by James Hyerczyk

Risky assets are under pressure this morning, driven lower by the weak Euro. Investors continue to pare positions in equities and commodities due to the lack of clarity in the Euro Zone. Traders are unsure who is calling the shots. At this time, both politics and economics are playing major roles in policy decisions.

Earlier in the week, Germany took action to curb naked short selling. This move has made investors nervous about holding risky assets because it amounts to changing the rules in the middle of the game. Investors aren't sure what will happen next and are liquidating positions in order to prevent getting trapped in the market should another major regulatory change take place.

The action by Germany is creating uncertainty in the marketplace. Institutions and major market participants don't like what is taking place and are standing aside rather then fall victim to the whim of the policymakers. This is helping to trigger the excessive volatility the markets have been experiencing. Large traders are watching carefully for inefficiencies in the markets, and stand ready to pounce on them when the opportunity arises. Until a quality set-up is spotted however, continue to look for whip-saw like trading action with a bias to the downside.

High correlations between the major asset classes are also encouraging institutions to stand aside. Coupled with little or no liquidity, this is a deadly combination because it leads to volatility. Basically, institutions are having a hard time finding assets to use as hedges since they are all moving in the same direction. In addition, the fear that a government may come along at any time and say "you can't go short" is effectively saying "you can't hedge anymore".

With liquidity sparse because institutions are on the sidelines, continue to look for wild swings in the marketplace until government regulators can convince them that the trading rules will remain the same and market relationships return to normal.

The June E-mini S&P 500 is trading sharply lower before the New York opening. Overnight this market took out a minor retracement zone at 1115.50 to 1101.50. Unless the lower end of this zone is regained, downside momentum is likely to trigger a further decline into uptrending Gann angle support at 1073.75.

The June E-mini NASDAQ broke a minor 50% retracement level at 1856.00 overnight and is now trading in a position to test the 61.8% level at 1826.25. Downside momentum is increasing which means this level is unlikely to hold, sending this index into uptrending Gann angle support at 1810.25. This is the last line of support until the market goes into a freefall to 1783.00.

June Treasury Bonds are rising as traders seek shelter from the falling equity markets. Retaining the minor retracement zone at 122'05 to 122'23 is a sign of strength. Additional support is being provided by a major uptrending Gann angle at 122'14. Continue to look for higher prices as long as this angle holds as support. An acceleration to the downside in U.S. equities is likely to trigger a rally to the May 6th high at 124'16. Fundamentally, the global turmoil is likely to slow down the economy which means the Fed is going to have to keep interest rates low.

Commodity market liquidation, high volatility and liquidity issues are putting pressure on June Gold this morning. The main trend is still up, but the closing price reversal top from May 14th is exerting pressure on this contract. Overnight, gold blew through a minor retracement zone at $1203.00 to $1192.00, sending it sharply lower. The daily chart pattern suggests that a price cluster at $1167.90 to $1166.10 is the next downside target.

September Crude Oil is trading sharply lower. Downside momentum indicates that a test of the February bottom at 72.43 is likely this morning. The falling Euro and the likelihood of slower growth and lower energy demands in the Euro Zone is the catalyst behind the overnight break.