Buckle your seatbelt. It could be a bumpy summer. A week ago the S&P 500 and the Dow Industrials were breaking out past resistance ahead of the critical Greek vote on the 17th. The pro-bailout party won and yet traders decided to sell the news, which was a potential reaction we mentioned last week. Instead of focusing on the pro-euro news from Greece the markets worried about weakness in Spain. Yields on 10-year Spanish bonds traded over the key 7% level this past week.

With Greece and Spain as the backdrop stocks churned through the FOMC meeting and another round of disappointing economic data. By Friday's closing bell the S&P 500 was down -0.3% for the week. The Dow Industrials were off-0.9%, the NASDAQ was up +0.6% and the Russell 2000 index added almost +0.5% for the week. The U.S. dollar bounced as the euro reversed lower midweek. Oil hit new 2012 lows under $78 a barrel, while gold fell to a new low for the month.

The move in crude oil has been dramatic. WTI is off $30 from its 2012 highs while Brent crude is down $34. Oil hit new 2012 lows even though the Iran-U.N. talks in Moscow were a bust. Expectations were extremely low for anything fruitful to come out of the conference so it's not a surprise. The EU/Iran oil embargo is set to begin July 1st but Iran's rival Saudi Arabia has been pumping extra oil to make sure there is enough supply available when the embargo takes effect.

Economic data overseas continues to disappoint. Germany is the strongest economy in the Eurozone but their PMI report came in slower than expected. Meanwhile the latest PMI manufacturing report from China declined, posting its eighth month of disappointing data. Yet the biggest disappoint was probably the U.S. Philly Fed survey on Thursday. A month ago the Philly fed came in at -5.8. Economists were expecting it to improve to zero (0.0). Thursday's report showed a drop to -16.6 in June. It was the worst reading since August 2011. The Philly Fed's new orders component plunged from -1.2 to -18.9. Shipments also crumbled and backorders declined.

Thursday also showed that the initial weekly jobless numbers came in at 387,000 and last week's number was revised higher to 389,000. We're getting uncomfortably close to 400,000 new jobless claims and that doesn't bode well for the next nonfarm payrolls report (two weeks away). Another anecdotal evidence of a slowing economy came from the American Trucking Association, which said tonnage shipped plunged in April and May.

While we are on the subject of disappointments one of the biggest was probably the Federal Reserve meeting. No one was expecting any changes to policy and the FOMC left rates unchanged in the 0.0%-0.25% range. The markets were hoping for some hint at a new round of QE. Instead the Fed said they would extend Operation Twist throughout the rest of this year. Furthermore the Fed lowered their U.S. GDP 2012 growth forecast down from +2.4-2.9% to 1.9-2.4%. They also adjusted their unemployment estimates from 7.8-8.0% to 8.0-8.2% for the year.

The Federal Reserve says they stand "ready" to stimulate the economy should we need it. Many are wondering how they can help. They can't lower rates less than zero. Operation Twist, with the Fed buying longer-term U.S. bonds to help keep rates low, isn't really having much effect. The Fed already has $2.3 trillion on their balance sheet and eventually they'll have to sell them, which could send rates soaring. If the Fed does have any tricks left they're probably saving them in case the situation in Europe deteriorates any worse. Put it all together and the Fed isn't much help. The markets will have to move on their own without any QE stimulus for the foreseeable future.

I should mention the big bank downgrade by Moody's credit rating agency on Thursday night. Moody's downgraded ten banks, including some big American name firms like JPM, BAC, C, GS, and MS. Yet the downgrade didn't have much effect on the markets or the financial sector on Friday.

Major Indices:

The market's major indices are trading on technicals right now. The oversold bounce made an almost perfect 61.8% Fibonacci retracement of the April-May correction and then reversed. This retracement on the S&P 500 also coincided with resistance at the 1360 level and its 100-dma. This creates a new lower high for the market. The question is what's next? Does the sell-off continue and we see new lower lows under 1265? Or does the S&P 500 bounce and it creates a new higher low? Or do stocks churn sideways for a couple of weeks until the Q2 earnings season starts?

Levels to watch are resistance overhead at 1340 and 1360. Below is potential support at 1300 and the 200-dma as well as the June lows (1270-1265).

Daily chart of the S&P 500 index:

Trading in the NASDAQ composite was similar. The bounce made it past the 50% retracement of the correction lower (not shown) and almost made it to resistance at the 2950 level. Unfortunately, Thursday's sharp decline marks a pretty ugly reversal lower. Friday's bounce produced an "inside day" which suggests indecision by market participants.

You could argue for potential support near 2800 and its rising 200-dma but that didn't stop the NASDAQ during the early June plunge. At the moment the second quarter has produced a bearish trend of lower highs and lower lows.

Daily chart of the NASDAQ Composite index:

It's equally ugly for the small cap Russell 2000 index. The February-April bearish head-and-shoulders pattern was followed by a shorter, May-June inverse H&S pattern. The 780 level is a crucial pivot point of support or resistance. Unfortunately for the bulls the breakout above 780 and its 50-dma now looks like a bull-trap pattern.

I would argue the path of least resistance right now is probably down. The 780 and 800 levels remain resistance.

Daily chart of the Russell 2000 index

The main economic reports this week are the Chicago PMI and Consumer confidence. No one expects any change at in the third estimate for the Q1 GDP number. We'll see some new housing data as well. The real headline makers will probably be the two-day EU summit at the end of the week. Plus, the Supreme Court's decision on Obamacare should come out on Monday or Thursday this week. That news could have a big impact on healthcare stocks.

(FYI: The IMF's quarterly review of Greece has been postponed from the end of May until after the June 17th elections.)

Economic and Event Calendar

- Monday, June 25 -
new home sales for May

- Tuesday, June 26 -
Case-Shiller home price index
Consumer Confidence

- Wednesday, June 27 -
Durable goods orders
pending home sales for May

- Thursday, June 28 -
Weekly Initial Jobless Claims
EU Summit (two-day meeting begins)
Q1 GDP (3rd) estimate (+1.9% growth)

- Friday, June 29 -
EU Summit (two-day meeting ends)
Personal Income & Spending
Chicago PMI for June

The Week Ahead:

Looking ahead the media is focused on the Supreme Court decision on Obamacare and the EU summit. We're already seeing dramatic headlines and sound bites out of Europe about how this particular summit is it. How it has to be the "one" summit out of the two dozen summits they've had so far that needs to produce results. If they don't reach some sort of resolution this week it could be the end of the Eurozone and euro currency. It's probably just political grandstanding by frustrated leaders. Odds are nothing gets done except push things farther down the road. That's been the EU's playbook so far. It is worth noting that Spain's recent flirtation with 7% yields on its 10-year bonds is a major warning signal. If Spain falls into the financial abyss the worry is Italy won't be far behind.

Meanwhile the newly elected Greek government seems to have already formed the necessary coalition to avoid another election in 30 days. That should keep Greece off the radar for a week or two (we hope).

Once we get past the EU summit and the healthcare decision this week the market's focus will turn towards the Q2 earnings season. We've already seen several large multi-national firms issue warnings. The slowdown in Europe and China is hurting business. Plus the rising dollar is hurting their currency exchange and it's cutting into margins. We will most likely hear even more earnings warnings in the next two weeks before the season unofficially starts on July 9th with Alcoa's report.

I am concerned about earnings season. If results disappoint or if corporate guidance is too cautious and we hear too many businesses downgrading their forecasts it could jump start the market sell-off again. In the meantime the constant stream of disappointing economic data pointing to a global slowdown is going to weigh on the equity markets.

- James