OptionMonster co-founder Pete Najarian provides options picks Monday, Wednesday and Friday in TheStreet.com's Deep in the Money Calls newsletter.Guy Adami, stocks editor at OptionMonster. For awhile I've been saying to wait for the S&P 500 to pull back to 870 before buying. Guess what happened today? We fell exactly to that level and bounced. Am I a genius? No. Can I see into the future? I wish. Am I patient? A little. Have I learned discipline from watching the market -- and learning the hard way -- for years? Yeah, that's a little closer to the truth. A market like this is all about sentiment. When banks are getting propped up by the government and unemployment is spiking to levels unseen in decades, you have to be a trader. That's not to say that the rules of fundamental analysis don't apply, because they will over the longer term. But when we're hours before the release of the first big earnings report ( Alcoa ( AA)) and all the signals in every direction are murky, it's hard to be too much of a fundamentalist. You have to look for the key levels on the charts and recognize that the pros are looking at the same thing. They deploy millions of dollars in other people's money by hitting a button. If the price action guides them, you want to do the same thing. Why did I call the 870 level? Three reasons: Jan. 28, Feb. 9 and the last few days of April. On each of those occasions, 870 was a key level for the market.
In January and February, it was a foreboding number through which the market could not rally. It wasn't too long after failing there that the S&P 500 rolled over and began its death spiral to the sinister 666 level of March 6. When it got back to 870 in mid-April, stocks paused and pulled back, but then blasted through to gain 3% on May 4. OK, we bounced off 870 today. Are we free and clear? God only knows. It's hard to judge how the market will react to this earnings season. On one hand, everybody knows that the economy is facing difficulties that we haven't seen in years. But we're also looking at a stock market that's cheaper than we've seen in years. Many investors missed the rally off the March lows and will be looking to get exposure. We know that companies have been slashing costs to make their numbers, but the top lines have generally been lousy. I am not sure how investors will react, and it's hard to tell how much bad news is already "priced in." But, it looks like we have seen a bottom for the time being. This is not the time to get complacent. We'll have a better idea of how long it might last after Alcoa's numbers come out and when we see where we close today.