The first week of June turned out to be a rough one for the bulls. Tuesday was the final day of trading for May and the market's major averages actually broke out above resistance. The situation reversed quickly on Wednesday morning as investors reacted to another downgrade for Greece, a disappointing ISM number, and worse than expected ADP employment numbers. The major indices all fell more than -2% and broke down under their 50-dma on Wednesday. Now three days later the market has broken a significant trendline of support dating back to the summer 2010 lows. The three major indices are all down about -2.3% for the week. This is the first time in almost seven years that the Dow Industrials have fallen five weeks in a row. It's been almost three years for the S&P 500.

Concerns about the U.S. economy continue to rise as we see a string of negative and worse than expected data. As a mentioned a moment ago the ISM came in worse than expected. The ADP employment data foreshadowed a drop in the May jobs number. Car and truck sales missed expectations. Plus, monthly same-store sales for the retail sector were widely disappointing.

Analysts had been lowering their estimates on the Friday morning jobs report. The consensus estimate kept falling +185,000, 170K, 165K to 150K. A few firms were expecting job growth in the +100-150,000 range. No one expected the +54,000 number. This was the smallest gain for jobs in eight months. April's +244,000 was an 11-month high but this was revised lower to 232K. March's +221K was revised lower to +194K. The economy needs about +125,000 new jobs a month just to keep pace with our population growth. The unemployment rate ticked up from 8.9% to 9.1%.

Meanwhile overseas the situation with Greece and the EU started to cool. Initially rumors of a second bailout for Greece on Tuesday helped fuel the stock market's rally that day. Thus the downgrade for Greece on Wednesday was somewhat unexpected. Thankfully it seems the IMF and EU have agreed on another round of "aid" for the struggling country. Expectations are this aid will be available in late June or early July. It's possible that the situation with Greece, while not solved, could be placed on the backburner again. The news has sent the euro currency soaring and the rally in the U.S. dollar has rolled over. This dollar weakness should have been bullish for commodities but the usually suspects did not see much of a rally last week. That could change if the dollar accelerates lower.

The S&P 500 saw four gains in a row followed by three declines in a row. Sadly Wednesday's drop erased most of those gains. The index has broken technical support at its 100-dma. Plus the S&P 500 has broken down below its trendline of higher lows. It settled on round-number, psychological support at the 1300 level on Friday. There is a chance that stocks can bounce from this level but I would not trust a rebound at this time. We are probably looking at a dip toward the 1280 and 1250 areas over the next few weeks.

Daily chart of the S&P 500 index:

Weekly chart of the S&P 500 index:

The NASDAQ is showing all sorts of bearishness. The weekly chart has a broken trendline and a bearish engulfing candlestick pattern. The daily chart has a failed rally at resistance and a breakdown to new six-week lows past key moving averages. If the market bounces the NASDAQ will likely find resistance at its 100-dma and 50-dma. Odds are good we'll see the NASDAQ composite test the 2700 level. If stocks continue to sink deeper into summer then we might be facing a drop toward the 2600 area and its 200-dma.

Daily chart of the NASDAQ Composite index:

Weekly chart of the NASDAQ Composite index:

Small caps had seen the biggest bounce in late May. Now they have produced the biggest reversal lower. Looking at the weekly chart you can see that the small cap index had rallied just enough to kiss the prior trendline before diving. I warned readers a week ago that this is the exact scenario I feared. If this correction continues we're probably looking at a fall toward the March or January lows.

Daily chart of the Russell 2000 ETF (IWM):

Weekly chart of the Russell 2000 ETF (IWM):

If the problem with Greece has been kicked down the road then economic data will have an even stronger impact on the markets. The biggest report this week is probably the Federal Reserve's Beige Book report due out on June 8th. We will also hear from Fed chairman Ben Bernanke on Tuesday. The market might pause as Wall Street waits to hear what Ben has to say. Believe it or not earnings season is only a month away with the second quarter ending on June 30th. The Q1 earnings season was generally strong but we could start to see companies warn that Q2 earnings will be less than expected. Investors will take a keen interest in Texas Instruments (TXN) as they provide their mid-quarter update on Wednesday.

Big picture I am concerned that stocks could face a rough summer. Now that the major indices have broken down under significant support we are likely facing a normal correction of -10%, give or take a percent or two. The economic growth in this country has clearly contracted. It's likely that analysts under estimated the impact of the Japan disaster and hopefully the aftershocks of that event will quickly fade from the economic landscape. However, the path of least resistance for stocks has turned lower. Investors are likely to stay on the sidelines through the end of June and into July. There is still too much uncertainty regarding the end of QE2. Furthermore, why buy stocks now if you're concerned about the company's earnings report in mid July.

I would seriously hesitate to launch any long-term bullish positions at this time when we might get a much better entry point four or six weeks from now.

- James