Just when you thought the stock market was ready to blow-up...

BOOM!

...it rallies.

It's a shortened trading day. It's a light trading day. It's a holiday. If the thoughts of BBQ, beer, and fireworks can't stoke the animal sprits of the market, then nothing will.

Let's take a look at the indicators I've been following in trying to answer the question: How Low Will the Market Go?

Since my first post on this subject, the Dow has dropped by about another 500 points. You can catch up by visiting the following link:

3 Indicators to Answer: How Low Will the Market Go?

Bank Index ($BKX)

The BKX is stubbornly hanging on to the 60 level. But the BKX has got to get back above, because the longer it spends just below 60, the more likely it is to continue lower. So, the BKX is in sort of a neutral position right now. The BKX neither bullish nor bearish as it relates to the very short-term outlook.

Volatility Index ($VIX)

The VIX is finally showing some fear after breaking above the 24.50 level. The VIX is still well below its extremes, but I'm starting to think that we're not going to see a VIX north of 40 during this cycle...Net-net, the rising VIX is slightly bullish for the short-term outlook.

NYSE Bullish Percent ($BPNYA)

Among the indicators, the BPNYA is by far the most constructive. It's fallen to 32 as of yesterday. The lower the BPNYA trades, the more bullish the market becomes.

Japanese Yen (FXY)

I just recently added the FXY to the mix of indicators. You can learn why at the link below:

Japanese Yen (FXY) as a Measure of Fear

The VIX and FXY are telling us similar stories: the market lacks fear. When viewed from a contrarian perspective, this is bearish and points to further downside.

But I'm starting to think that the VIX and FXY are signaling something else: improving liquidity. Maybe that's why the FXY is so far off of its March highs. If I'm right, improving liquidity conditions would be extremely bullish for the short-term outlook.

Enjoy the three day weekend. We'll need all of the R&R next week, when we'll try to put the pieces together to this market puzzle.