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Breakfast with Brodsky


The second everyone stops looking for me I promise I'll show up!

Good morning, as we head into the first official week of Spring, we are met with a slew of geo-political news and the fact that most foreign markets are down significantly. With no economic or corporate news of note today, the market may very well lack a noteworthy catalyst to get it moving back to the upside.

With the lack of corporate news and such negative geo-political news, a look at the technical health of the indices may provide us clues as to where we are headed. The NDX seems to be holding onto 1400 by a thread. The level was tested four times last week and Friday's close on its low does not bode for the bulls. Taking a larger look at the index we look like we could test the 200-day MA (1378) and that is the first level of support. If that breaks we could be in an extended correct down to the 1323 level which represents a 38% retracement from the March 2003 lows to the January 2004 highs

On Friday I had touched on the scenario where the market (mainly the S&P) had just completed a corrective wave 2 and may be ready to trace out a longer wave 3 which could possibly take us down into the 1060 area. With the S&P futures trading lower this morning, it looks as if this theory may get tested. The 1100 area (last week's low,) is extremely important if this market is to hold in the near term.

I have been discussing the recent pullback and trying to take a larger approach to analyzing the market as we are heading through some rough waters. One thing that is different, in my opinion, is the recent harshness of these market pullbacks, both here and abroad. The technical shape of both the major and sector indices are poor at best and the condition of the world isn't much better.

Times are changing and the way we do business and with whom is on a much more global level and that's why issues in Asia, the Middle East, or anywhere else can and do have a major effect on us. We have seen the price of oil continue to rise and we may in fact never see it fall to the prices which we have become accustomed to over the years. This is a reality that must be accepted and which will no doubt drive the costs of doing business higher. Does this mean that we will have a linear rise in prices with no pullback? I doubt it will work out like that but this is an issue that is here to stay (as it has been since the 1970's.)

My point is simply that as we head into the future and take stock of our own economic health one must factor in the global playing field as well. With many regions of the world that are currently highly unstable, we must consider how this will affect our "recovery" and if we are beginning to discount this now. Good Luck.
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