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Bears Gaining Momentum

May 17, 2011 9:15 AM ETGOOG, AAPL, AMZN
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Seeking Alpha Analyst Since 2011

Assistant Editor Nextoptions.com
Bears Gaining Momentum
9:05am (EST)
The bears picked up where they left off on Friday as they hit the bulls early and kept the pressure on for much of Monday's session.  There was a brief rally just before lunch as the bulls mounted a comeback but Tech was the weakest link and held back the momentum. 
Commodities tried to recover from last week's steep declines but continued to slip with oil, gold, and silver closing lower while the dollar finished flat after some early weakness.
The downside targets we mentioned in our Weekly Wrap and on Monday morning came into play but held.  We also listed additional support levels if they were tested so let's see where we are at.
The Dow fell 47 points to finish at 12,548 and touched a low of 12,530.  If the 12,500 level is taken out than there is further risk down to 12,350.  Resistance is now at 12,700-12,800.
The S&P gave back 8 points to settle at 1,329.  The close below 1,334 brings 1,325 into play with the index touching an intraday low of 1,327.  If this area is penetrated, then expect a test down to 1,300.  Resistance is now at 1,345-1,350.
The Nasdaq got whacked for 46 points, or 1.6%, and closed at 2,782.  The index kissed a low of 2,779 and stayed in the red for the entire session.  The bears easily sliced their way through the 2,800 level and will now target 2,750.  This area will be a huge battleground and could determine a change in the trend if violated.  Resistance is now 2,825-2,850 over the short-term.
The continued test of resistance appears to wearing on the bulls as they struggle for a breakthrough without any clear leadership.  Tech carried the market higher thru the end of April but is leading the way lower.  Apple (AAPL, $333.30, down $7.20) and Google (GOOG, $518.42, down $11.13) fell 2% while Amazon.com (AMZN, $192.51, down $10.05) got shellacked for a 5% loss.  
We did expect to see some selling pressure going into Monday's session but we certainly didn't like the close.  We talked about watching for lower Friday/ Monday closes but yesterday’s selloff in the Nasdaq was pronounced and bears watching.  Pun intended.  Although the S&P and Dow's losses were kept to a minimum, Tech looked awful.
One of the reasons we are using a mixture of calls and puts for our current batch of trades is because of this reason.  If you will notice, many of our short-term puts are in Tech and commodities with a few bullish trades in Healthcare and Consumer Staples.  They are working out well.  The other bullish trades are dependent on a market breakout but because we expected weakness, we went longer out with a few trades that have August and September expiration dates.
Of course, the market could stay in its current trading range as it continues to test support and resistance, but the longer it does, the more volatile the move up or down will be.
The S&P Volatility Index (^VIX, 18.24, up 1.17) jumped 7% yesterday and we said if 20 is tested than we should see our downside targets come into play.  We aren't there, yet, but Wall Street is getting nervous. Subscribers, check the Members Area for the trade updates. 

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