9:00am (EST)

The bears started the week by pushing the market lower on renewed debt concerns over Italy which quickly started the downgrade of debt (again) overseas and here at home.  Monday and Tuesday were rough as the bulls gave up significant ground and were going under water with three fingers up. 

On Wednesday, just as the 50-day moving averages were about to crack, Ben Bernanke looked overboard and threw the bulls a lifejacket.  Their energy carried them back to key resistance levels but the rally faded although the indexes still ended the day in positive territory.

After showing some resilience in Tuesday’s afternoon session and on Wednesday, we knew Thursday would be a key day as a bevy of earnings hit the Street.

JPMorgan (JPM, $39.98, down $0.37) gave the bulls a helping hand before the bell as the best in breed investment bank topped Wall Street’s expectations but Moody’s (MCO, $36.45, up $0.13) ruined the party after putting the U.S. under review for a credit rating downgrade.  It was the first such downgrade for America since the mid-90’s.

The knuckleheads at Moody’s (and Standard & Poor’s) missed the mortgage meltdown, and the financial crisis – spooked the markets all last week by playing global credit cop(s) but the debt and ratings downgrades are pretty obvious.  In fact it has been overkill.  Hopefully, all the rhetoric has made the boneheads in Congress take notice because it is unbelievable how nothing was accomplished last week.  As the August deadline looms, we are hopefully a deal gets done this week and but Congress needs to get something done to reduce the deficit or raise the limit.  Once this cloud of uncertainty is lifted, the bulls will be able to test new highs.

The downgrade on Thursday was briefly forgotten when Google (GOOG, $597.62, up $68.68) announced after the bell and absolutely smashed Wall Street’s earnings.  After being discounted and left-for-dead, analysts were way off the mark when they penciled in their estimates 3 months ago for the internet giant.

The stock soared 13% and for some reason Google always seems to report the day before monthly options expiration.  This time was no different and we knew in after-hours trading there would be a major battle at the $600 level on Friday (green line, black circle).  Had Google missed estimates, shares were facing a test back down to $480 (blue line, green circles).  If the stock can break above $600 and hold this level for a few weeks then shares could make a run up to $640+ (green line). 

Shares of Google opened at $597.87 and traded to a high of $600.25.  The 600 strike price was a battleground as the July 600 calls (GOOG0716C00600000, $0.00, down $0.25) expired worthless BUT did open at $2.90.  The calls traded to a high of $4.90 which would have been a return of over 1,000% had you bought on Thursday’s close and sold at the peak.

The Google August 600 calls (GOOG0820C00600000, $15.70, up $0.13) zoomed nearly 500% after closing at $2.70 the day before.

Despite the dandy news from Google, it wasn’t the tide to lift all boats as the market stayed near the flat line as it waited for the second round of European bank stress tests.  The tests showed that only 8 failed out of 90 banks but most “financial experts” are already discounting the tests as using unrealistically favorable loss assumptions.

This kept the bulls from advancing the ball further but they showed they aren’t ready to quit which left the bears wondering what else they have to do.

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