The stock market is still facing a number of big picture negatives and because of those negatives, signs of recovery, favorable earnings and even the promise of low rates for an extended period of time won’t be given much credence. In other words, the bears have a “cause” and the positives will likely be discounted, or ignored in the short term. Nothing of significant seems to have changed overnight with the EU seemingly set to let events take their own course and that could result in the next country coming under attack. Favorable confidence readings and the first year over year house price rise in years from a private survey was totally lost in the Euro shuffle. With the added negative sentiment flowing from heated and hateful Congressional testimony, the bear camp clearly has an environment to their favor. Ordinarily we would expect the US equity market to get a lift from the type of statement we expect to see from the FOMC early this afternoon, but in the current environment, the positives are going to have limited or no impact. We suspect that prices are set to work lower early this morning, but if there is the slightly fresh negative from the Euro zone, or the credit rating agencies on the Euro zone problem, the selling could intensify again.

S&P 500: With the European debt crisis showing no sign of coming under control and commodity prices serving to unhinge natural resource and oil sector shares, the S&P would seem to remain vulnerable to more selling pressure. In our book the failure to forge an exhaustion washout and recovery attempt in the action yesterday, suggests that the selling hasn’t run its course yet. We also don’t see the development yet that can effectively truncate or shut off the negative speculation against other EU debt issues. Initial support is seen at 1176.80 but that level clearly won’t hold and that would put the next downside target at the April 8th low of 1171.30.

DOW: After the big range down extension and no recovery effort at all into the close yesterday, the path of least resistance remains down. In looking ahead it would seem like the debt situation is seemingly cemented into a front row seat. Critical support in the June Mini Dow is seen at 10,915 today but we can’t rule out a further decline to 10,875 in the coming trading sessions. To even think about turning the trend away from the downside today would require a close back above up trend channel support line of 10,941 today.

NASDAQ: The June Nasdaq seems to have found some measure of support around the 2000 level, with the bull/bear line today seen at 2002.75 into the close. While the market might see a fleeting bounce off the US Fed’s promise to leave rates low, any bounce off that issue might simply be seen as an opportunity to get short at a slightly higher level on the charts. Keep in mind, the Nasdaq was one of the more overbought markets in the stock index sector in the last COT report. If the 2000 level fails to hold today that would set up the next downside target of 1985.50, which is only the mid April low!

TODAY’S MARKET IDEAS: The EU is leaving its fate with the markets and the markets are registering their disdain for a total lack of budgetary restraint. We would be very surprised to see the sell-off in stocks end today.

This content originated from - The Hightower Report.

The S&P has already managed a fresh new high for the year this morning and has seemingly engineered that pulse up move on the back of news of a $40 billion Greek aid package. While the market will see the Alcoa earnings later today, we don’t get the sense that the market is being driven higher because of favorable corporate earnings expectations. Nonetheless, we think that the market needs something positive from Alcoa and then from Intel on Tuesday to extend the pattern of strength, as these reports cover cyclical as well as tech sector conditions and after the rather stellar run up over the last 2 1/2 months, we get the sense that the market needs bullish news to justify and feed the up trend pattern. At least in the early action today, it would appear that sentiment is set to start the week on a positive track and given the gains in energy, metals and other physical commodity markets, it is possible that Natural resource stocks are going to help the overall market move to even higher levels early this week.

S&P 500: The June S&P managed a big range up move this morning but the trade seems to have questioned that move by giving up a large portion of that move into the NYSE opening. In looking at the charts, the June S&P has mounted some fairly aggressive gains over prior two trading sessions and seeing the favorable EU debt developments should have given the market a bigger sustained lift. The Commitments of Traders Futures and Options report as of April 6th for S&P 500 Stock Index showed Non-Commercial traders were net short 8,531 contracts, a decrease of 855 contracts. The Commercial traders were net short 7,164 contracts, an increase of -6,689 contracts. The Non-reportable traders were net long 15,694 contracts, an increase of 5,833 contracts. Non-Commercial and Non-reportable combined traders held a net long position of only 7,163 contracts. While the COT positioning is probably understated due to the rally that was forged in the wake of the COT mark off early last week, the S&P would seem to have more classic technical buying capacity than either the Nasdaq or the Mini Dow. We would be bullish as long as the June S&P manages to hold above 1192.60 today.

DOW: Like the S&P, the Mini Dow has managed a fresh new high for the move this morning, but prices have seemingly given back a large portion of that pulse up ahead of the NYSE opening. The bias looks to be pointing upward today off an improvement in the EU debt situation and also because of hopes for an earnings lift later this week. Critical support in the June Mini Dow contract is seen at the prior close of 10,953, with up trend channel support today not seen until all the way down at 10,838. The Commitments of Traders Futures and Options report as of April 6th for Dow Jones Index $5 showed Non-Commercial traders were net long 25,762 contracts, an increase of 5,563 contracts. The Commercial traders were net short 28,660 contracts, an increase of -8,577 contracts. The Non-reportable traders were net long 2,897 contracts, an increase of 3,014 contracts which represents a change from a net short to net long position. Non-Commercial and Non-reportable combined traders held a net long position of 28,659 contracts, which means the market is only marginally overbought.

NASDAQ: The June Nasdaq actually managed a gap up trade overnight but seemed to be unable to hold much of that gap up move. Given the significant 2 1/2 month rally in the Nasdaq, we would suggest that the Nasdaq needs something definitively positive from Intel earnings on Tuesday to give the market the capacity to extend on the upside. The middle of the up trend channel in the June Nasdaq is seen at 1981.50 today and we would remain bullish as long as the June Nasdaq manages to hold above 1992. The Commitments of Traders Futures and Options report as of April 6th for Nasdaq Mini showed Non-Commercial traders were net long 56,582 contracts, an increase of 838 contracts. The Commercial traders were net short 62,859 contracts, a decrease of 3,258 contracts. The Non-reportable traders were net long 6,276 contracts, a decrease of -4,097 contracts. Non-Commercial and Non-reportable combined traders held a net long position of 62,858 contracts. As we suggested last week, the Nasdaq continues to hold the longest spec position of the Mini Dow, S&P and Nasdaq futures.

TODAY’S MARKET IDEAS: The bulls have the early edge but we get the impression that the market needs constant headline assistance or the market might see profit taking.

This content originated from - The Hightower Report.

Certainly, unprecedented borrowing by the US government to head off the crisis and the historical easing efforts by a large number of central banks leaves the prospect of inflation on the table. Germany’s Chancellor Merkel recently called for global central bankers to “return to reason” in their to monetary policies, and that seems to give the prospect of inflation some credibility! However, it has long been our opinion that in order to return to inflationary conditions, the economy would have to be entrenched in a recovery mode, and as of the first week of June, that recovery was hardly assured. We would suggest that the recovery action in most commodity markets over the past five months is indeed an early warning sign of what might be in store in the event that the world economy actually gets back on its feet. Robust physical commodity buying by China and a surprising 5.4% growth rate from India suggests that areas outside of the US are capable of getting back to some semblance of normality more quickly than the US.

For those who maintain that high oil prices are the result of speculative fervor or that ultra high oil prices were some form of contrived condition, seeing oil prices quickly return to the vicinity of $70 per barrel has to be a very troubling development. While energy prices are likely overvalued for the near term, we look for them continue to move in sync with global equity prices. Prior to the sub-prime crisis, high energy prices were the feedstock of inflation. We expect to see energy prices contributing to “reflation” in the second half of 2009.

The financial crisis appears to have passed, but the economic slowing threat has yet to be reversed. Therefore, traders need to be long markets with favorable fundamentals, but they also need to protect those positions with options for the coming weeks and perhaps months.

This content originated from - The Hightower Report.