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This is the 6^th consecutive down day in the markets, and the Bears are gaining strength as this week has seen the greatest drop.  Stocks try to rally at the open, and then sellers come in and push stocks lower by the close.

With the G8 meeting, investors are hoping that the members will address Europe’s credit problems.  The EU is unlikely to make any major decisions right now until after the elections in Greece, which is just three weeks from now.

With regard to Greece, uncertainty over the outcome is growing (the VIX is now over 25).  If Greece is able to form a coalition government, then the current austerity agreements will likely be honored; but this seems unlikely at the moment.  As a result, the EU is drafting contingency plans for a possible Greek departure.

Except for Germany, nation members of the EU are experiencing declining economic conditions.  While the IMF has accumulated more than $1 trillion, the ECB has already provided $1 trillion to European banks.  With China no longer buying euros, the ability of the IMF to accumulate more funds will be limited without strong U.S. involvement.

Concern is also growing over China’s weakening economy: power consumption is down; bank loans are down; property prices are down 1.2%; and analysts are now predicting GDP will drop to 7.5% in Q2 (from 8.1% in Q1).  China’s flash PMI will be released next Wednesday (in the evening), which could have a big impact on the markets.

What to expect next week: with all three periods on the SPY pointing down (down arrows on the charts below), the markets are showing growing weakness.  Expect continued downward movement in front of China’s flash PMI; if the PMI is above 50, the markets will try to rally on Thursday.

The Markets for the past week are: DJIA down -3.5%; S&P500 down -4.3%; Nasdaq COMP down -5.3%.  Commodities (ETFs) for the past week are: Gold (GLD) up 0.64%; Silver (SLV) up 0.04%; Oil (OIH) down -6.26%; Dollar (UUP) up 0.99%; 30-yr Bonds down 22 basis points to 2.80%.

On Monday, the markets extended their losses from Friday as the problems with JP Morgan unfolds, with the Dow dropping 1.0% to 12,695.  Gold ended down $20 to $1,560; Oil ended down $1 to $94.

On Tuesday, retail sales and housing starts came in stronger than expected, but Greek talks to form a coalition government failed causing the Dow to drop 0.5% to 12,632.  Gold dropped $15 to $1,545; Oil dropped $1 to $93.

On Wednesday, good data from industrial production and housing starts, along with growing support for QE3 from the FOMC, could not offset the concerns over Greece, and the Dow dropped 0.3% to 12,598. Gold fell $5 to $1,540; Oil ended below $93.

On Thursday, a weaker than expected manufacturing report from the Philly Fed (despite no slowing of the economy) sent the Dow down -1.2% to 12,442.  Gold ended up $35 to $1,575; Oil was down slightly to $92.50.

On Friday, continued concerns in Europe (no economic data today) sent the Dow down -0.60% to 12,369.  Gold rose $15 to $1,590; Oil was down $1.50 to $91.

Next Week

The economic calendar for next week is light: on Monday – nothing; on Tuesday – Existing Home Sales; on Wednesday – New Home Sales, EIA Petroleum Status Report; on Thursday – Weekly Jobless Claims, Durable Goods Orders; and Friday – Consumer Sentiment.

If the Markets move down, stay on the side lines or consider Contra ETFs.  For Option players, selling premium is advised.

To the Charts

The following ETFs (DIA, SPY, QQQ) provide a technical review of the Market (and are also excellent Option trading vehicles).  Represented are the Dow Industrials (DIA), S&P500 (SPY), and Nasdaq 100 (QQQ).

The Charts for each include views for Monthly, Weekly (including Price Channels), and Daily (including monthly Pivot Points) with MACD and Stochastic indicators.  The Pivots are: white for central pivot point; yellow for R1 and S1; magenta for R2 and S2; red for R3 and S3.

DIA

The Dow Industrials (DIA) closed down at 123.31.  If the DIA drops, then the next level of support will be at 123.30 (weekly chart); the next level of major resistance is 133.14 (weekly chart).

The monthly chart indicates a bearish posture (down Arrow) with the MACD positive but weakening, and the Stochastic moving up above the overbought area.

The weekly chart indicates a bearish posture (down Arrow) with the MACD negative and weakening, and the Stochastic moving down at the midpoint.

The daily chart indicates a bearish posture (down Arrow) with the MACD negative and weakening, and the Stochastic moving down below the oversold area.

SPY

The S&P500 (SPY) closed down at 129.74.  If the SPY drops, then the next level of support will be at 129.73 (weekly chart); the next level of major resistance is 142.21 (weekly chart).

The monthly chart indicates a bearish posture (down Arrow) with the MACD positive but weakening, and the Stochastic moving up above the overbought area.

The weekly chart indicates a bearish posture (down Arrow) with the MACD negative and weakening, and the Stochastic moving down at the midpoint.

The daily chart indicates a bearish posture (down Arrow) with the MACD negative and weakening, and the Stochastic moving down below the oversold area.

QQQ

The Nasdaq 100 (QQQ) closed down at 60.81.  If the QQQ drops, then the next level of support will be at 60.81 (weekly chart); the next level of major resistance is 68.55 (weekly chart).

The monthly chart indicates a bearish posture (down Arrow) with the MACD positive but weakening, and the Stochastic moving down above the overbought area.

The weekly chart indicates a bearish posture (down Arrow) with the MACD just negative, and the Stochastic moving down at the midpoint.

The daily chart indicates a bearish posture (down Arrow) with the MACD negative and weakening, and the Stochastic moving down below the oversold area.