12:45pm (EST)

This morning’s open wasn’t as bad as most of the talking heads were predicting but we were prepared to kiss support levels yesterday which made this morning a little easier for us.  All we were hoping for was a hold and bounce.

Trying to time a market breakout or breakdown is tougher than being a weather forecaster because you can’t pick the exact moment.  There are so many factors that come into play but by doing chart work you can better your odds of trying to get good entry points.

Coming into this week, the market was on the verge of a breakout.  The week before, the market was on the verge of a sell-off.  This morning, futures were pointing towards a cliff dive which the market got but guess what?  The 200-day moving averages are holding.

Although the bulls aren’t out of the woods, here is the current situation. 

Next week could be the single most important week for the market this year.  While there are many rats on the ship waiting to jump off, we have gone on record in July and said the market could hit new highs in August.  This we still believe but we didn’t expect this week’s 4% pullback.  The charts didn’t tell us that D.C. would throw us a curveball.

The other side of that coin is and the one wild card is that if there is no debt-limit deal by Tuesday then the market could also be looking at new lows for 2011.  It’s that simple.  Our money is currently betting on a breakout but if we are wrong, and the market sells off, there will be a mint to be made on the downside as well.

In other words, we are getting ready to enter a trading environment we haven’t see in a few years and we are excited.  We have had a great week despite the selloff as we were able to lock in triple-digit profits on two call options trades.  While some of our other call options are currently down, we went with September and October contracts because we knew the volatility was going to be insane.  The charts we plan to go over on Sunday night in our Weekly Wrap and in our Daily on Monday will show you the head spinning moves we made in July.

One stock that is dodging today’s downdraft is Starbucks (SBUX, $40.40, up $0.42) which is trading higher after announcing its quarterly numbers last night. 

The company reported a profit of $279 million, or $0.36 a share, versus $208 million, or $0.27 a share, in the year-ago period.  Revenue came in just under $2.93 billion. 

Wall Street was looking for earnings of 34 cents a share on sales of $2.8 billion.

The coffee-retailer also raised full-year guidance, upping it from $1.47 to $1.51 which was slightly ahead of analyst forecasts of $1.50, on average.   

We said a few months ago at $35, Starbucks was going to $40 which is where we would be take half profits if we would have purchased the stock back in May.  We mentioned the other day the Coffee stocks seem to be percolating and that we expect there to be a pullback.  However, that doesn’t mean that we don’t like the sector.  

Shares of Starbucks have nearly doubled from their 52-week low of $22.50 and could push $45 but we are hoping the stock drops back to $35 which is where we would find it “attractive” again.

As far as the market, support is holding and it’s all in Washington’s hands from here.

The Dow is down 63 points to 12,177 after trading to a low of 12,083.  The index is holding 12,000 which is a good sign and a close above 12,200 would be beautiful.

The S&P 500 is lower by 4 points to 1,297 after testing a low of 1,282.  We were looking for 1,275 to stick.  Check two.  Although we doubt we get a close above 1,300, we will take 1,295.

The Nasdaq is showing a decline of 4 points to 2,763 after falling down to 2,724.  We mentioned a test to 2,725-2,700 could be in the cards and a close above 2,750 would have us resting easy over the weekend.

We will be back Sunday night with our Weekly Wrap and we know the volatility has been hectic but the bigger picture is this.  We had a great week and we locked in triple-digit profits on a few trades.  The current support and hold also means we are setting up for some explosive trades over the next month or two so stay strong and long.  We could have the mother of all summer rallies or a breakdown that will make the bulls say ‘uncle”.  On that note, we have a NEW TRADE for today!

Have great weekend and be sure to send the boys (and girls) on the Hill some pizzas!  They are going to have a long weekend but hopefully we get something accomplished.