9:15am (EST) 

The bulls went into the week with all the momentum and were on the verge of a jailbreak but after Monday’s session, like we have seen a half-dozen times since August, they failed to break through the upper end of the current trading range.

As we were doing the Weekly Wrap over the weekend, we did see trouble ahead as the market got closer to a European bailout (a sell the news event) but our outlook for this week and yesterday was bullish.  However, our planning was disrupted after Europe sped things up over the weekend as they try to have a plan in place a week earlier. 

Although the news shows the commitment to get something done quickly, the bears seem to believe Europe is struggling to come up with a comprehensive plan capable of stabilizing the region.  Germany seemed to back those feelings which caused yesterday’s drubbing.

A bullish argument can be made that the market was due for a pullback anyway following last week’s 6% pop and the fact that we were at the top of the trading range that has been ongoing since August.  However, the action was troublesome considering there was no follow-through and the indexes went out near their lows.

The Dow fell 247 points, or 2.1%, to finish at 11,397.  The blue-chips traded to a low of 11,378 which was just above our 11,350 support target.  There is further help at 11,200 while resistance remains 11,600 then 11,800.

The S&P dropped 24 points, or 1.9%, to end at 1,200.  The index slipped below this level, to 1,198, but could test 1,175-1,150 on a continued pullback.  Resistance remains strong at 1,225.

The Nasdaq tanked 53 points, or 2%, to settle at 2,615.  Tech was able to hold the 2,600 level after testing a low of 2,606 but could fall to 2,550 on continued weakness.

As we have seen with trading ranges, they are often hard to predict as to when a breakdown or breakout is going to occur but we do know the longer we stay in them, the bigger the move will be.  The bulls have been here before just like the bears have when we are at the lower end of the range (just 2 weeks ago) and yesterday’s failed attempt to breakout is just another reminder on how hard ranges are to trade.

The good news is that we have been cautious of these moves as we buy the dips and sell the rips.  It is too early to tell if we should start adding put positions as we closed out 4 winning call option trades yesterday but we may have too. 

Even better, our portfolio is getting light again which means we can load up new trades while having the luxury of waiting for the action to come to us.  As such, we have a mixture of calls and put plays on our Watch List.  

Despite the market’s pullback, the bulls were able to hold support so they haven’t thrown in the towel just yet and one day doesn’t make a trend change.  However, it appears we could have a mixed open after International Business Machines (IBM, $186.59, down $3.94) disappointed Wall Street with their numbers after Monday’s closing bell.  We will talk about IBM in our afternoon update.

Dow futures are down 12 points to 11,289 while the S&P 500 futures are up 2 points to 1,195.  The Nasdaq 100 futures are advancing 10 points to 2,331.  Subscribers, check the Members Area for the updates and be sure to pay close attention to our Watch List as we look to establish new positions.  A Trade Alert is possible by 11am (EST) if we see something we like.