Since our last update on May 3, 2010, let’s review:

We asked:
“Will the European debt situation be the “big ticket” item that triggers the downside move the charts are indicating?

We said:
The markets have been going up for two months on low volume, lackluster reports and a government that is broken and getting little worthwhile accomplished.”

What has happened to the markets since the May 3rd update?
The Dow 30 dropped 9.78%
The S&P 500 dropped 10.26%
The Nasdaq 100 dropped 8.43%
The Russell 2000 dropped 11.53%

JOBS
Despite what Washington is saying about new jobs, they are almost non-existent.  Only 431,000 new jobs were created in May versus the consensus forecast of 515,000. And most of the new jobs, 411,000, were temporary census-taker jobs. Minus those, there were only 20,000 new jobs created in the combined private and government sector.  Typical of what is going on around the country after such a prolonged period of dismal employment conditions, the Orlando Sentinel is reported that 107,000 of Florida’s unemployed will run out of unemployment benefits today, and the number is expected to now grow by 34,000 a week unless Congress and the state can come up with another ‘Extended Benefits’ program.  What a mess!

LENDING
Banks continue to hold their funds rather than lend.

GOVERNMENT
Federal and State governments continue to borrow rather than face the harsh music.

EUROPE
European countries continue to stagger under their debt load.  Will the bailout end up working?  Stay tuned.

REAL ESTATE
Is real estate coming back?  The rebate program had to be extended twice last year.  Last November the plan was not only extended to April 31 but expanded to include other than just first-time home-buyers.  Can the housing industry can stand on its own without the government stimulus efforts?  Critics have been saying all along that it wasn’t consumers buying homes on their own, but the government making down-payments on homes with the rebates and letting folks move in to make the payments. 

The Mortgage Bankers Association reported that so-called ‘purchase mortgage’ applications, from people looking to purchase a home (as opposed to those seeking to re-finance their existing mortgages) have declined significantly for four straight weeks, and are 40% below their level at the end of April.  The chief economist for the National Association of Realtors estimates sales of existing homes also fell 20% to 30% in May.

WHAT’S NEXT?
More pain.

The daily chart’s oscillator tanked.  It’s now near the bottom of the chart.  The weekly oscillator turned over and is tanking.  We said last time: “When the daily and the weekly oscillator coincide at the top of the charts, be prepared for a serious pullback.”  Sure enough, we had a 10% drop just like that. 

We also stated that "the index has risen consistently since March of 2009 in the face of reality on mostly lackluster volume and we believe it is poised for a pullback.”  We recommend staying on the sidelines right now or playing with positions in the inverse funds for continued downside movement that the charts continue to signal.

The Dow lost – 2.02% last week and is down – 4.76% YTD

Same basic commentary as the Dow. 

Like the Dow, the weekly and daily oscillators for the S&P 500 are in the exact same position as that of the Dow. 

We said to take profits last time and either sit in cash or start to buy the inverse funds in order to profit on the way down was a prudent strategy.  You must be careful with your downside position however as the manipulators, the Fed, the politicians, the big brokerage houses, etc., all need to turn this thing around and they will do something to make investors feel more secure about the economy and their investments, despite the reality of the situation.  These are powerful sources, and if they want the market to move up, they have many weapons with which to do it with.

The S&P lost – 2.25% for the week and is down – 4.50% YTD

The weekly oscillator turned over at the end of April and it has tanked since.  The price of the index has broken through the upside channel support.  The price broke through the old support line of the upward channel at the end of January and then made a second test of the support line.  As stated previously, the first break is many times false, but then after a brief rebound again testing the old support line, the price can continue its downward spiral.  That is exactly what ended up happening.

The daily oscillator hit bottom and has bounced a little.  We said a fall in the NDX would be healthy for the market as the NDX had risen an incredible +87.91% since its low on March 6th.
It is now up +72.07% since it’s low in March 2008.  Still an incredible bounce.

Be patient and wait before getting back in.

The NDX lost – 1.10% for the week, and is down - 1.52% YTD

Sounds like a broken record, but read the analysis for any of the charts and it will pretty much be the same.  The weekly oscillator is on its way down.  The first break of the support line happened and second test just broke.

Continue to be careful here.  The basic indicators are telling us from the weekly and daily chart to sit on the sideline.

The Russell lost – 4.18% last week and is up +1.37% YTD