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Breakfast with Brodsky

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I need a bit of rest...

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Good morning. As the end of the month and quarter are rapidly approaching (as in tomorrow) we look back and can say one thing, "It's about time!" This has been a rough year and even rougher month for many money managers out there and I think we are about ready to welcome the coming quarter with open arms. One thing that this quarter has accomplished that could be a net positive for the marketplace is the reduction of investor optimism.

The fact that everyone was so optimistic on the market a month ago certainly was a red flag in hindsight. Currently, we are hard pressed to find people as wildly bullish on things. Most people that I speak to say something like this, "I like the market, and I think earnings season will provide the catalyst to take us higher. I could see us higher into the end of the year." Then when asked if they are in fact buying here the answer is, "No, not yet, I want to make sure that we have bottomed." I am not kidding when I say that I speak to a wide variety of market participants and that this response is pretty much uniform.

Does that mean it's right or wrong? Not at all, I am simply trying to show that a month ago people were bold and if they believed in something their money would most certainly be where their mouths were. Today, people are a bit more timid which is probably a bullish sign for this current market level.

Consumer confidence will be released at 10:00 and while I do not put much importance on this number (it often shakes the market for about 45 seconds before it is forgotten), I am more interested in how the news is traded. If it is a good number will people buy? If it is a bad number will people also buy? Of course, the real test will be in the coming days when we will get the Purchasing Managers number and Initial Jobless Claims. But let's watch how today's number is interpreted as it may provide some insight into psychology.

Technically, the S&P has now retraced 50% (1125) of the downdraft that we experienced in March. The next resistance point will be at 1135, which is where the 61.8% retracement and the 50-day MA intersect. It does appear that the S&P has completed a three-wave move down and the current corrective wave (A) may be a bit topped out. The risk/reward is shifting to neutral/long where on a pullback toward 1100 we could see demand enter the marketplace. Anyone who missed buying the pullback will be itchy to get involved so we could expect this scenario to play out assuming that we don't have any Earth shattering news or geo-political turmoil.

The NDX is also trading near resistance at 1450. It has completed its five-wave pullback and any move back into the 1400 area could see increased demand for this index's stocks. A strong trade and close above 1450 could negate that scenario and instead push the index back into the 1500 range. The risk/reward here could also be skewed to the long side (longer term look). People are feeling very optimistic about earnings season, which is but a few weeks away. That coupled with oversold conditions could continue to push the market higher into earnings. Good Luck.



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No positions in stocks mentioned.

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