9:05am (EST)

Monday’s action followed last week’s script where the bulls started the session pushing resistance only to fade by the end of the day.  The bears have slowly chipped away at support and yesterday’s action favored their camp, but they too, are lacking momentum despite having the headlines in their favor.

There was nervousness and excitement ahead of the start of earnings season as trading was choppy on reports Japan would have to raise their nuclear warning and on news that the International Monetary Fund (IMF) cut their estimates for U.S. economic growth. 

The IMF waited until gas was nearly $4 a gallon but said that higher gas prices could slow the pace of the U.S. economy.  Wall Street has been worried about the effects of higher oil and food costs on corporate profits so we expected to see a “sell the news” event once word got out.

The Dow did manage a 1 point gain to settle at 12,381 but traded to a high of 12,444.    The blue-chips touched a low of 12,352 which has been solid support but a break below this level could lead to a test back down to 12,200-12,000 for the bears.  Near-term resistance has been hard to clear at 12,500-12,600 for the bulls. 

The S&P 500 slipped 4 points and closed at 1,324 which was slightly below our 1,325 downside target.  There could be further weakness down to 1,300 while the bulls focus on getting back to 1,334 and above.

The Nasdaq fell 9 points to finish at 2,771 after falling to 2,760 in late day trading.  Tech held 2,750 but we will be watching this level going forward.  There is further risk down to 2,650 if broken while 2,800 remains near-term resistance.

Yesterday’s technical breakdown pushed both the S&P and Nasdaq below their respective 10-day moving averages.  This was the first time since mid-March that both indexes failed their 10-day MA’s and bears watching. 

Of course, the big news after the bell was Alcoa’s (AA, $17.77, down $0.15) first-quarter earnings which came in mixed.  After an initial pop to $18-and change in after-hours trading, shares fell 3% after the company reported sales that came in below expectations.

The company earned $308 million, or $0.28 a share, versus a loss of $201 million, or $0.20 a share in the year ago quarter.  Revenue rose over 20%, to $5.96 billion from $4.89 billion, helped by a 7% pop in aluminum prices.

Analysts were expecting profits of $0.27 a share on revenue of $6.08 billion.

Shares of Alcoa are trading at $16.98 in pre-market action, down 79 cents, or 4%.

As far as futures, they are pointing towards a lower open; Dow (-51) S&P 500 (-7), Nasdaq 100 (-10).  Subscribers, check the Members Area for the updates.