There's risk in them thar hills. Just is it upside or downside risk?
We are getting very close to either a momentary reprieve in Europe's sovereign debt crisis and our own political theater - or sliding over the ledge of support that comes into view on the hourly charts ~ SPX 1306 and ~1303 in the S&P Globex futures. Last week we witnessed the market come down to these levels on three separate occasions in the Tuesday, Wednesday and Friday sessions. On each respective attempt, the market found a bid and bounced spritely higher.
The main concern is that each respective bounce was progressively shallower. I believe if this region of support is taken out, the market will likely make a b-line towards the next critical level ~ SPX 1257.
As you can see in the chart below - the banks (BKX) have already broken through their initial support ~ 47 and pulled up for a third time to the critical level around ~ 46. Since the equity market high in late April, each time the BKX has taken another leg lower - the market has followed suit shortly thereafter.
The onus will be squarely on the bulls coming into next week with key financial components such as Bank of America, Goldman Sachs, Wells Fargo and Morgan Stanley reporting. If last weeks earnings precedent in the financials continues - it does not look very promising in the short term that the market can overcome the considerable downside inertia in that sector.