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Traders are watching the political situation in Italy, where Prime Minister Silvio Berlusconi has pledged to step down, despite continuing to try to reclaim majority support.

While Greece seems to have sorted out its mess for now, the focus has shifted to Italy with speculation that Italian Prime Minister Berlusconi possibly stepping down.

European uncertainties will continue to challenge investors creating unnerving volatility. Timing is critical, not a market for chasing stocks.

Shares in European financial institutions took another major hit as concerns over the Italian government caused the yields on their treasury bonds to move past 7 percent.

S&P futures are 30 handles lower this morning as the Italian 10-year bond yield surged above 7%, a dangerously high and unsustainable level.

The market still seems confident that a solution will be found as a budget vote for Italy, but there is certainly room for that all to change.

Good news out of Italy and Greece buoys stocks going into the weekend, as risk level abates. The potential for an upside breakout per a move above DJIA 12,200.

It's decision time for Greece and Italy. Expect a sharp rebound into Friday possibly to DJIA 12,030 (S&P 500: 1255) - a sell off late Friday without good news.