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Breakfast with Brodsky


I'm trying to make a comeback...

Good morning. The futures are flat this morning after Friday's rally and with a lot of assorted economic news due out this week we can expect more volatility as the market tries to figure out where it wants to go. From a technical standpoint, Friday's oversold bounce was widely expected but still caught many people by surprise as it felt like no one wanted to participate until it was clear the rug wouldn't be pulled out again as that had been the story all week long.

The S&P did hold its 200-week moving average (1117) and closed right below 1124, which is the first level of resistance that we may encounter on the way back up. A close above the 1124 level would put us back above that channel which I have highlighted over the past few weeks (new values: bottom: 1127, top: 1160.) This would be a bullish sign for a few reasons but the obvious one would be the simple fact that the market was able to hold fast and maybe all the bullish euphoria has been washed away by a quick, hard correction.

If we have put in a short-term bottom and are going to have an extended (i.e. more than one day) rally let's take a look at some Fibonacci levels, which could provide resistance. On the S&P a 38% retrace would be at 1127 (note this is also the bottom on the aforementioned channel) and a 50% retrace would be at 1134.50. On the downside 1105 should be considered support.

The NDX, which broke its bottom channel support (new values: support: 1414, res: 1493) was able to snap back on Friday and close at 1431 which is not only above Thursday's high (bullish) but also quite possibly puts the index back on track to drift towards its upper range. If the NDX is going to trade higher then the Fibonacci levels for resistance are 38%: 1437 (where we tried to hold last Wednesday) and 50% is 1448. The 1400-1408 level could be considered support.

The bottom line, in my opinion, is that we are still in a transitional period within the marketplace. After a one-day bounce it is hard to tell whether or not the "correction" is over. After a year of V-bounces, we may in fact have another one during this current pullback. With so much global political turmoil (Spain bombings, Spain elections, our own domestic issues) we see that trading in Europe is heavy but in Asia it was not. Our own markets are flat without giving many clues as to where we are headed. Again, we all know that the market hates uncertainty and in my opinion, until we get some evidence as to where we may be going (more technical information, economic news, corporate news) we could be in for more of this whipsaw trading. Good luck.

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