Eight years ago, Facebook was a coding project in Mark Zuckerberg's dorm room. Now its a global business with $4 billion of revenue that is used by 1/8th of the world's population. And it's worth more than $100 billion. When Facebook started, there were dozens of other social networks going after the same opportunity.

Facebook won. They lost.

Here are some reasons why--reasons that apply to almost every business.

Tungsten doesn't get enough press.

Due to its extreme properties, it has become crucial in many areas of industry. Substituting another material for tungsten in many of its applications would result in increased cost or a loss in product performance.

More than three-quarters of executives surveyed on the eve of the latest flare-up in the eurozone crisis said their businesses had no contingency plans for the break-up of the single currency zone, even though the majority said such an outcome would have a significant impact on their companies.

The latest FT/Economist Global Business Barometer, a survey of more than 1,500 senior executives, exposes a lack of corporate preparation for an event that has become suddenly less unthinkable after 10 days of Greek political turmoil. The survey, conducted largely before the Greek elections on May 6, found respondents feeling better about the global economy and increasingly optimistic about the prospects for their companies and industries.

About 31 per cent of respondents thought the global economy would worsen in the next six months, outnumbering the 26 per cent that thought it would improve. However, the net balance was the least negative since the first quarter of 2011, and a marked improvement from three months earlier when pessimists outnumbered optimists by more than two to one.

Home prices in China continued to fall in April, more than two years after the government began property tightening measures, an indication that prospects for a rebound remain distant for one of the key drivers of Chinese economic growth. Beijing had wanted to rein in property prices that skyrocketed in 2009 as a result of large-scale stimulus measures put in place after the global financial crisis. But real estate investment also accounts for more than a tenth of China’s gross domestic product growth, so a slowdown in the sector bodes ill for the broader economy. If property investment growth falls to zero, “it could shave as much as 2.6 percentage points off of real GDP growth”, according to Patrick Chovanec, a professor of business at Beijing’s Tsinghua University.

The world's No.1 online social network raised about $16 billion in one of the biggest initial public offerings in U.S. history.

• Facebook trading likely to be volatile
• Investors bet on Facebook as gatekeeper
• The Facebook IPO & Market Game Theory

Nokia Oyj is tearing through its cash reserves at an unsustainable rate, raising what some analysts say are serious questions about the struggling Finnish phone maker's ability to stabilize its finances in the months ahead. With the cost of Nokia's debt rising, the most bearish of analysts in a Reuters poll said the company could even be at risk of default if it fails to slow the burning of its cash. Over the past five quarters, the onetime darling of mobile telecoms has eroded its cash pile by 2.1 billion euros ($2.7 billion) - a rate that would wipe out its entire 4.9 billion euros reserves in a couple years. Analysts on average expect the company will burn through almost 2 billion euros more in just three quarters, while the most bearish see the company wiping out its 4.9 billion euros net cash buffer completely next year, a Reuters poll of 30 banks and brokerages showed on Friday. "In our opinion, the company's ability to repay even its shorter-term 2014 bond could be an issue," said Societe General credit analyst Juliano Torii.

Leaders of major industrial economies meet this weekend to try to tackle a full-blown crisis in Europe where fears are growing that Greece could leave the euro zone bloc, threatening the future of the common currency.

• Merkel faces G8 isolation on eurozone
• Greek contagion threat pushes global shares into red for year
• Euro zone market turmoil to last 12-24 months: German finance minister
• EU, ECB working on Greece exit contingency: trade commissioner
• Euro at four month low against dollar as crisis spins
• The last chance to rescue the euro

Europe’s leaders should step out of the playground. The euro debate has become an infantile shouting match about a series of specious choices: fiscal austerity versus growth; spending cuts against jobs; market reforms or social inclusion. This way lies madness – and the certain disintegration of the single currency. The clock is now showing one minute to midnight. Greece is probably beyond saving. The early signs of bank runs in Spain and other peripheral economies suggest the virus of contagion is taking hold even before Athens makes up its mind in a second general election. Policy makers have less time than they thought only a few days ago.

Greek dilemma might come to head before next poll

If deposit flight accelerates, the European Central Bank will have to decide whether to authorise more funding for Greek banks or cut them off. Both options are unattractive. The ECB won’t want to take the decision on its own, and will probably push for political cover.

• Poll shows Greece electing pro-bailout government

Spain kicks off banking sector audit

Spain, under pressure from the EU to accelerate its bank clean-up, will name independent auditors on Friday to probe bad loans and property holdings in the financial sector and determine how big a state bailout is needed.

• Spain beset by bank crisis, downgrades, bond pressure
• Spain moves to calm bank fears
• Spanish banks defy Moody’s downgrade -- Bankia rises over 30% to lead sector-wide rebound

Suddenly, it has become easy to see how the euro — that grand, flawed experiment in monetary union without political union — could come apart at the seams. We’re not talking about a distant prospect, either. Things could fall apart with stunning speed, in a matter of months, not years. And the costs — both economic and, arguably even more important, political — could be huge. This doesn’t have to happen; the euro (or at least most of it) could still be saved. But this will require that European leaders, especially in Germany and at the European Central Bank, start acting very differently from the way they’ve acted these past few years. They need to stop moralizing and deal with reality; they need to stop temporizing and, for once, get ahead of the curve. I wish I could say that I was optimistic.

It struck me as odd knowing how much money is at stake in underwriting fees and newfound wealth set against a rapidly collapsing stock market. You probably know how these deals like Facebook get priced and distributed. The underwriters and selling group members have been twisting arms and issuing ultimatums to institutional clients—you are to take “x” number of shares or you’ll never get another deal again. That’s the way we roll. So as billions are about to be made by underwriters and insiders, Main Street is losing its collective shirt in the current stock market plunge. It’s quite a disconnect frankly.

Facebook is a great company, growing and dominating in many ways. But others have a different take including Lucy Marcus via Reuters which others aren’t discussing. And, not mentioned overall of course: What if the Facebook deal is a flop given market conditions?

Jobless Claims (370K vs 365K estimated & prior revised higher to 370K) were a little weaker than estimated but the revisions allowed for a better headline. On the other hand, The Philly Fed Survey (-5.8 vs 10 expected & prior 8.5) was much worse and the Bloomberg Consumer Comfort Index (-443.6 vs prior -40.4) was also quite weak. Leading Economic Indicators (-.1% vs .1% expected & prior .3%) were also disappointing.

Earnings were positive for Walmart (WMT) but the entire retail (XRT) and Consumer Discretionary sector (XLY) struggled. There wasn’t any well-received earnings news overall so why bother going over them?

The dollar (UUP) retreated a little on the poor economic data, gold (GLD) and silver (SLV) prices were higher as investors responded to short-term oversold conditions, a slight decline in the dollar and seeing the metals once again as a store of value. Bonds (IEF) soared dropping the yield to just under 1.70% (mattress money) but high yield bonds or junk (HYG) saw prices fall sharply and yields rise. Away from precious metals most commodity markets (DBC) were slightly weaker.

The slow motion train wreck continues given new meaning to the “sell in May and go away” theme. Volume rose and breadth per the WSJ was quite negative and perhaps we’re seeing a wash-out as oversold levels become extreme. (See McClellan Oscillator below)

The bearish camp kept the pressure on stocks Thursday as the major indexes fell for the seventh time in the past eight sessions. The Nasdaq logged the day's biggest loss at 2.1%, while the Dow Jones industrial average notched the smallest at 1.2%. In between, the S&P 500 and the NYSE composite each fell 1.5%. Volume rose 8% on the NYSE and 6% on the Nasdaq.

At this point, the bulls are beaten and cowering. A correction is like a schoolyard bully: It starts by picking off the weakest and then expands its list of victims. Few are escaping this correction's intimidation act. Take a look at the Market Pulse accompanying this column. The list of leaders falling in strong volume looks long but actually had to be abbreviated. Each stock came from one of IBD's leader screens: The IBD 50, The Big Cap 20 and the 85-85. It's unusual to see the list of losers get that long.

Quality stocks are hurting.

• Liquidity Services (LQDT), No. 1 in the IBD 50, slid as much as 15%. The stock found support just above the 50-day moving average, and then erased more than half the loss. Those are technical positives, but they can't quite erase the wide-and-loose trade. From peak to trough, Liquidity covered more than 9 points. That isn't the kind of action that builds confidence.
• Stocks with a somewhat defensive reputation also fell. Discounters such as Dollar General (DG) and Dollar Tree (DLTR) slid 3% and 6% respectively.
• Auto parts stores also struggled. Advance Auto Parts (AAP) plunged 17% in huge volume after reporting weak results and weak guidance. An analyst at Oppenheimer said the company could be losing market share to O'Reilly Automotive (ORLY) and AutoZone (AZO). But those two stocks gapped down 7% and 6% respectively.

More and more, this is looking like a correction that's leaving no place to hide. Like that bully, a correction eventually runs into a powerful opposing force. What will end this correction? Most of the possibilities seem either unlikely, such as a quick resolution of Europe's problems, or they seem too far out — such as November election results that remove uncertainty. On Thursday, the economic data provided no encouragement to the bulls. Initial jobless claims were worse than expected. Leading indicators for April fell shy of the consensus estimate. And the Philadelphia Fed's business activity index contracted in May, missing views and registering the first negative reading in eight months.

In mid-2011, with no end in sight to the eurozone crisis, as well as simmering concerns about the US economy, the CIO began looking at a big way to hedge JPMorgan’s overall credit risk and existing trading positions. Two problems faced the bank. First, simply shorting credit was an expensive affair: JPMorgan was not the only institution with concerns about the future. And second, market volatility promised to make any directional position – short or long – punishing in the short term. The trades the CIO embarked on, it hoped, would overcome both problems. But then in December, the European Central Bank unleashed a tidal wave of liquidity into markets, triggering what some analysts called the “mother of all credit rallies”.

Even as Facebook fever grips investors ahead of the social networking giant's potential $100 billion-plus initial public offering, its breakneck growth in Asia may be slowing as it moves beyond desktop users to those who access the Internet largely or solely from a mobile phone.

• Ad execs say jury still out on Facebook as medium

Over the past three years, drilling in U.S. shale patches has become an expensive affair, even as producers got better acquainted with the shale rock they mined. Service firms could name their price while the producers scrambled to drill. Sand and ceramics, which companies pump into deep wells in a water and chemical mix to frack a well, were in scant supply. The spot price of guar -- a gum processed from tiny seeds and used to thicken fracking water -- has ballooned by 10-fold since January 2011 and doubled since the start of this year, according to data from Agra Informa, an agricultural consultancy. The nationwide cost of drilling and other well services for oil and gas wells has risen 22.5 percent since October 2009, hitting a five-year high in March, according to the Bureau of Labor Statistics' Producer Price Index (PPI). Meanwhile, prices for shale oil, particularly from the Bakken, fell as the glut of new crude supplies in the Midwest led to deep discounts for U.S. benchmark crude.

The slow motion bank run in Greece has accelerated, but at 0.75 per cent of deposits a day remains far from Britain’s Northern Rock, which lost 5 per cent of deposits in a day. Investors worry that those withdrawing cash are right: if Greece leaves the euro they will avoid drachmageddon. But investors’ real fear is not about Greek savers; it is that a Greek exit will start bank runs across the eurozone periphery, putting the global economy at risk. It is too late to protect against a “Grexit” cheaply. Eurozone bank shares are already at euro-era lows, and Greek shares were last at this level in February 1990.

• Some markets have moved more than others, though. Money markets are afloat on a sea of liquidity from the European Central Bank, and seem almost immune to fear. One way to isolate money market concern about banks is the FRA/OIS spread, which measures the pure credit risk of lending to banks for three months, stripping out interest rate fluctuations. It is up from 26 basis points to 39bp – but far from the 95bp it reached in December.
• Bank bonds trade between the palpable fear in equities and the eerie calm of money markets. In other words, shareholders may be diluted in capital raisings without bonds suffering. But if the rest of the eurozone is hit by Grexit, both bonds and money markets are likely to sell off sharply, as they did in the winter.
• Another oddity is in junk bonds. Junk-rated companies will be the first against the wall in a deep recession, so naturally junk bonds have dropped a lot since mid-March as the economy deteriorated.
• Yet, credit default swaps show European junk bonds fell little more than US junk, and Credit Suisse reckons current yields are in line with a default rate of just 4 per cent, not that high. If Europe is really headed for a crunch, the gap with the US should be bigger.

If Europe supports Greece to avoid a Grexit, corporate credit and banks could rally hard. There is no sign of that yet.

• Greece slides on bailout targets in political paralysis
• Greek exit could cost eurozone 100s of billions of euros
• ECB move on Greek banks hits euro confidence
• Greek withdrawals stop short of panic
• Euro moves lower as investors remain wary
• Cameron looks to shield Britain from euro break-up
• Federal Reserve wary of eurozone risks
• Greeks urged to run poll as vote on euro

Spain's borrowing costs shot up at a bond auction on Thursday, after economic data confirmed the country is back in recession and reports that nationalized Bankia SA had suffered an outflow of deposits hammered its share price.

• Spain bids to pin down real estate losses

Fed Minutes revealed nothing new although some Fed members suggested more stimulus could be needed. Economic data in the U.S. was decent overall as Industrial Production (1.1% vs .5% exp. & prior -.6%) improved and beat; Housing Starts (717M vs 690M exp. & prior 699M) improved but New Permits (715M vs 705 exp. & prior 769M) declined 7%. Curiously New Permits in just the northeast declined 20%.

Earnings news from retailers overall was poorly received from Staples (SPLS), Abercrombie & Fitch (ANF) and J.C. Penney (JCP) continued to weigh on the sector.

Meanwhile in the eurozone the set-up for a Greece exit continues to build. The ECB has stopped lending to some Greek banks while ECB head Draghi stated, “there are limits to what we would do to save Greece.” At the same time Greece announced elections for mid-June giving us a month of more drama.

Stocks in the U.S. overall are still weak and led lower by Financials (XLF) and especially Materials (XLB). Even mighty Apple (AAPL) is falling sharply dragging heavily weighted tech sectors (QQQ & XLK) lower overall. With Facebook’s IPO coming after the close Thursday perhaps investors are making some room to add it. Underwriters are calling-in all debts from clients to buy the stock or be shut out of future deals. For many clients there is a 180 day hold on selling IPO acquired shares.

The dollar (UUP) continues to maintain its recent strength while gold (GLD) and other precious and base metals. Oil (USO) continued to decline while Treasury bonds (EIF) rose. However, high yield/junk (HYG) bond prices are starting to is starting to decline which is not a good sign.

Volume has continued to rise as distribution continues and markets remain more oversold. Breadth per the WSJ was negative once again.

Market in correction.

The ongoing 21st-century Greek financial tragedy depressed investors again Wednesday as some banks in the cradle of democracy are reportedly no longer getting aid from Europe's central bank. Reuters, quoting sources, noted several Greek banks are no longer solvent, and hence must seek funding from that country's monetary authorities. The sources said as many as four lenders were operating with negative equity capital. National Bank of Greece (NBG), the sole Greek lender traded on the U.S. market, dived 10% Wednesday to an all-time low of 1.55. The bank posted losses in the second and third quarters of last year and has yet to report Q4 results.

The news seemed to put a brick wall in front of an early-morning advance by U.S. stocks, which got off to a decent start following better-than-expected reports on April industrial production and April housing starts. Like Tuesday's action, the market struggled to hold those gains and switched to moderate losses. The Nasdaq composite rallied as much as 0.7% in the first 75 minutes of the session, then stalled as the Greek news hit the wires. It was downhill the rest of the way as the index ended off 0.7%. It was the third straight session for the Nasdaq to close near the day's lows. The S&P 500 registered its fourth straight decline, falling 0.4%. Chip equipment, department store, farm equipment, coal and steel stocks all fell 2% or more as a group. The NYSE composite, down 0.6%, crossed below its 200-day moving average for the first time since mid-January. Volume fell across the board. Meanwhile, the NYSE advance-decline line continues to crumble, coinciding with the continued shrinking of the new highs list.

• Some market leaders have been weathering the latest storm well. They include Dollar Tree (DLTR), Liquidity Services (LQDT), Ulta Beauty (ULTA), SXC Health (SXCI) and Buffalo Wild Wings (BWLD). (On last check, none of these does much business in Greece.)
• Of course, Greece is not the only ailing nation across the Atlantic. Italy, Spain, France, the Netherlands and others are entrenched in belt-tightening battles. The future of the vast economy that makes the EU is truly significant to the U.S. and its major exporters. So perhaps it's no coincidence that stocks spanning from Caterpillar (CAT) toPriceline.com (PCLN), both of which rely on Europe for a big chunk of revenue, have been struggling lately. The former is 21% off its 52-week peak and has recently slid below its 200-day moving average. The latter, which has a leadership position in the European travel booking market, is making no attempt to recoup its 50-day line.

Sophisticated algorithmic trading systems have become the bane of an equity day trader’s life, reacting faster to news than any human can and spotting price irregularities across thousands of stocks at once. Nearly 40 per cent of all share orders in Europe are sent by algorithmic trading computers, up from just 20 per cent five years ago, according to the Tabb Group, a capital markets consultancy. In the US the figure is 37 per cent.

Yet despite the prevalence of these supposedly smart machines, some traders are making a tidy profit getting the better of these systems, which can make costly mistakes if they are not set up correctly or if their trading patterns can be understood.

Svend Egil Larsen, a Norwegian day trader, worked out in 2007 how the computer algorithm of Timber Hill, a unit of US-based Interactive Brokers, would respond to trades in certain illiquid stocks. The stocks would change price in a uniform way regardless of how much was bid. He found that he could bump up the price with very small trades and then sell with much larger trades for a profit. He was not the only trader who worked out this flaw, which he called “painfully obvious”. But he still made $50,000 in a few months. Charges of market manipulation were brought against him and another trader, Peder Veiby, in a high-profile court case where the public came to look on the duo as heroic Robin Hood figures, beating financial houses at their own game. The courts found them not guilty of market manipulation this month, concluding that they were making the market more efficient by exposing a flaw in the system.

Wall Street strategists are expressing their most bearish views on US equities in nearly three years as investor worries mount over the threat of a eurozone break-up and the outlook for the global economy. The bearish outlook comes even as stocks enjoyed their best first quarter since 1997. However, since stocks peaked in March, the S&P 500 has shed more than half its prior gains for the year. Big Wall Street companies have cut their asset allocation to equities to its lowest level since May 2009, according to a Bloomberg index that measures average allocation for stocks. Asset allocation to equities has declined to 52 per cent from 62 per cent in January. Others stated that such a degree of bearishness at big Wall Street groups actually provided a contrarian sign.

• US equity bulls dismiss May jitters
• US banks bears await summer of downgrades

Royal Dutch Shell expects US natural gas prices to double by 2015, rebounding strongly from the 10-year lows they have hit as a result of the shale gas boom as US domestic demand for the fuel grows. Shell chief executive Peter Voser said prices would remain under pressure in the short-term “but we would see a recovery . . . in the second half of the decade”. Mr Voser said gas demand in the US would rise “as coal is replaced by gas in electricity generation, and gas in transportation takes off”. He added that the low price would push some producers to curtail output, allowing the price to rise.

The widespread use of techniques such as horizontal drilling and hydraulic fracturing, or “fracking”, has led to a boom in gas production in the US, creating a surplus that has depressed prices and put many operators under pressure. The shale revolution is now spreading beyond North America to Europe and Asia, especially China, which could have even larger shale resources than the US, according to a recent estimate by the US Energy Information Administration. Some companies, however, have questioned whether the reserves can be developed economically.

• Crude slips to six-month low

Shareholders in Europe’s listed companies will be given a binding vote on pay while those who invest in banks will gain powers to set a cap on bonus levels, under plans being drawn up by senior EU officials. The initiative from Michel Barnier, the EU’s top financial services regulator, would hand bank investors the voting power to curb “morally indefensible” pay and limit the gap between the lowest and highest paid. Banks would also be forced to disclose their top 20-30 earners. Only a handful of European countries – the Netherlands, Norway and Sweden – have given shareholders the legal power to reject proposed pay awards for executives, rather than just offer advice.

The move to give all shareholders a binding vote on pay tallies with UK plans to empower shareholders, although Mr Barnier has yet to decide whether to propose that votes on company pay policies should be backed by more than a simple 50 per cent majority. Under Mr Barnier’s proposal for banks, shareholders must vote to set a maximum ratio of bonus to salary, as well as a ratio of the pay of the lowest to the highest earners.

The hottest commodity in the US agricultural market is not wheat, corn or soyabean – but rather the very farmland used to grow those and other crops. The Chicago and Kansas City branches of the Federal Reserve have reported this week unusual price rises for farmland, prompting concerns of an emerging bubble only four years after the collapse of the housing bubble that triggered the 2008 financial crisis. For the first time since the Kansas Fed started tracking the ups and downs of farmland prices in the Plains region in the late 1970s, the costs have grown by 20 per cent in two consecutive years. The Kansas Fed said prices for non-irrigated land rose 25 per cent in the first quarter compared with the same period of 2011, while irrigated cropland surged 32 per cent, the biggest year-on-year jump in history.The story was similar in the Midwest cornbelt, where the Chicago Fed reported that farmland prices surged 19 per cent in the first quarter compared with the same period of a year ago.

Worryingly, the large price increases mirror those of the US housing market in the mid-2000s. Worse, when private-sector farming bankers explain to the Fed the situation in the sector, they sound much like their colleagues in the housing market. One banker from south-east Wyoming warned about the arrival of inexperienced buyers: “More buyers are out-of-town investors.” Another from north-east Kansas added: “There is more liquidity in the farm sector than I have seen in my 30 years as a banker.” In spite of the concerns about a bubble, the narrative behind the price surge is strong: the cost of agricultural commodities is rising sharply just as US farmers expand their production, bringing historically high earnings to the sector. Corn rose to about $8 a bushel last year, a record high. The price of the commodity remains elevated this year, further beefing up the balance sheet of farmers. Moreover, farmers are generally paying cash for the farmland, rather than financing the purchases through loans as was the case in the housing bubble. Indeed, credit demand in the farming sector is at the lowest since at least 2004, according to the Kansas Fed. But the strong narrative and the cash payments cannot hide that prices are out of control. For example, in Nebraska, the cost of irrigated farmland surged in the first quarter to a staggering 41 per cent.

The US experienced a farmland bubble in the 1980s that bankrupted farmers in the Plains and the Midwest. The current surge in prices could have more solid foundations, but the Fed needs to monitor the situation closely to make sure history does not repeat itself.

Greeks are voting with their wallets and pulling euros out of the banks in fear that their country may leave the European single currency despite the declared determination of EU powers Germany and France to keep Athens in the monetary union. Central banking sources said the European Central Bank has stopped lending to some Greek banks because they had not been successfully recapitalized. The sources did not name the banks but said they have to go to the Bank of Greece for emergency liquidity assistance. The ECB declined comment.

As financial markets shuddered over the deepening turmoil in Athens on Wednesday, governments of other troubled euro zone states from Spain to Ireland voiced concern about the impact on their own shaky finances. Spanish Prime Minister Mariano Rajoy told parliament his country faced trouble financing itself as borrowing costs shoot up to "astronomic" levels. Irish Finance Minister Michael Noonan said Dublin's plan to return to capital markets in late 2013 might not be achievable because of the uncertainty. A chorus of skeptical politicians and central bankers from London to Ottawa predicted the euro could fall apart unless European governments act more decisively to save the currency.

Rajoy warns Spain faces debt market exile

• Greeks urged to run poll as euro vote
• Judge to lead Greece to fateful June 17 vote
• Withdrawals from banks stop short of panic
• Contagion of a Greek exit
• Euro starts to crack as investors eye exit
• The devolution solution
• ECB’s dilemma on the euro rescue

IMF praises Italy’s economic progress

• Monti sets out to win German minds
• Monti hits at eurozone austerity push

Hollande urges action to stimulate growth

• Merkel and Hollande spell out Greek fear
• Editorial Extreme politics

Groundbreaking for U.S. homes rebounded in April and factory activity gained steam, suggesting a moderate pick up in economic growth early in the second quarter. The reports on Wednesday were the latest in a series to dampen fears that the recovery in the world's largest economy was stagnating after tepid job growth last month.

• US home starts and industrial output rebound
• Young Americans delay purchase of homes
• US inflation flat on lower petrol prices
• US consumers feel better as oil prices ease

Federal Reserve policymakers kept the door open to a fresh round of monetary stimulus, citing downside risks to a moderately expanding economy, according to minutes for the central bank's April meeting.

• Federal Reserve wary of eurozone risks

Many wealth managers are advising their clients to avoid Facebook, pointing to a sky-high valuation of up to $104 billion set by the IPO, and potentially much higher once it starts trading. The company also shows signs of slowing growth, has yet to figure out how to make money on mobile, and new shareholders will have little influence as nearly 56 percent of voting shares will be in the hands of one person: Chief Executive Mark Zuckerberg. But such warnings are falling on deaf ears as many people are drawn in by Facebook's brand name and the fact that one in seven people around the globe are on the social network. Facebook Inc on Tuesday increased the size of its IPO by nearly 25 percent and raised the target price range.

Facebook winning Keynesian beauty contest

Investors devouring the social network’s IPO shares have pushed its top valuation to over $100 bln. To justify the lofty figure, buyers are using everything from eyeballs to credit scorers. But such analytical gymnastics are merely a way to rationalize the Facebook hype.

• Facebook boosts IPO size by 25 percent, could top $16 billion
• Breakingviews video: Facebook's analytical gymnastics
• Exchanges iron out kinks as Facebook IPO looms
• Felix Salmon: Smart money bails out of Facebook

The rundown from the eurozone is as follows: The bright star is German GDP (EWG) came in better than expected at .5% vs .1% expected. France (EWQ) reported a flat GDP report. Italian (EWI) GDP was -.8% and the Netherlands (EWN) -.2%. In Eastern Europe, Hungary, Czechoslovakia and Romania reported their economies in recession. Spain’s bond prices continued to fall slightly and yields rose. All of this was reported as “better” news even as EWG fell sharply.

Meanwhile, back in the U.S. the CPI (if you give it any credibility) was reported as flat, Retail Sales (.1% vs .1% expected & prior .7%) was unremarkable, The Empire State Mfg Survey (17.09 vs 10 expected & 6.56 prior) beat and the Home Price Index (29 vs 26 expected & 25 prior) was positive. Retailers (XRT) will dominate the remainder of the week. Home Depot (HD) reported earnings in-line with expectations and the stock was lower (you must beat) by 2%. J.C. Penney (JCP) just posted a report after the close and they missed badly sending the stock lower in late trading by double digits.

The world awaits the Facebook IPO and the buzz is the shares are oversubscribed. At least that was the case until GM announced it was discontinuing its advertising there calling it “ineffective”. That itself may cause an earthquake on the peninsula.

The dollar (UUP) continues to gain at the expense of the euro (FXE) as rumors continue to suggest a loss of a few members.

Did you know it was occasionally customary for Inuits in Alaska to leave their senior members, thinking them a burden, on an ice floe to die? This may be the way of some eurozone members or maybe even U.S. healthcare.

Markets everywhere are seriously oversold at least short-term and this may continue until we see a blow-off sell day. Current intraday buying is just so much wasted buying power. Bulls are waking out of their blasé slumber to come to grips with what so far is just a correction. But the hard reality seems that global economic news is killing them like a cancer. The best outcome for markets would be for some extended sideways action which in itself is frustrating.

Volume continued higher on more selling. Breadth per the WSJ was negative once again. One look at the end of this post at the McClellan Oscillator tells the tale of short-term oversold conditions.

Market in correction.

After trading in positive territory for most of Tuesday's session, stocks sold off late in the afternoon to end firmly in the red and near their lows for the day. The NYSE composite dropped 0.9%, the S&P 500 0.6% and the Nasdaq 0.3%. Volume increased from Monday's levels on both main exchanges, adding vehemence to the move lower. All three indexes touched their lowest levels in the past three to four months. Also discouraging: The Nasdaq and S&P 500 closed below prior support at 2900 and 1340, respectively. The NYSE slumped to support at its 200-day moving average.

The market weighed some better-than-expected economic reports against the latest Greek drama. By day's end, the worries over Greece appeared to win out. Greek officials said talks to form a coalition government had failed, so they will establish a caretaker government to lead the country until new elections. Later in Tuesday's session, reports highlighted big withdrawals from Greek banks by local depositors.

Meanwhile, the encouraging economic data came from both Europe and the U.S. An initial reading for the euro zone's GDP suggested a flat result for the latest quarter, topping forecasts for contraction. Germany's GDP expanded 0.5%, boosting the area and besting views. In the U.S., the New York Fed's Empire State Manufacturing Index jumped to 17.1 in May, beating estimates. The National Association of Home Builders' housing market index rose to 29 in May, also above views. Retail sales grew 0.1% in April, matching analysts' consensus estimate, according to Econoday. April consumer prices were flat, meeting expectations.

Leading stocks have taken hits during the current market correction, but at least the additional damage was limited Tuesday. Still, some leaders slid in heavy or above-average turnover.

• Lululemon Athletica (LULU) shed 2% in active trade, falling further below its 50-day moving average. The stock has neared another key support area near 70.
• Valspar (VAL) dived 7%, finishing under its 50-day line for the first time since October. The paint producer reported fiscal second-quarter sales that missed forecasts, although its Q2 profit beat views.
• Advance Auto Parts (AAP) followed Monday's 7% tumble with a 1.5% drop in big trade. That left the stock further below its 50-day moving average.
• Intuitive Surgical (ISRG) retreated less than 1%, closing under its 50-day line for the first time since January. Turnover was roughly average.
• A few leaders managed to buck the negative trend while drawing strong to above-average volume. Dick's Sporting Goods (DKS) and TJX (TJX) both lifted above their 50-day lines in huge trade following strong earnings reports. TJX jumped 7%. Dick's climbed 6%, although it closed well off its high.
• Rackspace Hosting (RAX) rose 3% in turnover that was about 15% above average. The stock has been getting support near 50.

Tuesday's ugly action underscores the importance of waiting for a follow-through day. Before a correction can end, you need to see an index deliver a follow-through, meaning a significant gain in higher trade, usually in the fourth to seventh day of an attempted rally.

In an unguarded moment in 2007, the man anointed to take over next year as the helmsman of the world’s second-largest economy revealed his doubts about China’s economic growth statistics. The country’s official gross domestic product figures are “man-made” and therefore unreliable, Li Keqiang told the US ambassador at the time, adding with a smile that he regarded them as being “for reference only”. When evaluating the speed of economic growth Mr Li, who is expected formally to replace Wen Jiabao as China’s Premier next March, said he focused instead on three sets of data – electricity consumption, rail cargo volumes and disbursement of bank loans. If Mr Li’s assessment is correct the Chinese economy is in a lot more trouble than headline GDP figures have indicated until now.

• The risks of a Chinese hard landing

Nokia patched up its ailing basic phones offering on Tuesday with two models offering access to games, applications and the Internet, hoping to regain its footing in emerging markets. After precipitously losing its position in the smartphone market to Apple's iPhone and models running Google's Android software, Nokia has also been losing its shine in the basic phone market, which had been a reliable generator of profits. Nokia's basic phone sales fell 16 percent in the first three months of 2012, and have fallen in four of the last five quarters, while rivals like China's ZTE and Huawei have been growing fast. China's largest search engine Baidu Inc is also planning to enter the cellphone market with a cheap smartphone.

• Google's Android gains share in smartphones-survey

Attempts to form a government in Greece collapsed on Tuesday, jolting financial markets at the prospect that leftists opposed to the terms of an EU bailout could sweep to victory in a June election and tip the euro zone deeper into crisis.

• Greece fails to form unity government
• Greece: when the lights go out - The desperate cunning scheme to get Greeks to pay property taxes by bundling them with electricity bills didn’t last long. You guessed it, people stopped paying their electricity bills and now it looks like the power company – which had to be bailed out last month – has stopped even trying to collect the levy.
• Euro falls on Greek woes
• Germany keeps eurozone from recession
• Greek turmoil knocks European stocks - Frankfurt index falls despite robust German data
• Investors eye further ECB intervention
• ECB’s dilemma on the euro rescue
• Hollande urges action to stimulate growth
• What to expect from François Hollande

Angela Merkel’s party suffered a severe rebuke in local elections to socialists and other left parties. This action demonstrates the tenacity with which the public in the eurozone demands to cling to government benefits versus austerity. It further complicates matters politically for the EMU and previously agreed financial arrangements and commitments. On Saturday, the troika agreed to give Greece an extra year (2015) to reach its budget and deficit goals. This shows weakness. All this means is the eurozone will remain a problem for months and years to come. Clearly, if austerity and reform are off the table then who will pick-up the tab—the Chinese? JP Morgan (JPM) estimated if Greece were to bug-out of the eurozone and their commitments, it would cost the remaining bag holders $500 billion.

We see the same conditions in Wisconsin and now California facing a $16 billion budget shortfall. The fight with public unions and other entitlements is only just beginning as current and future benefits are too much to bear fiscally without reform.

As an aside let’s review the reoccurring issues with mega-banks as just happened with JPM. I’ve been writing about the demise of the Glass-Steagall Act (GSA) for a long time. I featured it in my early 2007 book “Create Your Own ETF Hedge Fund” and frequently on ETF Digest. The GSA was made law during the Great Depression. Among other things it separated banks from brokers and federally insured bank deposits (FDIC) to $100K. This had meant banks were restricted in how they dealt with depositor funds which were widely insured by the public. In the late second term of the Clinton administration the law was allowed to lapse. At the core of this demise were a band of brothers (Phil Gramm, Chris Dodd, Alan Greenspan and Robert Rubin) led by Sanford “call me Sandy” Weill. He was the straw that stirred the drink and a major WS wheeler-dealer. It allowed his brokerage firm to merge with Citigroup putting the fox in the henhouse. Others quickly followed suit. It was great (for them) from the get-go but a financial disaster ultimately as the walls separating underwriting and trading from federally insured deposit taking came tumbling down. It created a regulatory mess as a multitude of agencies now had responsibility to oversee these new mega-bank combinations. Regulators were inadequate to the task.

When the financial crisis hit in 2008 suddenly trading the public’s money meant the public had to bail out these new mega-banks. Rather than reinstituting various protections of the GSA the government just heaped more regulations atop those that weren’t working anyway. The mega-banks and their congressional allies weren’t about to let the toothpaste be put back in the tube. Therefore, we still have these JPM trading fiascos occurring because there aren’t enough smart (emphasis added) regulators to oversee (herd cats) mega-banks. And, besides if they’re bailed-out once they expect to be bailed-out again.

The solution is simple. Let bankers be bankers taking in government insured deposits within manageable rules and let brokers be brokers regulated separately. The latter can continue to do stupid things with their stockholders money but not with public funds. The financial world would be a better place.

Lower oil prices are a mixed blessing since it benefits consumers but is also a sign of serious trouble for the global economy as demand falls. We see much the same thing with most commodities. Priced in dollars (UUP), and with the dollar rallying, commodity prices continue to decline from that aspect as well. (Hmm, I wonder if rappers and Hollywood stars are still stashing their dough in euros and / or making it rain.) Gold (GLD) and other commodities (DBC, SLV, USO and JJC) also took a beating. Emerging Markets, more sensitive to commodity prices, were also much weaker.

U.S. equities fell sharply early but are now much oversold (at least short-term). The sell-off Monday, moderating midday, was widespread affecting most equity sectors. Some buying may be wasted buying power and a gamble that economic data later in the week and retailer earnings would provide a boost. By day’s end stocks were in the toilet once again. What’s good? Bonds from the big three: Germany, U.S. and Japan.

The bottom line is you can’t lose the BRICs, the euro and the eurozone and expect U.S. markets or commodities to rally going it alone. No way, now how.

Premium members to the ETF Digest receive added signals when markets become extended such as DeMark triggers to exit overbought / oversold conditions.

Volume once again on selling was relatively higher while breadth per the WSJ was quite light.

Here's the good news: The Nasdaq closed above 2900 again. The bad news: Stocks faded for the third straight session Monday. In the end, stocks extended their two-week slide Monday, with all major averages racking up losses in excess of 1%. The NYSE composite tumbled 1.4% to a near four-month low as energy stocks weighed. Crude oil prices dropped 2% to their lowest level of the year. Financials were also hit hard again. The Nasdaq and S&P 500 lost 1.1% each. All three closed near their session lows. Volume ticked up on the NYSE, and Nasdaq trade fell. Losers swamped winners by more than 5-to-1 on the NYSE and just over 3-to-1 on the Nasdaq.

Euro zone worries again pressured U.S. stocks. Political turmoil continued in debt-ridden Greece, which could be closer to exiting the euro. Meanwhile, Italian and Spanish bond yields climbed. Stocks trimmed losses at midday and at one point the Nasdaq and S&P 500 were close to turning positive, but then selling resumed. Just like last week, the Nasdaq managed to get support at the 2900 level (1). Despite this, the index hasn't been able to muster much strength. The S&P 500 breached support at its March low at 1340. All three major stock averages hit new lows Monday, which means the market has to try again to start a new attempted rally.

Monday also saw more leaders take heat.

• Coinstar (CSTR) slumped more than 8% below a 63.89 buy point from a three-weeks-tight pattern. The stock cleared the add-on pattern March 27 and climbed as much as 9% before failing.
• Advance Auto Parts (AAP) is typically a slower mover, but the stock swooned 7% after Cleveland Research downgraded the retailer. It's not a good sign for the market when steady stocks unravel so badly. It was Advance Auto's biggest one-day loss in about a year. Volume swelled three times its average and marked the busiest session in nearly three months. The retailer reports first-quarter results before the market's open Thursday.
• Sturm Ruger (RGR) fell back below its 50-day moving average in heavy trading. The stock had just recaptured the line Thursday. After a huge run, the stock has come under heavy distribution recently. All losses this month have been on above-average volume. Trading has been double or triple its average pace on some days.
• The IBD 50 shed 1.6% Monday.
• Leaders up in heavy volume were few Monday. They were all thinly traded, which does not represent strong leadership. Genomic Health (GHDX), Ultimate Software (ULTI) andOrmat Technologies (ORA) all trade on average fewer than 200,000 shares a day. Investors should focus on highly rated stocks that trade at least 400,000 shares a day on average.
• Francesca's Holdings (FRAN) regained a piece of Friday's huge loss. The women's apparel retailer boosted its first-quarter profit outlook to 17 to 18 cents per share from 14 to 15 cents. The company also fired its chief financial officer for what it called improper communication of company information over social media.
• Dick's Sporting Goods (DKS), Home Depot (HD) and TJX Companies (TJX) will report results Tuesday.

Ever since Lehman, markets have operated with an implied "put" from governments, as they believe that if things get really bad, then authorities will step in to stop the carnage. But the Greek elections threaten that for the first time, as governments may not be able to thwart the will of the people any longer.

Many floor types think that there is a kind of “rationality put” in the markets. It evolved in the post-Lehman chaos. The premise goes something like this: world leaders were shocked and stunned by the scope and size of the nearly instant damage from Lehman’s fall. That shock caused them to rescue AIG, a far, far bigger project than Lehman.

Since then, central banks and governments have stepped in quickly as each new crisis emerged. (Think things like QE; LTRO; the first Greek bailout, etc., etc). As long as the crises remained in the financial arena, they could be softened and postponed (not cured). Now it is likely there will be a new Greek election and the risk that the Greeks may see it as a chance to make a loud and clear anti-austerity statement. Others, however, seeing the proximity of payment deadlines, and such, may see it as a vote on exiting the Euro.

As my very sage UBS associate in London, Paul Donovan, succinctly put it: The elections are really about default or not default, but the risk is that they are cast as Euro or not Euro. That is a risk, because if it seems that parties characterised as "not Euro" are going to do well, investors, bank depositors and exporters to Greece may react as if Greece were leaving the single currency.

That presents a problem for governments and central banks. If people begin to believe that Greece will soon exit the Euro and the Eurozone, as we noted last week, it could ignite runs on the banks. First in Greece then quickly Spain and Italy. Would there be a rush to things like capital controls?

It’s hard to exercise a “rationality put” if things turn irrational beyond your control.

When Japanese politicians gutted Koizumi-era postal privatisation plans last month, they emphatically repudiated one vision for revival of the world’s third largest economy. Unfortunately, they are not offering much of an alternative. Boosting long-term economic growth is just as much of a policy priority as it was when Junichiro Koizumi, then prime minister, drove through postal reform in 2005. But none of the subsequent prime ministers since Mr Koizumi stepped down in 2006 has come up with anything half as striking as his scheme to break state control of Japan Post’s huge banking and insurance arms.

• BoJ continues to pile into bonds

The process of creative destruction sweeping the oil refinery industry has gone from top gear into reverse. Over the past year, refiners in the Atlantic basin from ConocoPhillips in the US to Petroplus in Europe shut down plants, removing 1.6m barrels of capacity at the peak in January. The closures triggered a recovery in the refining margin between crude oil and oil products, known as crack spreads, a favourite market for hedge funds. But the refining business cycle is now turning full circle, with many of the mothballed plants restarting under new owners, again putting pressure on crack spreads. “The refining outlook has rapidly shifted from the mass closures seen at the start of the year to a mass of restarts over the coming months.”

In nature, the mighty whale depends upon the lowly plankton for its survival and the same analogy rightly applies to global developed economies, which have dominated trade and finance at the expense of developing nations. Now the tides may be turning as once minuscule global economies find themselves in possession of a plethora of reserves. The hunted may be turning into the hunter and the global monetary system, which has evolved and morphed over the past century – but always in the direction of easier, cheaper and more abundant credit – may have reached a point at which it can no longer operate in the same way. Major changes to our global monetary system may lie on a visible horizon.

Industrial demand for the metal has suffered on the back of the eurozone’s ailing economic outlook. Weak car sales – a key market for platinum, given its use in catalytic converters – has depressed demand, while analysts at Credit Suisse said this month that supply should pick up after a seasonally weak first three months of the year and as safety stoppages diminished. Platinum prices are down about 18 per cent over the past year.

Inflation in India has picked up again, delivering a blow to the hopes of Indian business leaders’ that the country’s central bank would further cut interest rates. The wholesale prices index rose 7.23 per cent year on year in April, compared with 6.89 in March, mainly due to higher food prices and rising manufacturing costs, in the latest worrying sign that India’s economy is running out of steam. The higher than forecast rise in inflation risks short-circuiting the Reserve Bank of India’s aggressive effort last month to stimulate waning growth with its first interest rate cut in three years, economists said.

• India promises support for manufacturers 
• India to boost exports with subsidies
• India delays tax avoidance laws
• Fall in Indian exports owing to slow demand
• India cuts rates in effort to boost growth
• India needs to innovate (video)

It has taken property developers a year of falling prices to rein in speculative behaviour. Now the message seems to be hitting home. If construction slows, growth will too. And if caution replaces speculation, the Chinese economy could end up with a painfully hard landing.

• China acts to boost loans
• Why China remains on track (video)

Shares in Sony Corp slumped more than 7 percent to near 32-year lows, as investors doubted the Japanese consumer electronics giant has a strategy to fix its loss-making TV business and compete in the smartphone market against Apple Inc and Samsung Electronics.

Nvidia Corp's quarterly revenue and outlook were ahead of low Wall Street estimates on better-than-expected sales of its latest graphics chips, sending its shares up 9 percent.

Oil fell sharply on Monday, extending recent heavy losses, as mounting political uncertainty in Greece and worry about the prospects for growth in China added to a sense that the demand outlook is worsening.

From water worries to well blowouts, the inherent risks of oil and gas extraction are often played down by those in the business. But another group of profit-seekers has every reason to keep a close eye on dangers for drillers: their insurers. Underwriters now face a politically charged problem in the perceived threats to water supplies of hydraulic fracturing.

Amid litigation and federal probes, insurance companies are left scratching their heads over how to price the risk of the oil and gas production technique now better known as fracking. The lawsuits and tests so far provide little help. One much-cited case involved Cabot Oil & Gas Co, which settled in late 2010 for $4.1 million with residents of the small Pennsylvania town of Dimock over methane found in their water. Then on Friday, the Environmental Protection Agency said it had completed testing water at 61 homes in Dimock and found the drinking water was safe to consume.

Insurers may get more clarity once EPA releases initial findings, due later this year, of its five-state investigation into the risks to drinking water of fracking. Environmentalists say it can also pollute if fracking fluids seep out of wells. An EPA study showed fracking chemicals were likely present in a Wyoming aquifer near the town of Pavillion, but then it agreed in March to retest the water.

"From an insurance standpoint, it's really hard to underwrite something with a lot of uncertainty," Jeffrey Hanneman, the Texas-based director of environmental practice at insurance broker Aon Risk Solutions, said of fracking, "an area that now preoccupies a lot of my time." Traditional forms of insurance for the oil and gas industry suddenly appeared inadequate once the shale boom was in full swing and water-contamination lawsuits cropped up, he said.

Greece's president met little enthusiasm from political leaders summoned to a final round of talks on Monday to avert a new election, reinforcing fears the country was firmly on the path to bankruptcy and an exit from the euro zone. European shares slid and Spanish and Italian bond yields rose as the political deadlock threatened to reignite the euro zone debt crisis. Greek banking stocks tumbled 7 percent.

• If Greece goes ..
• Greek exit from eurozone ‘possible’
• Fear grows of Greece leaving euro
• Greek leaders to resume coalition talks
• Fresh Greek poll looms amid acrimony
• Low chance of Greek exit (video)
• Where the Greek crisis goes next (video)

Dixons prepares for Greek eurozone exit

Dixons, the electricals chain, is drawing up plans to shutter its stores in Greece and protect itself against civil unrest should the country pull out of the single currency. Sebastian James, chief executive, has warned of a “difficult” transition were Athens to quit the eurozone, but said Dixons could benefit as many of its local competitors would be weakened and unable to withstand the upheaval. The contingency plans being drawn up by Dixons reflect increased nervousness among companies that Greece could leave the eurozone as a result of the turmoil that has followed last week’s inconclusive general election and the rise of the anti-bailout, far-left party Syriza.

Default now or default later? -- Wolfgang Munchau

What would constitute an economically rational choice for Greece, given the economic and political situation? I see four options, each of which is fraught with uncertainty.

The eurozone must shrink to survive -- Mohamed El-Erian

Extreme political dysfunction is now undermining a Greek economy already hobbled by imploding consumption, explosive joblessness, accelerating capital outflows and debt insolvency. The consequences are multi-faceted and extend well beyond the country’s borders. For the longer-term stability of Europe and the global economy, European leaders need to urgently redefine their historical unity project rather than leave it in the hands of increasingly disorderly conditions on the ground.

All this puts Greece’s eurozone partners in a very difficult position. Absent an urgent and imaginative response, they face a lose-lose situation: they lose by disbursing more good money after bad and see that too evaporate with no sustained benefits for Greek citizens and their European counterparts; or they lose by not disbursing and accelerating Greece’s slide into chaos, with unpredictable consequences for Europe and the world economy.

It is time for the eurozone to pivot away from an approach that offers little prospects of growth, jobs and financial stability. This involves a very difficult but needed redefinition of the eurozone, and a tricky combination of exit and different support mechanisms for countries that are not up to the new reality

Over-complex EU keeps making same mistakes

When things go wrong, the EU reflex is never to scrap the policy, since vested interests rule out going back on previous achievements. The default response is always "more Europe", though not necessarily the most straightforward solution.

• Here's How The Whole Eurozone Could Unravel In Just A Matter Of Months -- Paul Krugman
• What History Tells Us About A Possible Greek Exit

Spain faces corrosion not collapse from euro crisis

Students are protesting on Barcelona's elegant boulevards, public-sector wages are being cut for the second time in three years and resentment is growing against the central government and beneficiaries of bank bailouts. Such is the daily fallout from the euro zone's debt crisis. Like the rest of Spain, Barcelona is looking at several years of hard grind as the country adjusts to living within its means after the collapse of a debt-financed housing bubble that has brought much of the banking sector to its knees. Yet unless the most pessimistic projections of the cost of rescuing the banks prove right, the signs are that Spain faces corrosion not collapse.

• Spain's top banks set aside extra $19 billion for clean up
• Spanish borrowing costs at euro-era high
• Here's an intraday look at the Spanish 10-year  >>

Blow for Merkel in German state election

Chancellor Angela Merkel's conservatives suffered a crushing defeat on Sunday in an election in Germany's most populous state, a result which could embolden the left opposition to step up attacks on her European austerity policies. The election in North Rhine-Westphalia (NRW), a western German state with a bigger population than the Netherlands and an economy the size of Turkey, was held 18 months before a national vote in which Merkel will be fighting for a third term. While she remains popular at home because of the strength of the economy and her steady handling of the euro zone debt crisis, the sheer scale of the defeat in NRW leaves her vulnerable at a time when a backlash against her insistence on fiscal discipline is building across Europe.

• German voters reject austerity in key poll
• Schäuble ready to tolerate German inflation
• Merkel urges Athens to stick with reform
• Franco-German relationship faces early test
• Berlin insists on eurozone austerity

Output falling, Euro zone heads for recession

• Euro hits near 4-month trough on Greek deadlock
• Euro falls below $1.29 for first time since January

Global bank bond issuance falls

Government Bond Yields Are Collapsing All Over The Place

While Italy and Spain and Greece get the headlines, the actual reality with respect to government bond yields is that they're collapsing all over the place. Pretty much anyone with their own printer or in close proximity to a printer (Germany) is seeing record or near-record low yields. The US 10-year has fallen to 1.79%.

JPMorgan will move to limit the fallout from a shock trading loss that could reach $3 billion or more by parting company with three top executives involved in its costly failed hedging strategy, sources close to the matter said.

• JPMorgan probe into London role in loss
• JPMorgan loss stokes risk model fears
• Trading desks face tighter regulations

First view the news, then the reaction.

• China’s April home sales decline 16%. Industrial Production (9.3% vs 12.2% expected) declined sharply even though many countries would kill for those types of readings. Retail Sales in China were weaker overall. Chinese fiscal revenues fell (6.9% vs 18.7%).
• India industrial output surprisingly declined.
• Spain was launching its fourth attempt to stabilize banks after already nationalizing some.
• JP Morgan (JPM) traders lost $2 billion on trading credit default swaps which shocked the street sending the stock lower by nearly 9% at one point.
• Core Producer Prices were higher by .2% as expected.
• Lastly U.S. Consumer Sentiment was higher (77.8 vs 76.4 previously). Now the latter must be considered as “old news” one would think.
• This all preceded eurozone elections and recent employment data in the U.S.

So how did markets react to all this?

Stocks gapped sharply lower but almost immediately were bid higher. This seemed strange as we weren’t that short-term oversold. I was expecting the open to stick lower. at least until after the lunch period, and volume slackened. But, no… stocks immediately rallied. Was there a natural buyer on all this crummy news? Not that one could tell. Remember, and let’s not get too carried away with conspiracy theories, but we have the most aggressive and interventionist central banks (especially the Fed) globally. The President’s Working Group on Financial Markets (aka, the plunge protection team or PPT) hasn’t yet been disbanded. The Fed and other central banks have been printing money and buying bonds over the past few years so why not stocks? That’s my thinking Friday as overall conditions operated in reverse—higher early, weaker late.

Tech was stronger on Nvidia’s (NVDA) report and even beleaguered Netflix (NFLX) saw some short covering. Nevertheless, financials (XLF) fell with JP Morgan’s (JPM) report while Apple’s (AAPL) shares fell which held back tech (XLK) given its sector weighting. The dollar (UUP) was slightly higher, gold (GLD) continued to struggle as did other commodities (DBC, USO & JJC for example). Bonds (IEF & TLT) continue to defy gravity even as yields from most maturities go negative after what passes even by government inflation data. Emerging Markets (EEM) and other overseas markets continue to struggle.

The major question investors must resolve is this: can the U.S. stock market go it alone on one good tire while the other three (China, Europe and Emerging Markets) run on flat tires? I don’t think so - at least not for long.

Volume on Friday was about average for the recent period while breadth was negative.

Market in correction.

Stocks had to swallow a negative financial surprise Friday, but the indexes stayed calm under pressure. The Nasdaq finished virtually flat after being up as much as 0.9% and down as much as 0.5%. The S&P 500 and the Dow Jones industrial average each fell 0.3%. The NYSE composite slid 0.5%. The IBD 50 edged up 0.1%. Volume was down on the Nasdaq and slightly higher on the NYSE. Despite the razor-thin increase in NYSE trade, the day had the quality of a yawn.

If bulls were looking for straws to grasp at, they found one in the Nasdaq's consistent ability to hold above 2900, its March low. Bears could find reassurance in the inability of the Nasdaq to retake its 10-week moving average. The Nasdaq has had many multi-week runs since March 2009. Since the market's run from September 2010 to February 2011, stays under the 10-week line have become more frequent. A regaining of the 10-week line would do a lot to build confidence.

Friday's action gave neither camp much to work with.

• JPMorgan Chase (JPM) reported late Thursday that a hedging strategy had backfired, creating a loss of at least $2 billion for the bank. The lowly rated stock gapped down 9% and pulled other money center stocks down with it. The market, however, apparently decided there was no need to get excited about this news, perhaps because the other news before the open was positive. The producer price index was better than expected overall, and the core reading was in line with the Street's estimates.
• Later in the morning, the Reuters-University of Michigan consumer sentiment gauge surpassed the Street's estimate with the strongest reading in four years.
• Since consumers account for about 70% of the U.S. economy, this was welcome news. Even so, some top-rated retail stocks struggled.
• Francesca's (FRAN) dived 13% in huge volume. The July 2011 initial public offering is now 29% off its 52-week high. The stock appeared to be working on a base from late March to early May, but bad action has disrupted the construction.
• Dick's Sporting Goods (DKS) fell 2% as it lost its 50-day moving average. Volume was 149% above average. The stock finished high in the day's range, which lessened the sting somewhat. The midcap will report quarterly results Tuesday. The Street expects earnings to rise 27% to 38 cents a share. Revenue is expected to grow 11% to $1.23 billion.
• W.W. Grainger (GWW), which is in the Retail-Wholesale Building Products group, skidded 4% in almost triple volume. The company reported that April sales were up 12% from the year-ago period but only 7% excluding acquisitions. Quarterly sales ran up 14% and 16% in the past two quarters.

For the week, quality took the harder hits. The IBD 50 lost 3.1% while the Big Cap 20 chopped off 3.5%. Meanwhile, the Dow lost 1.7%, the NYSE composite 1.5%, the S&P 500 1.1% and the Nasdaq 0.8%. Underlining the cautious atmosphere, the Dow Jones utility average gained 0.8% for the week.

This week’s AAII Sentiment Survey results:

Bullish: 25.4%, down 10.0 percentage points. This is the lowest level of optimism recorded by the survey since September 22, 2011. This is also the sixth consecutive week that bullish sentiment has been below its historical average of 39%.

Neutral: 32.5%, down 3.6 percentage points. This is a four-week low. Nonetheless, neutral sentiment is above its historical average of 31% for the fourth consecutive week and the sixth out of the past seven weeks.

Bearish: 42.1%, up 13.6 percentage points. This is the highest level of pessimism recorded by the survey since October 6, 2011. It is also the fourth time in the past five weeks that bearish sentiment has been above its historical average of 30%.

Historical averages:

• Bullish: 39%
• Neutral: 31%
• Bearish: 30%

Bullish sentiment is at an unusually low level, and bearish sentiment is at an unusually high level. In quantitative terms, both readings are more than one standard deviation from their historical norms. Last year, bearish sentiment exceeded 44% five times between August and October. Thus, though pessimism is unusually high, it is not high enough to be correlated with a forthcoming market reversal. A bearish sentiment reading above 50% would be a stronger contrarian signal.

Disappointing April employment data, the French presidential election, and a return of downside market volatility combined to fray individual investors’ nerves. The continuing above-average level of neutral sentiment, however, shows that there is an ongoing push and pull of bullish factors (e.g., improved corporate profits, U.S. economic growth) and bearish factors (concerns about the pace of growth, Europe, high gas prices, etc.).