Breakfast with Brodsky
We certainly could go either way at this point. The overall, longer-term trend is still up as the major indices have yet to break. The NDX and Dow are trading right on their 30-day MA's, which in my mind, is a decent measurement of short term trending. The S&P has a bit more of a cushion before it starts flirting with its 30-day MA.
Looking back over the past six months we can see that every time we had a pullback, its duration was anywhere from a few days, to a couple of weeks at most. This pullback has lasted five trading days and could certainly require more time before working it off. Remember the two most important components of trading are price and time. We are seeing declining prices and we need more time to work it off. It's that simple.
Well, I am not going to try to say yesterday's action was bullish, because it certainly was not. Was it incredibly bearish? I don't think so either. These pullback periods are healthy. When Wall Street doubts itself, as we are doing right now, it creates opportunity. It allows us to work off overbought/oversold conditions. It allows the market to have reservations, which in my mind, if we are going to continue higher, we need to do.
Anytime ground is reversed, either up or down, it is counter-productive to the initial direction (i.e. yesterday's initial trend was up, finished flattish/down, not good for the bull case.) With Cisco's (CSCO: NSAD) numbers tonight we may see increased volatility as people get in shape (hedge out risk) into the number. I briefly touched on the S&P, Dow and NDX above but here are the short-term levels that I will be watching. The S&P has been holding in a tight trading range for the last three days. It has been in a trending channel where 1132 is support and 1144 is resistance. If 1132 is broken on the downside we could retest Thursday's low of 1122. If 1122 is breached, we could test 1105-1115 in a hurry.
In regards to the NDX, we are in a similar channel where the top is 1511 and the bottom is 1485. A break of 1485 could send us to test the 50-day MA, which is 1462. This is where it gets interesting. 1462 is not only the 50-day MA but also a 50% retrace from the December lows to the recent highs. This has proven to be a strong market support level and was tested in a similar fashion in October. The 50% level was broken, the 50-day was tested and the next day we reversed hard and ultimately took out the highs from mid-October. Could the same thing happen? Only time will tell.
The Dow, not surprisingly, is in a holding pattern as well. Resistance is at 10,500 and we seem to have a tough time closing above it. Look for support in the 10,425 range and then if that area is broken we could head down to 10,280-10,320. The 10,280 level represents a 38% retrace from the November lows to the recent highs.
Lastly, traces of Ricin have been found in the Senate mailroom and have caused a shutdown of the Senate office buildings. The USD has fallen to fresh three-year lows and gold is reversing to trade above $400 and is currently up $7. I am sure this will get much press and could cause headline risk so be on your toes today. Good luck.
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