After hitting a four-week low of $1.19 just a few weeks ago and on Friday it had risen to $1.2362 against the U.S. dollar. [The Euro gained 2.3% to $1.2388 against the greenback this week as traders unwound their bearish bets that the Euro's decline would continue. Hedge funds and other speculators reduced obviously reduced their short positions in the EUR/USD pair to 62,360 contracts on June 15 compared to 111,945 the previous week earlier, this was a drop of 44% of open interest] I believe that the vast majority of the euro's rise was short covering but its bullish push nonetheless. The test will be if the euro can breakout past the $1.25 level, which is expected to be significant OHR.

To complicate matters for Mondays trading we saw headlines out of China today wherein they announced they have decided to increase the RMB exchange-rate flexibility.  A quote from their announcement: "The global economy is gradually recovering. The recovery and upturn of the Chinese economy has become more solid with the enhanced economic stability." They go on to state that given this positive environment they are going to allow some flexibility in their currency's exchange rate (wow what a revelation). China has been widely criticized for manipulating their currency to keep their exports more competitive. The country has kept the Yuan near 6.83 per dollar since July 2008 (FYI: China's currency is called the renminbi, the yuan is merely a denomination much like our dollar). Some lamebrain economists will no doubt be jamming the airwaves on the various bubblevision networks as they will consider this a major vote of confidence for China's economy and the global recovery…and this could have a significant bullish affect on stocks into the open on Monday; we will need to watch the early futures actions and Asian markets for tonality. The announcement comes one week before the G20 summit in Toronto where the level of the renminbi was shaping to be one of the dominant issues. President Barack Obama called on Friday for currency flexibility as an essential part of the global economic recovery!  I believe China is just posturing and that words....meaning nothing its actions that have value! (link to FT story)

Looking ahead at the economic calendar for the week we're going to get existing home sales on Tuesday, New home sales on Wednesday (both are potentially negative market moving events), Durable goods orders on Thursday, and the University of Michigan consumer sentiment reading on Friday. Yet in spite of all the data the biggest event this week will be the two-day FOMC meeting and the resulting bias statement. No one expects B-52 Bernanke and his band of economic terrorists to raise interest rates but the markets will still be waiting with baited breath on Wednesday for the announcement. Recent inflation data has been bordering on the edge of deflation and with unemployment situation still deteriorating still stubbornly high and the Fed has plenty of room to keeps rates near zero helping the lecherous bankers and banks.

I remain very cautious on the stock market; as you will see below the technical picture is very mixed. The mixed cross currents I discuss below are still in place (we have a very overbought market to say the least) and the lack of volume on this past week's rally is very worrisome; as volume is a predictor of bullish strength and we have yet to see it emerge as the high-beta gap-run and hot-money stocks bulls. Equities rising on anemic volume can be a warning sign of a future furball-cough-up or manipulative gains. We could still have some end of quarter window dressing over the next (8) trading days but the Stock Trader's Almanac disagrees; as according to the Almanac the week after June option expiration has been down 11 years in a row (a trend worth watching this week as an over-bought relief-selling event has a high probability!  

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.

• Equity Fund Inflows $11.4 Billion…..Taxable Bond Fund Inflows $3.7 Billion  

• Net inflows are reported for All Taxable Bond funds ($2.323 billion), bringing the rate of inflows of the $2.410-trillion sector to $1.651 billion/week.

• Ex-ETFs—For the week ended 6/16/2010 All Equity funds report net outflows totaling -0.013 billion as Domestic Equity funds report net outflows of $0.307 billion and Non-Domestic Equity funds report net inflows of $0.294 billion...   

• Ex-ETFs—Emerging Markets Equity funds report net inflows of $0.310 billion as some investors continue to become less risk averse as they take advantage of a potentially bottoming euro/dollar relationship and this is expected to buoy commodities and exports to US consumers.   

	AMG Fund Flows for Full Year - in billions
	Equity	Tax Bond	MM Fund
Fund Flows for 2003	40.8	40.7	NC
Fund Flows for 2004	95.0	11.3	(64.3)
Fund Flows for 2005	71.9	9.3	89.0
Fund Flows for 2006	52.5	29.9	308.3
Fund Flows for 2007	111.3	68.8	569.5
Fund Flows for 2008	3.5	(3.3)	608.0
Fund Flows for 2009	6.0	172.0	(280.2)
Fund Flows for 2010	(1.6)	675.5	(431.4)+

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 during options-X we saw that the VIX dropped 4.84 points or a whopping 16.81%.....we are very close to a possible bearish reversal level of 18.75-20.00 as we closed out the week at 23.95 and since the recent relative highs 37.38 posted  6/08 when the relief rally started the VIX has dropped very hard;  I still believe this trend bears watching closely as we could clsoe for another bearish-reversal!

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 $87.95-88.75 (which is exactly what we saw this past week)  now I'm predicting an orderly retreat (leg down) however if some geopolitical event results in a break out the greenback out above $88.95 its clear sailing to $90.85....this week we lost 1.82 points on the week....or 2.08% ....nevertheless we are still in a bull-confirmed mode on the dollar however as I stated last week this bullish rally is getting tired a reversal here is just days/hours away....a reversal will help put a temporary floor under commodities (mitigate the trend of recent selling we have seen) within their respective sectors, and this could help buoy the stock market as well as so many sectors of the SPX-500 are commodity related, and this is my current technical assessment/premise that a weaker dollar could mitigate the stock market selling and help spur a bullish reversal into the 4th of July week...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 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 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!