Today's Market Guidance

Financial Overview:
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.

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.

The daily stochastics gave a bearish indicator with a crossover down. Momentum studies are trending lower from high levels which should accelerate a move lower on a break below the 1st swing support. The intermediate trend has turned down with the cross over back below the 18-day moving average. The market is in a bearish position with the close below the 2nd swing support number. The next downside target is 10753. The next area of resistance is around 11078 and 11246, while 1st support hits today at 10832 and below there at 10753.



S&P:
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.

The daily stochastics gave a bearish indicator with a crossover down. Momentum studies trending lower at mid-range should accelerate a move lower if support levels are taken out. The intermediate trend has turned down with the cross over back below the 18-day moving average. The close below the 2nd swing support number puts the market on the defensive. The next downside objective is now at 1154.88. The next area of resistance is around 1197.25 and 1219.87, while 1st support hits today at 1164.75 and below there at 1154.88.

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!

Bonds:
The Treasury market might have gotten a little ahead of itself with the explosive rally yesterday, as it isn't a given that US debt is going to consistently benefit from the deterioration in global credit markets. After all, the US still has a massive load of debt to offer to the market, with another tranche of debt in the midst of flowing today and Thursday. In other words, some investors might see Treasuries as a safe harbor, but others might suggest that a global tsunami of foreign debt is likely to lift all boats/yields. If investors have a cornucopia of moderately high debt offerings, it is possible that the US will be forced to pay up along with other deadbeats. It is also possible that increased inflationary concerns could serve to cap off the upside, as the gold market started to show signs of lift yesterday and the ECB's Stark overnight suggested that high budget deficits might eventually serve to drive up CPI expectations. Overnight the Aussie central bank expressed concerns of inflation but hinted at leaving interest rates low because of the concerns being thrown off by the EU debt crisis. However, we don't think the crisis has reached such a severe level that Treasuries will be discounted by inflation, or that they will miss out on further near term flight to quality incidents. We do think that a situation is building where yields are set to rise sharply and prices are set to fall sharply when and if the EU debt crisis is put back under partial control. However, with Greek debt given junk status and Portugal getting pulled under the microscope, it is possible that the next failure target has already been identified. The Germans are likely to pay for their foot dragging with a much bigger overall problem ahead. In the mean time, we continue to think that scheduled US data is unlikely to have a pronounced impact on Treasury prices, especially after an improvement in confidence was noted in the US and in other countries yesterday and that news was completely lost on the trade. In the action today, the market will see countervailing forces from the 5 Year auction and the FOMC statement. We suspect that the Note auction will be a slight negative to prices, especially given the downward adjustment in yields over the last month, but we also think that traders will be unable to hold prices down into and through the FOMC statement, as the US Fed is clearly set to provide confidence and ongoing low rate promises to the marketplace. In fact, given the high state of flux in the Euro zone and the dovish statements from the Australian central bank overnight we suspect that the Fed could purposely tone down any internal dissent for leaving rates down. In looking back to the last US inflation data, it is also possible that benign inflation readings will serve to sooth the hawks within the US Fed. In the early morning action, the trade will remain fixated on the news flowing from the European arena, with some minor additional losses in Treasuries seen into the auction results, but we would think the FOMC statement window will result in fresh buying and perhaps a return to the prior session's high levels. However, the magnitude of the 'slide' in equity prices today will be the main arbiter of direction in Treasuries and we don't think that anything has been done by the EU to simply stop the meltdown after one day. Therefore, it is difficult to suggest that a top has been forged in Treasury prices with the action yesterday. In short, assume the bias is up unless June bonds manage to violate close-in support of 118-05 in the June contract or June Notes fall back below 117-17 level. Aggressive and short term traders should consider buying weakness into or just ahead of mid session and playing for more debt crisis news later this week.

The daily stochastics have crossed over up which is a bullish indication. Studies are showing positive momentum but are now in overbought territory, so some caution is warranted. The market's short-term trend is positive on the close above the 9-day moving average. The market has a bullish tilt coming into today's trade with the close above the 2nd swing resistance. The next upside target is 119-280. The next area of resistance is around 119-060 and 119-280, while 1st support hits today at 117-120 and below there at 116-070.

US Dollar:
The Dollar has retained its safe haven strength this morning as a lack of progress in resolving a now expanding European sovereign debt crisis may be adding to a capital flight out of Euro-denominated assets and into the US Dollar. While the chances for a full default are still remote, the loss of investment grade status on Greek debt creates its own set of problems for many investment firms who are unlucky enough to still be holding those issues. Equally frightening to the market was the Portuguese credit downgrade yesterday, which may only be starting to have a Greek-type decline, but as yet has an unknown price tag for the EU. With events in Europe holding the market's focus, the FOMC announcement later today has probably lost some of its relevance but it would seem almost impossible that the Fed would make any sort of move in the wake of yesterday's events. As long as EU debt concerns hold the market in its sway, the Dollar will remain well supported across the board. Unless there are concrete moves towards a solution to this crisis and that doesn't look to be in the cards today, look for the June Dollar to hold its gains above the 82.50 level and perhaps make even more new highs for the move.

Euro:
The June Euro remains under pressure this morning as a resolution to the EU sovereign debt crisis still appears to be far away. The May 19th deadline for Greece to find some sort of aid package in order to roll out some longer-term debt may provoke some sort of compromises over the next few weeks, but as long as political posturing on both sides takes center stage, the June Euro is likely to be remain under selling pressure for the near future. While the chances for a sharp short-covering rally rise whenever officials start to make statements, look for the June Euro to continue its descent past the 1.3120 level unless concrete steps are put into place quickly. The Germans don't want Greece to get off easy, but they might have already shot themselves in the foot by allowing the Greece crisis to undermine the situation in Portugal.

Yen:
The benefit that the June Yen was receiving from European weakness has been turned around overnight, as risk aversion strength may have been offset by ideas that many in the government are looking for a weaker Yen in order to stimulate the deflationary Japanese economy. Unless there are further problems in Europe today, look for the June Yen to head back towards the 106.00 level.

Gold:
A number of analysts have seized on the higher trade in gold yesterday and gold's ability to positively diverge with the rest of the metals markets as a sign that gold is reclaiming some flight to quality standing. Seeing the gold market rise in the face of a sharp down day in equities and forging those gains in the face of a higher Dollar clearly points to a change of pace and that has to make the gold bugs happy. Surprisingly Indian gold players were not enticed into the market overnight and that might take some of the shine off gold into the US Wednesday trade action. On the other hand, the futures price rise in gold was also accompanied by signs that equity investment in gold was on the rise and therefore gold was and is seeing broad based interest. Some traders are suggesting that seeing the US Fed remain on hold again today will support gold prices later today, while others are pointing to the dovish dialogue from Australian officials overnight as a positive for gold over the longer term. In other words, some players think that the EU debt situation, combined with the commitment to sustained low rates in the US is laying the ground work for inflation ahead. At least for the time being, more EU debt travails would seem to benefit to gold prices. Comex gold stocks were 10.158 million ounces down 97 ounces. Stocks have increased 12 of the last 20 days.

Silver:
Clearly the silver market is not benefiting from the view being adopted in the gold market, as price divergence was distinct yesterday and also appears to be present again in the early Wednesday trade action. With copper, energy and a host of physical commodity prices showing weakness in the face of the Euro debt crisis, it would seem like some traders are fearful that the debt crisis will serve to derail the global recovery or perhaps simply reduce physical demand for certain commodities like silver. In other words, the silver market seems to have a positive relationship with the US equity market, while the gold market seems to have forged a bit of an inverse relationship with the equity markets. Some traders in silver have attempted to fan the prospects of inflation potentially lifting silver prices in the wake of soaring government debt offerings ahead but apparently ideas that the current crisis is capable of derailing the recovery have also surfaced and have the attention of many silver traders. Comex Silver Stocks were 115.149 million ounces down 319,369 ounces. Stocks have declined 11 of the last 20 days.

Crude Oil:
June crude oil has remained under pressure this morning, but at least has lifted itself off of overnight lows as the sell off in physical commodities appears to be losing some downward momentum. A private industry survey released after the close yesterday indicated a much higher than expected rise in crude oil stocks, but the negative effects of this number were blunted by draws in both products, as well as the fact that prices were under sharp pressure already this week. We also think that the markets were and are expecting news of flush oil US EIA oil inventory levels later this morning. If the private stock rise is matched by this morning's EIA data, there may be additional pressure put on crude prices, but it is likely that a recovery in the US equity market would be capable of countervailing internal negative supply side news. However, the threat against demand is going to remain in place in many physical commodity markets, as the February through April rally in many commodity prices was clearly the result of positive global economic expectations and the global recovery is being called into question because of the EU debt situation. Some might even suggest that crude oil prices are even more vulnerable than other commodities because of the lofty spec long positioning in the last COT report. While July crude oil might be able to respect the overnight spike down low of $83.80, the bull camp remains on the ropes and any deterioration in global equity markets could put July crude oil on a track to return to the $82.50 level. On a positive note, it is possible that crude could bounce because of a bounce in equities and also because of assurances from the US FOMC statement later today but we have wonder what support will be available Thursday and Friday as the EU sits while Rome continues to burn.

Natural Gas:
June natural gas has performed fairly well in the face of the broad based physical commodity sell off over the past few days, but the market may need to get past the EIA storage numbers later this week in order to make an upside breakout or perhaps even sustain at levels above $4.25. If US equity markets can hold onto their early strength, natural gas prices should at least be able to find some solid support this morning, as negative sentiment for crude oil is probably providing some favorable spread liquidation support for natural gas. Seeing the natural gas market weather what appears to be a significant macro economic let down, would seem to suggest that this market is indeed changing. We continue to think that a long term bottom is in place, but natural gas needs to get beyond to Greek crisis to get the shorts to cover and for fresh fund buyers to boost prices consistently.