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Breakfast with Brodsky


I think my time may be coming to an end!

Good morning, the markets got a much anticipated relief rally that people had been expecting for a few days. The obvious question now is if we have seen the near term bottom and are we going to continue to climb. The NDX really shot forward and it looks as if we may have completed the steady five-wave decline that began at the beginning of the year. The breakout occurred on good volume thus validating the recent bottoming pattern in this index.

I am highlighting the NDX this morning not only because most of yesterday's biggest gainers were technology related, but compared to the other indices the NDX's pattern to me, has bottomed. Although (and in my opinion) we may pullback and retest the 200-day (1381) the correction seems complete. Couple that with the fact that earnings seasons is approaching rapidly and we now have catalysts to break us out. Right now I put the breakout level on the NDX at around 1450. This would not only take us above where we broke out of in December but also break us out of the three month downward angling channel.

The S&P's pattern is not as cut and dry to me but it too has been trying to make a bottom and while we may have one more push lower the odds are now favorable that some institutional demand could be waiting in the wings. The S&P closed right below 1110 which is still the first point of resistance and above that we can expect a trade into the 1125 area.

I am not putting much stock into whether yesterday's rally was driven primarily by short covering or not. The fact that we have made a short term bottom is what is important and from an institutional standpoint, they now have an idea of where their buy points may be. The lack of any institutional demand over the past few weeks in the S&P and the entire year within the NDX has certainly contributed to the wild swings. Hopefully now a risk/reward has set up where we may see increased demand because of the perception that a bottom has occurred.

Remember, we had a one-day rally and just 48-hours ago people were swearing stocks off for good and now everyone wants to buy again. This bi-polar thinking often leads to more losses than gains. In my opinion, it is better to play small or not at all during times of uncertainty and wait for good risk/reward set ups. Good Luck.
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