Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Breakfast with Brodsky


Good morning. For all the volatility that took place yesterday the market did not tell us much except that we were trading in a thin market. The bears will come at the bulls with the fact that the indices couldn't hold the strong gains that we experienced up until the last half hour of the day. The bulls will come back and say that if the market was going to break, it would have done so already and we lack a catalyst on the downside. We had an extremely oversold reading on the Advance/Decline line from Friday and that line was able to correct itself somewhat during yesterday's action.

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.

< Previous
  • 1
Next >
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Featured Videos