1:00pm (EST)

The market is trading lower as we head into the second half of action today despite the flood of merger and acquisition (M&A) news.  With the lack of economic news and little in the way or earnings, the bulls seem content on holding recent support levels as they map there next move. 

The Dow is currently down 25 points to 10,835 while the S&P 500 is lower by 4 points to 1,145.  The Nasdaq is off by 8 points to 2,373.

The Dow pushed through our 10,800 target on Friday which should provide support over the near-term while resistance will come in at the 10,900-11,000 level.

We said on Friday to watch the 1,150 level on the S&P and it is the one key technical hurdle that has yet to be taken out.  The index opened just a shade below Friday’s close but is once again having trouble overcoming this area.   This level would become “support” if broken but remains resistance.

The Nasdaq will face resistance at 2,400-2,450 while support is currently at 2,350.

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In M&A activity, the Airline stocks are getting a pop after Southwest Airlines (LUV, $13.54, up $1.26) agreed to buy AirTran Airways (AAI, $7.35, up $2.80) for about $1.4 billion.  The deal has already been approved by both companies’ boards and we wouldn’t be surprised to see more deal making in the sector.  

Elsewhere, Unilever (UL, $28.98, up $0.42) went after Alberto Culver (ACV, $37.72, up $6.24) with a $3.7 billion cash offer while Wal-Mart Stores (WMT, $53.78, down $0.30) went abroad and got in on the buying by making a bid to acquire South Africa-based Massmart Holdings for a little over $21 a share, or $4.3 billion.  Wal-Mart may have gotten the best deal as it only paid a 10% premium to acquire Massmart and South Africa is a growing market.

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We expect the remainder of the day to favor the bears as the bulls stand pat following a fourth-straight week of gains.  As we head into October, which starts Friday, look for the volatility to pick up.  The CBOE Market Volatility Index (VIX, 22.61, up 0.90) is up 4% today to and continues to hold the 21-22 area.  The VIX soared nearly 11% in August on the market sell-off and has sold-off in September as the market has rallied.  We are watching for signs of a break below 20 (which would be bullish) or a break over 24-25 (which would be bearish).

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We are also watching the 1,150 level on the S&P 500 as well as the action in the Financial sector.  For any sustained rally to stick, the Financial stocks will have to show more strength. 

We will be back Tuesday morning with a full update at 9am.    

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