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Breakfast with Brodsky


I thought we were due for an oversold bounce!

Good morning. Yesterday brought us no relief from this sell-off as we attempted to rally only to fail yet again. The lack of ANY news, a market filled with emotion, and nothing more to trade off of than technical indicators, are the factors that are driving the market right now. It is clear we are in a correction, or maybe we have turned and the great run of 2003 is over, whatever the case is the bottom line is no one wants to own stocks right now.

In my opinion, the biggest question remains whether or not this is a "correction" or the tides have changed and we have topped out. I have more or less pulled myself out of the market right now since I have a lack of conviction as to which direction we are headed in. Instead of trading I have been trying to talk to as many people as I can to gauge market sentiment among all types of market participants.

Most people I spoke to came in yesterday looking to buy the market. We have been conditioned for a year that buying dips has been the way to go but the story of 2004 has been quite the contrary. Point in case, the NDX. The NDX has been marked by a series of lower highs and lower lows, never a good sign.

As the market topped out mid-afternoon, I started getting more and more IM's saying the same thing, "Sell everything!" As soon as those started flying my way I started looking for stocks to buy. I did not make any purchases because I typically don't buy markets that close on the lows on large volume, but I started looking. We saw the first panic sale, which carried us into the close.

So where does this leave us now? Watching TV last night I heard that the TRIN has closed above two for three consecutive days which has never happened. Does that mean to rush out and buy? Not in my opinion, although we seem to be getting to the point where the risk/reward is swinging back to the long side.

Let's take a look at the S&P 500. Since March 5 it is down 5% in as many days and looking at a Fibonacci retracement from the November low to the January high these are the levels we get: 38.2% retrace is 1113 (we broke that) and a 50% is 1097. Does that mean we have stopped going down? Not sure yet but that is where one could expect some demand to enter into the marketplace.

The S&P has been the "strongest" of the three major indices and has held up extremely well in comparison. The Dow has broken its 50% retrace (10,169) from the same time period mentioned before and the NDX is well beyond retracements. In fact the index closed below its trend channel and a trade and close above 1418 would be needed to place it back in the channel.

So as we set up for today's trading we see the futures bid up slightly and we have the U of Michigan Confidence number, which is to be released at around 9:50. Could that be the spark needed to get us going to the upside? Not sure but it certainly has been in the past. Good luck and have a nice weekend.

No positions in stocks mentioned.

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