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Breakfast with Brodsky


At least I have the tourney to look forward to!

Hey folks, getting a bit of a late start (car trouble) this morning but I did want to spend some time on certain issues, which have been irking me recently. The current market tone has changed and whether we want to admit it or not, that is the truth. This is not to say that anything fundamentally is out of whack, but the human element that drives this market has changed.

Things look best at the top. Sans the lack of jobs (which I believe is more of a result of the technological age we live in and not a barometer of corporate health) things are looking pretty good. Businesses are selling products, earnings are healthy, and one could argue the reasons behind this (Fed induced) but the point is that things are looking up.

If you turn on the TV and listen to anyone discuss the market and the recent pullback, they are all dumbfounded by the fact that on a fundamental basis we are doing well but the market action is not confirming this. Just once I would love to hear the truth, or a truthful assessment of what's going on! The market is selling off because everyone knows that things are good! Everyone has stopped questioning when the "rebound" is coming and has instead turned to talking incessantly about how fantastic things are! Does this strike you as odd? It does to me.

Does this mean that we should all take our chips off the table, so to speak, and head for the hills? Unfortunately, time is the one with the answer to that question but I think as intelligent traders, investors, and students of the market we need to focus on the forest here and not the trees. We need to take note of the increased volatility and the wild market swings of recent times. There is a real battle going on out there and it feels like the smart money is waiting on the sidelines.

Today is option expiration and that will throw more variables into the mix. Technically, the S&P is in no-man's-land. We have bounced slightly (38%) from the lows made Tuesday, but is this a small reprieve before tracing a bigger wave 3 down? For you Elliott Wave fans out there, we all know that Wave 3 is generally 1.6 (rounded) times the size of Wave 1. If this holds true on the S&P and we have another leg down, this would trace us down to the 1060 level. Coincidently, 1060 would represent a 10% correction from the highs, which is what people are looking for anyway.

The point? The point is, to me, the risk of being wrong at these levels seems to certainly outweigh the rewards. Until I get a better feel for what is really going on (correction vs. trend change) the best trade to me, is no trade at all. Capital preservation is the name of my game right now. Hopefully after today's trade (option expiration) we will have a better idea as to what direction we may head, but until then, I will be trading lightly. Good Luck.

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No positions in stocks mentioned.

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