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Breakfast with Brodsky

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Good morning. It was another ugly day in the market yesterday, as it seems as if every single attempt to buy the market is met by supply and a lack of conviction on the long side thus driving us lower. Technically speaking the market is clearly not ready to rally back yet. The S&P was unable to clear Friday's highs and quickly reversed, making new closing lows for 2004.

This dismal market is beginning to weigh on peoples' minds and confidence, which can be a good thing at times. The past week, and it has been a week since we began to pull back, has been nothing short of painful. As people begin to "give up" on the long side, we may get some relief as the number of bullish investors decreases to a more acceptable level.

The other difficult part of trading this type of tape is that both the short side and the long side have extreme amounts of risk versus the possible reward. Over the past year it has paid to buy dips and weather out these pullbacks. That type of thinking makes it difficult to short stocks at these current levels. With the NDX and S&P both at the bottom of their range, one can imagine the short rally that could ensue. But on the flip side, with so many broken charts and bear flags out there how can one really buy this tape with any sense of confidence that it will rally. This is a clear example where the best trade may be not to trade at all.

Also adding to the madness we have Greenspan speaking again. With a lack of any other market sensitive news, traders may cling to his speech, which could most certainly move the markets as it has done in the past.

The bottom line is that this market is extremely frustrating to trade. With so many reversals and failed rally attempts it seems that we are drifting around without direction. The S&P has entered into a mini-channel over the past three days where the bottom trend line support is 1101 and the top resistance is 1118. Should the bottom be taken out the next support level is 1095.

The NDX closed under 1400 for the first time since mid-December. On a positive note, the NDX made a new closing low for 2004 while the RSI did not. While there is not a huge divergence it is certainly something to take note of and keep an eye on. I wish that there were more levels to focus on in the marketplace but due to the extreme volatility, it seems like a lost cause to point out key support and resistance levels. Personally, I would like to see some more confirmation either way (lower or higher) before committing more capital. Good luck.





No positions in stocks mentioned.

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