It was another volatile day on Wall Street as Europe's debt woes continued to be a thorn in the side of the bulls with the Euro falling to a four-year low intraday. That helped the Dow Jones Industrial Average plunge as much as 184 points before reversing course to notch a gain of almost six points to finish the day at 10,625.83. The S&P 500 gained just over a point to settle at 1136.94 while the Nasdaq added about 7.4 points to close at 2354.23. Small-caps saw some positive trade as well with the Russell 2000 adding 1.73 points to finish the day at 695.71.

Stats Table

Showing how fragile investor sentiment is these days and how deep the impact of the European imbroglio really is, there were really no negative headlines or news events to encourage such a steep sell-off this morning. Lowe's (LOW), the second-largest U.S. home improvement retailer, said its first-quarter profit rose 2.7% to $489 million, or 34 cents a share, from 32 cents a share a year earlier. Sales jumped 4.7% to $12.39 billion. The North Carolina-based company raised its 2010 outlook, but the forecast stilled missed analyst estimates and Lowe's shares finished the day lower by 3.1%. So in the search for negative Monday catalysts, the Lowe's profit report may have been among them.

Lowe's Chart

There were a couple of economic data points that probably would have had stocks trading much higher in a more docile market environment, but with volatility being the order of the day recently, bullish news from the likes of the National Association of Home Builders is easy for investors to gloss over. The NAHB said its home builders confidence index rose to 22 in May from 18 in April, the highest level in almost three years as builders are feeling more optimistic for the market for single-family homes.

The latest survey shows about 20% of builders feel the market is ''good.'' A reading of 22 is a far cry from the all-time of 72 seen in June 2005, the go-go days of the real estate bubble, but 22 is also a lot better than the eight the index registered in January 2009. It should be noted that the $8,000 home buyer tax credit expires in June and that may impact the confidence of builders going forward.

The May Empire State Manufacturing Index was also released on Monday, and while the index showed manufacturing activity in the New York region continues to increase, it did so at a slower pace in May, falling to 19.1 from 31.9 in April. While new orders and shipments trended lower, the index of the number of employees rose to its highest level in six years. Overall, investors did not appear to be impressed by the report and this is not the market environment in which to attach the word '''slower'' to the word ''growth.''

Empire State Manufacturing Index

A spate of mergers and acquisitions news was also overshadowed by declining risk appetite. Three deals each worth over $1 billion were announced on Monday. Astellas Pharma, Japan's second-biggest drugmaker, said it will acquire OSI Pharmaceuticals (OSIP) for $4 billion in cash. United Health Services (UHS) agreed to by Psychiatric Solutions (PSYS), an operator of mental health facilities for $2 billion in cash and Man Group said it will purchase hedge fund GLG Partners (GLG) for $1.6 billion.

The Wall Street Journal reported that private equity firm Apollo Group is interested in acquiring Pactiv (PTV), the maker of Hefty trash bags. No price tag was reported, but with today's jump of almost 19%, Pactiv is now sporting a market cap of almost $3.80 billion. Pactiv shares had been flat this year and some analysts had applied the ''undervalued'' tag to the stock, but the shares may have some more upside in them if Apollo announces a bid above $30 per share. One media report did note that anything above $33 a share might be a bit rich.

Pactiv Chart

So even with a vibrant M&A market, stocks still managed to post only meager gains, showing that they are still in fact held hostage to substantial declines in risk appetite. High-beta, risky fare, whatever label one chooses to use are places to avoid these days. Among the riskiest of that risky fare is oil and the Euro. Crude and the Euro are seemingly joined at the hip these days, which is only good news if you are a Dollar bull.

Concerns over Europe's debt situation abated for all of one day (last Monday). The region's debt woes make its common currency perhaps the most accurate temperature check on investors' willingness to incur risk and that temperature is quite low right now. Only Monday's late-day rally saved the Euro from finishing the U.S. trading session at a four-year low against the greenback.

If you watch enough CNBC, you are bound to hear more than a handful of pundits say that Euro is do for a near-term technical bounce. That would be good news for stocks because the Euro and the S&P 500 are 87% correlated to each other, according to Reuters. On the other hand, the Euro's fundamentals are still dubious, meaning any rally will probably only be technical in nature and short-lived at that.

Euro/Dollar Chart

Oil is not offering any shelter. NYMEX-traded crude for June delivery tumbled for a fifth straight session, trading as low as $69.27 a barrel on Monday. It seems like ages ago that oil traversed $87.15 a barrel, but in reality, that event took place two weeks ago today. With Monday's close at $70.08, oil has plunged almost 21% in two weeks and volatility should remain high this week ahead of the June contract's expiration on Thursday.

A couple of weeks ago, I wrote piece on Oilslick.com citing a technical analysis report that said if oil fell below $80, $65 could be the next stopping point. At the time, I was not sure that would actually happen. Now it looks like a matter of when, not if. Either way, Monday's closing price was crude's lowest since December 14, 2009 and speculation that Chinese demand may be topping out is not helping matters for oil bulls.

Oil Chart

Sure, the Dow finished last week in positive territory, but that was more a result of last Monday's European bailout rally than anything else. By the end of the week, that 400-point gain had been pared to 239 due to Friday's loss of 163 points. Given that the index spent a good part of Monday down by triple digits, it is hard to be excited by a gain of less than six points.

Support at 10,700 failed and the lower high at 10,900 may be near-term resistance, assuming the Dow can reclaim 10,700. Monday's close at 10,625.83 means support at 10,350 could become an issue as early as this week if European debt concerns continue to pressure stocks.

Dow Chart

Prior to this recent decline, I mentioned several times that analysts would probably have to adjust year-end targets for the S&P 500 because 1200 was taken out earlier than most investors had expected. With the index hovering around 1136, support at 1100 could be tested in the near-term and that is the 200-day moving average as well.

With ''sell in May and go away'' already at work, a violation of 1100 would test old support at 1085. Further declines in the Euro and oil could make either of those numbers a reality sooner rather than later and with resistance appearing firm in the 1175 neighborhood, the S&P 500 is going to have its work cut out if it wants to take out the April peak of 1219 by the time fourth quarter rolls around.

S&P 500 Chart

The Nasdaq had a couple of shots to break above 2400 last week, but it failed and Monday's close barely nudged the index above Fridy's close, which was the lowest since the crash. Leadership from big-cap tech names appears to be a broken theme and there is something else to consider regarding the Nasdaq's weakness. The index is home to a healthy amount of Chinese stocks and with that market officially in bear market territory, even names like Baidu (BIDU) could be more of a drag than a helping hand for the Nasdaq. A violation of 2300 brings 2215 into play.

Nasdaq Chart

Small-caps are showing signs of strength, a curious phenomenon given that most investors are shying away from risk. The Russell 2000 added to last week's gains today and the iShares S&P SmallCap 600 Index (IJR) was also up on more than triple its average daily volume. Closing at almost 696 puts the Russell 2000 well above support at 650, but that could mean a sell-off in small-caps could be fast and furious.

I am a believer that small-caps outperform large-caps coming out of a recession and the historical data supports this assertion, but running into this asset class right now may not be advisable, particularly when better prices may be right around the corner.

Russell 2000 Chart

Overall, I am far from impressed that stocks rallied off their lows on Monday and do not view that move as a sign to start buying. Enthusiasm for Europe's bailout package waned quickly and the unfortunate reality is that the Eurozone does not have much more in the way of good news to offer. I would not be running to buy much of anything beyond inverse ETFs and puts to protect existing profitable long positions.