What the S&P futures do when they open for trading on Sunday evening (6pm US EST) will give us a clue of what Monday’s trading might look like.

So what happened on Friday to send the market down so far in pre market trading to trip the circuit breakers and create the ‘lock limit’? It essentially comes down to growing fears of an entire financial system coming apart at the seams.

The growing concern of the US economy deteriorating rapidly is already playing on the market. But, now there is growing concerns about Russia, Ukraine, Hungary, Belarus, Romania, Pakistan, and Argentina. The Russian stock market has had to be shut down many times over the past couple of weeks due to rapid declines, and there is a growing concern that Russia may default on its own debt.

The IMF has already announced recently that they have been asked by some of the Eastern European nations, in addition to Iceland, for monetary help. When entire nations are in need of a ‘bail out’ it will have an impact on the global markets and that is what we are witnessing. With credit spreads still deteriorating on just about everything, unprecedented volatility in the currency markets, the financial troubles of entire nations, and of course our own financial crisis… is it any wonder why the markets are on edge.

Some have said that Friday’s ‘lock limit down’ event may have marked the capitulation that many have been waiting for to signal an end to the selling. Well unfortunately those claims are very wrong. One of the most important markers of a capitulation is volume, and volume was no where near the levels that even begin to suggest a capitulation.

The triangle technical pattern that I have been discussing for the past several days has in my view been confirmed. The break lower out of that pattern does suggest the probability is higher of more decline yet to come. Fridays decline does not even come close to the numbers that the technical analysis suggests we may experience. The confirmation of the triangle pattern from a technical stand point suggests that the S&P 500 will lose roughly 200 points before we have a temporary bottom. This would put the S&P 500 down in the area of 680. And with respect to the Dow Industrials it would equate to a decline to roughly 6500.

I can not stress enough that we remain at an extremely precarious state in our financial markets. I am not initiating any ‘long’ (long term) positions in equities at this time (with the exception of my long term GLD holdings) and I don’t foresee that I will be any time soon either. There are some ‘trades’ that I like that I will present to you tomorrow, but I reiterate that I am not taking any long term positions. The probabilities of further declines remain high.

The risks are continuing to grow of a very severe market dislocation event which may be dropped on the market like a bomb with no advance notice. Such words as ’stocks are over sold’, ‘are cheap on a valuation basis‘, or ‘under priced’ all have little meaning when the core economic scales to which such measures are made to begin with are being put into question. The credit crisis in the United States IS a crisis in the true sense of the word. The US Government is playing with dynamite in how they have been handling this crisis from the beginning. The use of the federal ‘checking account’ to bail out the weak and/or failing institutions has lit the fuse on that dynamite and we can only hope that someone comes along and puts it out. But as long as Ben  Bernanke and Hank Paulson continue to write more and more checks to Wall Street they are only adding more dynamite to the pile.

 There will be more tomorrow…