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Breakfast with Brodsky


What a month!

Good morning. The end of quarter is upon us and the question that is on everyone's mind is if this rally has another day in it. Since March 24 we have rallied 3.5% and a push to the 50-day (1135) would make that 4.4%. Funny how people only look at percentage moves when the market falls. Regardless, looking at this current rebound we must try to understand why we have moved higher and what was driving the run.

The initial snapback, which occurred on March 25, was a potent combination of oversold conditions and the fact that so many shorts had entered the marketplace. The last leg of this rally (3/26-present), in my opinion, has been driven by shorts that have exited positions, and momentum players that are now long and looking for a move higher.

Strong violent moves in the market stir up emotion, which can be a trader's worst enemy. When we see stocks that are up 5-7% and we are not long them, oftentimes the fear of missing the next move, coupled with the greed and desire to own those shares mixes and we are left holding the bag at the top. The current market has certainly seen its fair share of those moves and whether those emotions caused the market to surge or vice versa, that's what people are feeling.

We are seeing earnings starting to trickle out today (Best Buy (BBY: NYSE) and Circuit City (CC: NYSE) to name two) and again the action may provide us with clues as to what to expect in a few weeks when we enter into the heart of earnings season. Another driving factor of today's market could be the data from the Chicago Purchasing Manager's survey.

There is a huge amount of company specific news today and I think, as always, it is important to see what is being purchased and what is being booted. That is the number one "tell", to me, to see what people's hands are. The action of the names will let us know if there are a ton of shorts vs. longs.

Technically, the set-up for today is extremely similar to yesterday's. The S&P level is 1135 (intersection of 50-day MA and 61.8% retracement of March's down move) and although we closed above 1125 it is still an important level and we may need more work in this area. The NDX failed to get above 1450 and that is where resistance is. The descending trend line from January traces through the 1455 area so we may see some supply in the 1450-1457 range. Good Luck.

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No positions in stocks mentioned.

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