YAHOO [BRIEFING.COM]: Volatility returned to the market this week, with a sharp 3% drop in the S&P 500 on Thursday and big swings in the major averages today. However, looking at the end result the picture is less dramatic, as S&P 500 declined just -0.7% on the week. The increased volatility has stemmed from sovereign debt concerns centered around the more fiscally troubled European nations such as Portugal, Spain and Greece. This uncertainty pressured overseas markets over the past two days, and resulted in strength in the dollar.

The dollar has played a key role in the market action of the past two days, with dollar-denominated assets exhibiting a strong inverse relationship with the currency. This was very evident in this afternoon's strong rebound, as a pullback from 6-month highs in the dollar index coincided with a sharp short-covering rally that erased triple-digit losses in stocks. Technical levels have also played a role in the end-of-week action, with the S&P 500 managing to hold its 200-day exponential moving average after slicing through key support levels yesterday.

Looking at today's action more closely, stocks attempted to trade higher ahead of the opening bell, despite the worse-than-expected January Employment Report. The report showed that 20,000 nonfarm jobs were lost in January, worse than the consensus expectation for a gain of 15,000 jobs. However, a pullback in the headline unemployment rate to 9.7% from 10.0% proved a silver lining for some. While buyers temporarily had control as the dollar eased off morning highs, strength in stocks was short-lived. After declining as much as 1.8% during the first half of the day, the market was able to erase triple-digit losses (the DJIA rebounded over 170 pts) in a late-day short-covering spike that coincided with a pullback in the dollar.

Looking out to next week, earnings season continues but there are fewer major names scheduled to report, with only two Dow components (DIS & KO) due out during the week. Volatility could remain elevated as the market continues to digest macro factors and growing uncertainty. DJ30 +10 NASDAQ +16 NQ100 +0.8% R2K +0.6% SP400 +0.2% SP500 +3 NASDAQ Adv/Vol/Dec 1433/1822059383/1214 NYSE Adv/Vol/Dec 1326/1562194266/1740