Look for a Bounce Around Mid-morning

Stocks opened on a dismal note following a weak European bond market. A rebound
failed when a Fed official warned that Europe's debt problems could have a
negative impact on U.S. growth. Despite a slightly better jobs number, it was
the focus onEuropeand the breach of an important technical number on the S&P 500
that brought out the sellers. At the close, the Dow Jones Industrial Average was
down 1.13%, the S&P 500 lost 1.68%, and the Nasdaq was hit for 1.96%. Volume
increased to over 1 billion shares on the Big Board, and 590 million shares
traded on the Nasdaq. Decliners exceeded advancers by over 4-to-1 on the NYSE
and 2.5-to-1 on the Nasdaq. Click to Enlarge Sellers increased just as the S&P
500 sliced through the small triangle noted in yesterday's Daily Market
Outlook, and downside momentum accelerated when the support line at 1,220 was
broken. Even the financial media could not help but comment on the technical
breakdown of two important support lines. The break of support took the
stochastic indicator sharply lower along with MACD. But a last-minute rebound
saved the index from closing below the 50-day moving average at 1,206. Click to
Enlarge A bull's nightmare occurred today when the Nasdaq the market leader
on the way up fell through various support lines, the two most important being
the 2,600 line and then its 50-day moving average at 2,589. The next support for
the Nasdaq is around 2,526, which would be 50% of the retracement of the early
October low and late October high. The Nasdaq's sharp break lower could
indicate that the index will still be the market leader, but this time it will
lead south rather than north. Conclusion: Yesterday's performance by the bears
was impressive, so look for an early follow through of weakness on the opening,
especially ifEurope's bourses open lower. However, short traders may want to
take profits on any sharp thrust lower, especially since today is options
expiration and big swings may be anticipated.