8:45am (EST)

Tuesday’s action showed nervousness by the bulls as they fretted over growing sentiment on Wall Street that the finance leaders of the European Union (EU) are having difficulty on agreeing what is the best course of action to deal with the debt crisis.  Meanwhile, there were a number of disappointing corporate earnings announcements and economic news was less than stellar which weighed on the indexes.  As a result, the bulls took a breather yesterday as Europe’s timetable to come up with a plan to deal was pushed back once again.

We expected some choppiness as the indexes battled their 200-day moving averages which can be hard to clear if momentum fades but the market held support for the most part.  There will still be an EU meeting today (their 14th!) but there will be no official game plan in place by today’s close unless a miracle happens.

The Dow fell 207 points, or 1.7%, to settle at 11,706.  The index opened in the red and hit a low of 11,682 as it slipped below the 11,800 level which will now serve as short-term resistance.  The next area of support for the blue-chips is at 11,600 and then 11,350 if there is further selling pressure.

The S&P 500 gave back 25 points, or 2%, to finish at 1,229.  The index slipped to a low of 1,226 which was still above support at 1,225.  Should this level fall, the next test could be down to 1,200 while 1,250 remains resistance.

The Nasdaq dropped 61 points, or 2.3%, to close at 2,638.  We were looking for 2,650 to hold but the low came in at 2,633.  There is further risk down to 2,600 and then 2,550 if Tech weakens from here.  The bulls are still shooting for a close above 2,700.

We have covered some interesting trades over the past month and although we are working on a 20-trade winning streak, we missed another great opportunity yesterday even though shares were on our Watch List a few weeks ago.  As we have seen, and we will see again today, when momentum stocks lose their luster they can get pummeled.

First Solar (FSLR, $43.27, down $14.68) shares got canned for a 25% loss on Tuesday following the abrupt change in CEO’s.  There was no specific reason given for the switch as the company said the move was effective immediately.  Usually when something of this magnitude happens, other skeletons come out of the closet but we have noticed the weakness in shares.

We had listed another possible strangle option trade for First Solar, Friday before last, when shares were at $55 but we didn’t think another 30% down move was possible before the options expired.  Wrong.

The November 40 puts (FSLR111119P00040000, $4.75, up $4.20) were at $1.15 when we profiled the trade along with the November 70 calls (FSLR111119C00070000, $0.40, down $0.90) which were at $1.75.  Although we didn’t feel like shares would run to $70, we looked at the calls as insurance because we had penciled in a higher market for the rest of October.

Needles to say, the puts were up a whopping 780% yesterday while the calls dropped 70%.  It was another round-trip trade that would have cost $2.90 to get into but the return would have been fat despite the call options taking a dive.

These types of strangle trades are also called “chicken trades” because you know a big move is coming but you aren’t sure which way the stock is going to go.

This morning, Amazon.com (AMZN, $227.15, down $10.46) is being taken to the woodshed after they missed Wall Street’s estimates.  The company reported earnings after yesterday’s close and missed forecasts by 10 cents after occurring higher sales costs for the third-straight quarter.

Shares are at $200 in pre-market trading, down $27, and kissed the low $180’s in after-hours trading last night.

As far as futures, they are pointing towards a higher open despite the high-profile miss.  Dow futures are up 71 points to 11,733 while the S&P 500 futures are higher by 8 points to 1,233.  The Nasdaq 100 future are showing a 14 point pop and are at 2,336.

We have added 6 NEW TRADES to our Watch List and some of the names had heavy option trading in them yesterday.  We have added a few put trades in the mix but we have listed  some more call options as we look for the bulls to hold support and push the 200-day MA’s.  If we decide to make one (or more) of them official trades, we will send out a Trade Alert before 11am so stay locked and loaded.  Subscribers, check the Members Area for the updates.