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Breakfast with Brodsky


Now apprearing for the next few days...don't forget to tip your waitress!

Volatility was the name of the game yesterday as a catalyst starved market traded wildly in the wake of the FOMC announcement. Looking at an intra-day chart of the S&P from 2:15 until 4:00 epitomizes the type of trading environment we have been living through over the past week or so. Lack of confidence in the market has led to a see-saw type of trading range where buying weakness and selling strength has been rewarded.

Over the past three sessions we have had gap openings, which have faded. The market has been unaccommodating and even though we had what felt like a "puke and rally" yesterday, today's trading will be the real test. The S&P has been confined to a tight trading range over the past four sessions with 1120 as the top and 1104 the bottom. The NDX is even tighter as the index has now tested 1400 three times in the past four sessions.

We may not be out of the woodwork yet, but there are some things we can take away from the recent action. The first being that the bears, while they have certainly enjoyed victory over the past week, have not been able to break the market below some key support levels (1400 in NDX and 1100 in S&P.) Good news is once again being purchased (look at the 3M (MMM: NYSE) action yesterday) and one could gather that a fair amount of short interest has crept into the marketplace in recent times.

Does this mean we are done "correcting?" That is yet to be seen, but it does mean that the chances of a snap-back rally are greater today than they were yesterday. What will be important to watch is how they open the market and if they fade within the first hour. The lack of a fade would signify to me that we might have a trapped bear situation where shorts will wait for dips to cover and those dips may not come.

On a short term basis a trade above the 1110 area on the S&P could lead us back into the 1130 range over the next few days. That would break us out of a descending trend line and out of the lower highs pattern that we have experienced since 3/11.

The NDX has been a slow bleed for longs and while we have not "puked" down as hard as the S&P, yesterday's end of day wash-out may have provided us with enough juice to get us above the 1420 level which could spark a rally into the 1450 range.

With a lack of news, a tight trading range, and nothing to get us going back up except for a short cover rally this is not the ideal market to be committing a ton of capital in my opinion. Trading set-ups will appear and they must be taken but do not lose sight as to what they are, and they are trades. Until a trend sets up again, I believe the best method may be the stick and move, which is to say, get in and get out. Good luck!

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