9:00am (EST)

We knew yesterday (and this week) was going to be a challenge for the bulls following 5-straight weeks of losses and Friday’s push towards lower support levels was a confirmation they would be tested on Monday.  The bears grabbed the bulls by their horns shortly after the open but failed to tie them up as they fought back by lunchtime.  However, shortly afterwards, the momentum picked up and by the closing bell the bears had gained their 4-straight session win.

Yesterday’s sell-off has the major indexes on the verge of their March lows as both the S&P and Nasdaq dropped over 1% for the day.  The Dow managed to keep its losses to half of what its counterparts experienced but the landscape was still the same as it neighbors no matter how you dress it up.

The Dow fell 61 points to finish at 12,089 and traded to a low of 12,070 for the day.  The crucial test will come at 12,000 and a break below this level could lead to 11,500.  If the bulls hold, 12,200 and then 12,350 will act as short-term resistance.

The S&P 500 dropped 14 points and closed at 1,286 after kissing a low of 1,284.  We have targeted 1,275 to the downside but said 1,250 could come into play if there is continued weakness.  The 1,295-1,300 level is now short-term resistance followed by 1,325.

The Nasdaq got whacked for 30 points and ended at 2,702 and at its lows for the day.  The index held 2,700 which we outlined as support but there is further weakness down to 2,650-2,625.  Short-term resistance remains 2,775-2,800. 

One sector that continues to get pounded harder than a football dummy is the Financials which fell 2%, on average.  At some point these heavyweights will be a “Buy” but by looking at the carnage from yesterday, we would still wait to start nibbling. 

Bank of America (BAC, $10.83, down $0.45) hit a fresh 52-week low of $10.75 and here is what we said about the stock on March 24, 2011:

“We talked a little about the Financial stocks yesterday and it’s the one sector that we want to trust, know is going to rebound, but when?  Despite the fact that many of Banking stocks are ready to resume their dividend payouts or raise their dividend altogether, it seems they have to ask the Fed’s permission to do so. 

Bank of America (BAC, $13.65, down $0.23) fell nearly 2% and traded down to $13.37 after the Federal Reserve rejected its plan to raise their dividend.  The boys on the hill are allowing several major banks to increase their dividends after passing stress tests but BofA wasn’t one of them.  The company said it expects to submit another request to increase its dividend this year so stay tuned.

Shares of Bank of America have been stuck in the $13-$15 range since the beginning of the year and are at the bottom.  While there is still risk down to $10 on a market sell-off, shares will rebound eventually depending on your time horizon.  

This situation reminds us of 2009 when the stock was at $5 and we suggested buying calls to take advantage of a strong rebound.  Some of our recommendations returned incredible gains (567% and 433%) as Bank of America rebounded strongly and traded back above $10.  (Check out our 2009 track record to see all of our results).

While it is hard to predict a bottom for a stock, shares of BofA are looking like a bargain.  By no means do we think shares will double over the next month and they could trade even lower from current levels.  What we do believe is that shares will trade $20 (6-12 months) at some point if they can report solid numbers in their upcoming quarter and afterwards.  However, we are still on the fence with recommending an option trade on it.” (END)

At $10-and change, Bank of America is getting very attractive to lock away for a few years but there is now risk to the high single-digits for the stock.

We aren’t a big believer in Citigroup (C, $38.07, down $1.78) because it looks like a pig with lipstick following its 1-for-10 reverse stock-split.  We do like JP Morgan Chase (JPM, $40.53, down $1.04) as well but it too has been hit hard.

The bank stock are set to rebound just a day later after news that broke late last night that the Fed supports a 3% surcharge instead of the 7% surcharge that had been expected.  This means banks will have to keep less cash reserves on their books then expected which means they can loan more.

We have a lot more to cover in our Members Area including a Special Update which explains our trading strategies and style in better detail.  We have a lot of new subscribers who have signed up for our option trading course so we have will also try release a NEW video in the next day or two.  Thanks to everyone who purchased the 1-yr membership to the Weekly Wrap to get the course at no charge.  Speaking of which, we were able to close one of our trades from that portfolio yesterday for a 9% profit. 

Futures are pointing towards a higher open so let’s see if it holds.