The Germans threw a monkey wrench into the EU "fix" once again asserting that Sunday's deadline for a credible plan wasn't certain. This led to a sharp decline in stock prices since the "idea" that a plan was going to be implemented was priced-in with last week's short squeeze. Friday after the close of trading it was announced that the U.S., in addition to other members, were not willing to use the IMF for any EU rescue with $350 billion. That was a blow to EU forces hoping someone else would bailout them out of their troubles. Add to this the often reliable short-term overbought McClellan Oscillator and it was likely we might sell-off anyway.

The poor Empire State Manufacturing Survey (-8.48 vs consensus -3.25 and prior -8.82) didn't help matters for bulls Monday. Meanwhile Citigroup (C) beat expectations due to an accounting adjustment and Wells Fargo (WFC) missed expectations causing financials to fall into the red. Much watched Goldman Sachs (GS) and Bank of America (BAC) will report earnings Tuesday. On a related matter, and without much surprise, HFTs (High Frequency Traders) are now the dominant force in program trading volume on the NYSE as outlined in this report.

IBM reported earnings after the bell of $3.19 ($3.28 after adjustments) on revenues of $26.16 billion versus $26.26 billion expected. The stock continued to sell-off slightly in extended trading. Apple (AAPL) will report earnings Tuesday ($7.30 expected) as will Intel (INTC expected $.61) among many others.

Gold prices finished down roughly $10, the dollar was higher versus the euro on the German news. This in turn led to a decline in commodity prices overall while bonds were sharply higher on the stock sell-off.

Forthcoming may not be able to overwhelm the ongoing EU drama and disappointments. Low levels of confidence and high levels of uncertainty aren't allies for stock bulls.

As stated, stocks were lower taking the major averages back into the red again for 2011. Volume was quite light given the selling compared with previous periods while breadth was negative.

 

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The NYMO is a market breadth indicator that is based on the difference between the number of advancing and declining issues on the NYSE. When readings are +60/-60 markets are extended short-term.

The McClellan Summation Index is a long-term version of the McClellan Oscillator. It is a market breadth indicator, and interpretation is similar to that of the McClellan Oscillator, except that it is more suited to major trends. I believe readings of +1000/-1000 reveal markets as much extended.

The VIX is a widely used measure of market risk and is often referred to as the "investor fear gauge". Our own interpretation is highlighted in the chart above. The VIX measures the level of put option activity over a 30-day period. Greater buying of put options (protection) causes the index to rise.

Continue to Concluding Remarks

Germany really upset bulls Monday and their statement just put the risk off trades back on. Some have said they wouldn't invest until the euro zone issues were resolved and perhaps that's the best approach if we can know what a "fix" really means.

Earnings are coming in and we'll have plenty to digest this week against a backdrop of euro zone tension. We've seen this before in 2008 when markets rallied sharply on short squeezes only to fall again as bad news from the financial sector continued to flow. I have this same feeling about this market.

Let's see what happens.

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Dave Fry is founder and publisher of ETF Digest, Dave's Daily blog and the best-selling book author of Create Your Own ETF Hedge Fund, A DIY Strategy for Private Wealth Management, published by Wiley Finance in 2008. A detailed bio is here: Dave Fry.