9:05am (EST)   

The volatility continued on Wednesday as debt worries from overseas continued to be the market’s main focal point.  Things really looked ugly before the open as futures were down significantly and the wave of riots in Greece were being shown on every news channel.

No need to rehash the drama that is going on over there because we always like to look at the brighter picture.  However, it could get worse if sketchy ratings agency Moody’s (MCO, $24.58, up $0.12) downgrades Portugal’s government bonds.

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It was amazing to see the bulls hold the support levels that we have outlined for the past few weeks and we mentioned how we are bouncing around in this trading range.  What is different about this range though is the volatility. 

Once again, the Dow experienced a triple-digit move to the downside but fought back to slightly positive before ending the day lower.

The Dow traded to a low of 10,814 (-122) and to a high of 10,946 before finishing the day at 10,866, down 60 points, or 0.6%.  We said to look for 10,800 to hold and the bulls did.

The S&P 500 fell 7 points, or 0.7%, and closed at 1,165.  The index fell to a low of 1,158 but held the 1,150 level.  Meanwhile, the Nasdaq fell a double deuce (22 points, or 0.9%) and was last seen stumbling at 2,402. 

The one thing that worried us was the Nasdaq not holding the 2,400 level and the fact that it was unable to find green. The index stayed in the red all day and fell below its 50-day MA (moving average).

We think the big reason that support held was the fact that the bulls got some good employment data ahead of Friday’s nonfarm payrolls report.  We have been telling you this report from the Labor Department will be a game changer and that is why the volatility is picking up.

If we could paint a picture, just imagine the bulls and bears playing chicken but their cars are getting closer.  One of them has to get out of the way or they hit head on.  It’s much like a Hollywood ending where we know one side is going to get out of the way but the end result is going to hurt someone.

As we prepare for this event, it’s really is hard to say where the market goes but we do feel the Dow could move 400 or 500 points over the next few weeks.  For the S&P 500 it could mean a 50 point move.  And if Tech falls apart (which we cannot see) then that index could also move several hundred points. 

The bulls got a clue yesterday after the ADP Employment Report for April showed a slightly greater-than-expected 32,000 private payroll additions.  As far as other economic news, the April ISM Service Index came in at 55.4, which was just below the 56.0 number that had been expected by the Street.     

We haven’t talked much about the oil spill down in the Gulf but we are watching the developments closely.  What a mess. 

BP (BP, $50.99, up $0.63) has taken responsibility for the disaster and said that it has stopped the flow of oil from one of the three existing leaks on the damaged well.

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Predictions are easily calling for a $10 billion cleanup bill and BP leased the rig from Transocean (RIG, $72.76, up $0.02).

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We aren’t sure who pays what but it’s a major reminder on why we need to switch to cleaner fuels.

As we head to press, Dow futures are down 52 points to 10,782 while the S&P 500 futures are down 7 to 1,157.  The Nasdaq 100 futures are off by 14 points and are at 1,945.

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