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Breakfast with Brodsky

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So close...but yet so far...

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Good morning and while yesterday may have been a bit slow in terms of volume, it certainly was not with regard to volatility. It seems that the major indices don't want to go down and every attempt to do so, is met by demand for equities. One could argue about the source of demand (i.e. long money buying or short money covering) but the bottom line is, the market has a hard time going down and staying down.

Looking at a chart of the S&P since mid-February, we can see a cup and handle pattern forming and one thing is for sure, the bears will have a tough time keeping a lid on the market, if and when S&P 1158-1160 is tested again. The market felt like a slingshot yesterday as it opened and quickly fell but wouldn't break. The DXY (US Dollar Index) failed at 90 which probably helped to lift stocks but I think the market's sell off on Tuesday trapped a lot of bears and those shorts all scrambled to cover.

One thing does seem clear, the overall market is having a tough time gathering enough steam to power ahead without the help of the NDX. The NDX has been in a slow bleed since January and is still having issues on the upside. A triangle pattern has formed (connect the highs in Jan and Feb and draw a trend line across the 1455 level) and even if the NDX can hold the 1450-1460 area we still could have a few more weeks of tight trading within this index. The resistance level of that triangle pattern is currently around 1500 so, in my opinion, we would need a decisive close above that level to spark a sustainable rally. Although at these current levels (1466) the risk/reward seems skewed to the long side.

The next two days will bring us some economic numbers, which could move the market as well as Intel's (INTC: NASD) mid-quarter update tonight. A lot of attention has been directed toward Intel recently because of its failure to hold the important 30 level. Will their mid-quarter tonight bring back demand to this issue and subsequently the beaten down SOX? One has to ask what the markets reaction would be to Intel trading above 30 again. Is the bad news (if in fact Intel delivers bad news) priced into the issue already? Normally I don't put much stock (no pun intended) into mid-quarter updates but with the market, specifically the NDX, so starved for a positive catalyst, tonight's event may provide the spark need to refuel the fire.

Looking at the SOX we can see that it is attempting to bottom in the 490-500 range and a reversal and close above 527 could put this index back into an uptrend which could very well carry the entire NDX with it. I know that's a lot of "if's" but we are at a critical juncture where a possible breakout could be right around the corner.

Away from that, on the short term look for resistance in the S&P at 1160 and support to be at 1143-1140. The Dow is having a tough time going but it did hold its first attempt at its 50-day (10,540.) Look for support to lie at that 10,540 level and for resistance to be at 10,670. NDX support lies at 1460-1450 and supply will enter the market at 1475 and then at 1490.

Good Luck.



No positions in stocks mentioned.

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