On Friday, most of the bad news from Europe was based on fear that a Lehman/Bear Stearns type of crisis was about to hit the European banks. And so U.S.markets started off lower following a drop of over 1.5% for Germany’s DAX, which fell 8.6% for the week. Talk of a double-dip recession kept selling pressure high for the entire day, and by the close, the Dow Jones Industrial Average had fallen by 1.57%, with the Nasdaq off 1.62% and the S&P 500 down 1.5%.

The four-week decline for the Dow is the worst since early in 2009. Last week alone it fell 4% while the technology-laden Nasdaq lost 6.6%. On Friday, volume on the NYSE totaled 1.5 billion shares, which is slightly less than the average of the week, a sign that selling may shortly abate, but there were over three times more sellers than buyers on the Big Board.

Overall the signs all point lower as investors seem spooked by the nasty news from Europe, a sluggish U.S.economy, and a market that appears to have no bottom. Their frustration was especially evident on Thursday, when down volume surpassed up volume by 31-to-1 on the Big Board and 42-to-1 on the Nasdaq.

A jump in volatility as measured by the CBOE Volatility Index (VIX) to over 43 on Friday from 31.5 on Wednesday is encouraging, but there is no reason to conclude that the index can’t exceed the high of 48 made on Aug. 8, when it looked then that investors were exhibiting a “just get me out” attitude.

Despite all of the indicators and advanced systems available to measure stock market movement, the primary indicator is still that of market direction. The current direction of the S&P 500 is down, but even after over a week of extreme volatility the index is trading within the 1,120-1,204 zone with a midpoint at 1,162. The next major support area is marked by last summer’s trading range of 1,011 to 1,130. If the recent low at 1,101 is broken, the chances are strong that last summer’s trading range will provide enough depth to allow for a meaningful rally.

The two major Dow indices, the industrials and transports, appear to show the same support at last summer’s trading range. But the transportation average has already broken its reversal low at 4,296, and on Friday, closed lower than the midpoint conjunction of last summer at 4,250. Since the Dow Jones Transportation Average is a key indicator of future economic growth, we place greater weight on its ability to predict the outcome of the current struggle. Therefore you will want to focus your attention on the transport’s low at 3,908. In my opinion, if this low is broken, then there is a high probability of a sudden market collapse. But if the index reverses and stabilizes at around the midpoint of last summer’s trading zone, the other indices should follow.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here.

For a list of this week’s economic reports due out, click here.

• See Serge Berger’s Daily Market Outlook: Don’t Try to Be a Hero in This Market
• See Sam Collins’ Trade of the Day: Put DLTR at the Top of Your Buy List
• See Serge Berger’s Trade of the Day: SLV May Still Have Some Shine Left