These are frustrating times indeed. Neither the bulls nor the bears are having much fun. The markets are being whipped around by news events on a daily basis and volatility is increasing.

The bulls argue that there is no "reason" why the markets should not continue on their upward trajectory. They cite the following reasons:

1. Earnings season is winding down and most of the important, bellwether companies have reported excellent earnings that have either met or exceeded expectations.

2. Most of the economic reports (PMI, ISM, Home Sales, Consumer spending, etc.) show that the economy is improving.

3. The jobs picture, although still bleak, shows signs of improving as well, and non-farm payrolls have actually begun to add new jobs.

The bears, on the other hand, respond as follows: 1. While conceding that economic conditions are improving, they point out that the markets have already priced in these factors (and then some) with the SPX up over 80% in fourteen months and the NDX and RUT up 100% in the same time frame.

2. The jobs picture may be showing signs of improvement, but the fact remains that the country has lost over 20 million jobs and it is going to take years (if ever) to regain the pre-2007 employment levels.

3. Foreclosure rates are likely to soar in the next two years as many mortgages with ARM's reset to higher rates.

4. Commercial real estate is the next 800 lbs. gorilla in the room. Bears believe this could be an even bigger problem than the residential real estate problem.

While many of the big, high-profile companies are reporting excellent earnings, small and medium-size businesses across America are suffering. They can't get credit; they can't find work that's reasonably priced; they are not hiring. If America is going to create new jobs this is where it is going to come from. For folks who get dirty working for a living, life is not that good. In short, the bears believe that there is a major disconnect between the optimism on Wall Street and the despair on Main Street.

The news out of Europe just won't go away. Over 100,000 protesters took to the streets in Athens protesting the austerity measures imposed by the euro zone and the IMF as a condition to receiving the 110 billion euro bailout package. Fires broke out, and at least three people have died. Fundamentals are only part of the equation when it comes to stock prices. Social mood plays a large role as well - if people feel good, they buy; if people are worried or mad, they sell.

Many of you don't follow the daily Market Monitor but over a week ago (April 27) I had this to say at the beginning of the day:

I'm going to tell you why I think Greece does matter. Once upon a time (1997), in an obscure country far, far away (Thailand) a world-wide financial crisis found its genesis when their currency (the Thai Baht) collapsed after they made the decision to let it "float". Thailand had acquired a burden of foreign debt that had, effectively, made it bankrupt. The "Contagion" (as it became known) quickly spread to Indonesia, Malaysia, South Korea, Hong Kong and even Japan. The IMF and the WORLD Bank needed to step in to avert a crisis. There is far more to the story, but, the point is, the world is far more "global" and inter-dependent today than it was in 1997, and, I would submit, Europe is far more important on the international stage today than southeast Asia was in 1997. And, let's be perfectly clear about one thing, we are not just talking about Greece. Spain, Portugal, Italy and Ireland have the same problems and, indeed the strength and even the efficacy of the EURO is at stake. If you don't think this situation would (or should) have any effect on U.S. stock prices you are hopelessly naive (IMO). Stock prices are not just driven by earnings, PE's, future outlook (fundamentals), they are also driven by peoples' moods and how they feel about their lives and life general.

ADP reported today that 32,000 new jobs were added to the private sector. This was in-line with expectations but the futures took a sharp hit. ADP's numbers do not include federal workers and new census workers.

Moody's announced today that they were considering a downgrade to Portugal's bonds by one, or perhaps two notches. The market did not like this either. The euro slid to a 13-month low against the dollar. The dollar hit a high of 84.43 this morning and subsequently backed off some.

Gold is behaving rather oddly. For many months now gold has reacted inversely to the dollar (dollar up, gold down, and vice versa). The recent strength in the dollar has not depressed the price of gold this time around. And what is even more bizarre is that GDX (ETF for Market Vectors Gold Miners) has actually been moving in the opposite direction from gold. This suggest to me that gold may be in a topping mode.

GDX

Crude dropped precipitously with the rising dollar and hit a low at 9:00 AM of $79.15. It has been bouncing since that time and is now over $80.00.

While we are on the subject of oil, BP executives have been meeting privately with members of Congress and have revealed (through anonymous, though reliable sources) that the blown-out well from the Deepwater Horizons disaster could be leaking as much as 60,000 barrels per day, which are ten times the original estimates. Various Congressional committees are planning hearings. I'm sure it comes as no surprise to you that Congressmen and Senators cannot resist the temptation to drag the perps from BP, RIG, and HAL in front of the TV cameras so they can put on their dog and pony show and crucify these scoundrels in a public forum.

My two sons travelled to Omaha last weekend to partake in the Berkshire Hathaway annual extravaganza. One has an MBA and the other has a Masters in Economics (I tell him that that and $5.00 will get him a latte at Starbucks). They really enjoy the show. No doubt you have read that the "Oracle" defended the bunch from Goldman Sachs. I'm sure that the fact that he loaned them $5 billion, which yields Berkshire Hathaway an income of $15 per SECOND ($500 million per year) has nothing to do with his support.

Seriously though, I agree with him to some extent in that most of the buyers of the ABACUS CDO were not poor, unsophisticated, rural farmers from Kansas. They were, indeed, wealthy and sophisticated investors who had every opportunity to do a thorough due diligence on the assets contained therein, and as Buffett said, "they just made a dumb credit deal". Criminal charges against Goldman or its employees will probably never see the light of day, however that won't stop their reputation from being sullied.

Today is Cinco De Mayo (The Fifth of May). It is primarily celebrated in Mexico and commemorates the Mexican militia's defeat of the French Army at the Battle of Puebla in 1862. Mexico owed France a large debt and the French invaded on the gulf coast near Veracruz and marched inland to collect their debt. The moral to the story is that if you are going to collect money you need to carry a big stick.

As one might expect, the nervousness over the situation in Europe has caused investors to flee into the perceived safety of government treasuries. The ten-year yield has dropped four basis points to 3.56, the lowest since last December.

OK, so where do we go from here? I have the sense that the markets have had a seismic shift. Whether we are due for a garden-variety (and much-overdue) correction, or whether we have experienced a significant trend reversal that signals the end of the March, 2009 - May, 2010 bull market is unknown at this time. The chart below shows some pretty important levels that we need to watch going forward. The market will reveal itself in due course.

SPX