9:00am (EST)

The bears won their second straight session on Monday after walloping the bulls for a 2% loss, on average, as the major averages fell back towards key support levels.  There was no green to be found and yesterday’s action sounded like a full blown correction if you were listening to the talking heads or reading the headlines.

The Dow fell over 150 points, or 1.2%, to finish at 12,504.  We said to look for a close above 12,500 which was a higher low than Friday’s bottom.  Although the index traded to a low of 12,470 and all 30 blue-chips fell, we got our wish.  The next level of support is at 12,350 with 12,800 still set as our breakout target.

The S&P 500 dropped 24 points, or 1.8%, and settled at 1,319.49, exactly.  We were looking for a finish above 1,320 but it was close enough for government work.  There is still risk down to 1,300 and 1,375 is still in play on a close back above 1,350.

The Nasdaq sank 57 points, or 2%, and ended at 2,802.  Tech dipped to a low of 2,794 but held our 2,800 target by a couple of points.  Further support is at 2,750 but the bulls still have plans of hitting 2,900-3,000 later this month.

While there continues to be major headline risk towards global debt issues (European and U.S.) and other ongoing concerns, the market is still higher for the month of July so all is not lost, yet. 

On the other side of the coin, we know the bulls are climbing a wall of worry and in our minds there has been no economic recovery but instead an economy that remains fragile. 

Housing remains in the dumps, jobs are not coming back, and the Fed is running out of bullets so why should the market go higher?  Because, it can.

It’s hard to be bullish when others are bearish and bearish when others are bullish which is why we use an array of calls and puts to navigate the market when things get choppy.

Often times, when there is a trend, trading becomes easier.  Other times, when there is volatility, it’s best to hedge your bets in hopes of your winners outpacing your losers.  

Futures were pointing towards another nasty open but have improved substantially as we head towards the bell.  Continued debt concerns over Italy could take the market down to our aforementioned support targets this morning.  Dow futures are lower by 5 points to 12,484; S&P futures are lower by 4 points to 1,315; Nasdaq futures are off by 2 points to 2,365.