Traders came into today with a significantly bearish stance following profit warnings from Lucent Technologies and a revenue shortfall for Dow component Alcoa Inc. Traders seem to be of the opinion that although we are off to a rocky start, there could be some upside surprises throughout the earnings season.

According to Robert Pavlik, chief investment officer at Oaktree Asset Management, "I don't think anyone is throwing out the baby with the bathwater yet." He added, "If Genentech, Pepsi and GE come in with negative reports, then you might see more market reaction."

Today's low marked a 61.8% retracement of the last run up, according to Fibonacci we should head higher over the next few sessions. In fact, technical projections are calling for the Dow to rally to levels just under 11,500.

Helpful Hints:

July is typically the strongest month of the third quarter for the broad market, but tech stocks tend to struggle during this time. This is because many retirement accounts are beefed up for the second half of the year. On the contrary, this is the beginning of the worst four months of the year. Dow strength occurs at the beginning and end of the month, while sagging in between.

 
Dow Recommendations
Swing Trade - Flat.

Position Traders - We recommended to sell the July 114 call and the 106 put for $1050, these are looking good.

Look to sell the August strangle. Sell the 115 call and the 108 put for $800 or more.

Option Traders - Yesterday, 5/14 we put on bull call spreads with naked legs. We bought the September 108 call, sold the 112 call and the 104 put for even money, we are now maxed out on the spread. We were getting fills to buy back the put around $550, we originally sold the option for about $2000....nice trade.