Cyprus' plan to tax bank deposits to fund its banking bail-out spooked global markets overnight, but you could see the futures beginning to strengthen even before the markets opened this morning. SPX dropped to its low for today of $1545 in the first three or four minutes of trading and then recovered much of that loss by early afternoon. But then the markets weakened with SPX closing at $1552 for a loss of $9. RUT lost $5 to close at $947. As one might expect, the uncertainty tossed into the markets by the Cyprus news punched up the VIX two points to 13.4%, but that remains a relatively low level of volatility.

Trading volume dropped off as expected from Friday's quadruple witching highs with 2.2 billion shares of the S&P 500 stocks. Trading on the NYSE dropped 51% and trading decreased 30% on NASDAQ. In the last fourteen trading sessions, trading volume in the S&P 500 stocks has only exceeded the 50 day moving average twice. Today's drop back to 2.2 billion shares is back in the range of relatively low trading volume we have been observing - this is the one measure that isn't consistent with a bull market.

Given the relative insignificance of Cyprus, today's market action demonstrated how nervous these markets are - we have been setting records in this bullish run, and that very fact has traders watching over their shoulders. The slightest twitch is resulting in flurries of sell orders.

Economic reports were scarce today, but the FOMC meeting starts tomorrow and reports out on Wednesday. But it appears unlikely that Bernanke is going to change much, if any, of the language in their report. Traders will be watching for hints of the Fed pulling back from their stimulative posture, but Bernanke has been much more transparent than previous Fed administrations. He has been very clear about the criteria they will use to begin raising interest rates and phasing out the quantitative easing programs, and it isn't likely to happen anytime soon.

Today's market reaction to the Cyprus news makes one wonder what will happen if we have a truly negative news event...