12:10pm (EST)

The volatility is picking up just like we said it would…

The market is entering the heart of earnings season and even though there have been some surprises, the bulls have overlooked some of the missteps and appear to be focused on the “next level” for the indexes which we talked about yesterday. 

Meanwhile, the bears seem to have no traction or momentum and have failed to capitalize on some of the headline risk the market faces over the next 6 months. 

We mentioned earlier this week that the market has been an “easy read” since October but that is not always the case.  We have been able to stay one step ahead of the market by using an array of near-term options and longer-term trades that have helped us end 2010 with a bang and get off to a great start in 2011. 

The important thing to remember right now is that we are at a crucial point in the market and we have a feeling the volatility is going to start to pick up again as bets are being made on future direction.

The bulls have an opportunity to huff-and-puff and blow the doors down but the bears have been known to strike hard and fast and their attacks can come from nowhere.  The problem is the bears will have to crack through several layers of support before they can mount a real battle.

The talking heads and professional money managers have been calling for a pullback but only because they were on vacation from Christmas to New Year’s, missed the rally, and have been scared to get in.  They missed the train and we are at the next stop.

They want to get on but they are still nervous and want lower prices. 

For those of us who have been on the bull ride, we aren’t nervous.  We can lock in profits when we see weakness but we got the best seats in the house right now.  Everybody is wondering what our next move is.  The secret is this folks.  We control the next move. 

With that said, we were hoping for an up day today and into next week as we close the month of January but there seems to be some geopolitical risk that is weighing on the market.  Egypt is chaos right now.

Last weekend, it was the Apple (AAPL, $334.98,d own $8.23) news and Steve Jobs.

No matter how good the road map is, it doesn’t give you a feel for the pavement so you have to do your own research when things get bumpy.  We still feel there is a chance the market can pop over resistance but we also can see the failure to break convincingly above our targets: Dow 12,000; S&P 1,300 and Nasdaq 2,850-3,000.

We still have a chance to hit these levels but we may test support over the near-term.

No worries here.  We are locking in more profits today.

As we head to press, the Dow is down 160 points to 11,830.  The S&P is off by 20 points to 1,279.  The Nasdaq is lower by 68 points to 2,686.

Yesterday morning we listed support as follows:  Dow 11,800-11,750; S&P 1,270 and then 1,250; Nasdaq 2,700-2,650 and then 2,500.

We will be busy all weekend digesting the close so make sure you come back Sunday night for the Weekly Wrap.