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Breakfast with Brodsky


Good morning. It appears that the story of the week will no doubt be the large number of earnings reports set to be released. With a strong technical picture and not much to look forward to on the economic front, we can expect the markets to be moved by earnings related news.

As 2004 begins to shape up we are seeing that corporate earnings are strong and are forecasted to stay that way. That plus the addition of strong mutual fund inflows have helped people pile money into the market with confidence so far this year. The question that keeps coming into my mind is what's really driving this market? Is it that people are still in disbelief about the phenomenal gains of 2003 and are fearful of missing yet another great year? Or is it that the market's valuation is deserving of these multiples and in fact may be cheap, so why not buy?

Of course the answers to these questions will come in hindsight but I do think it can't hurt to study what news is bought versus sold this week. This is always an important thing to watch but with so much new money entering the market, one would want to be mindful of what currents to swim with (i.e. buying where the smart money is.)

On the technical front the S&P looks strong. After pulling back last week and testing 1120 it was able to trade higher and make a new 52-week high. Support comes in at 1130 and then 1120. The Dow was unable to close at its high and could be range bound if it is unable to trade above 10,666 (Friday's high.) Look for support in the 10,400 area. The NDX was range bound most of last week with 1515 as its floor and 1540 as the ceiling. It broke out on Friday and was able to close at 1553. Watch for support at 1540.

The sector indices are looking healthy as well. The BTK traded decisively above 500 and was able to close out the day close to its high. After such a strong move the index could consolidate and retrace, watch 500 as support. The SOX was not nearly as strong but could be setting up to make a strong move higher as well. A trade above 560 could breakout the index. Watch 540 as support.

The Banks are acting well. Watch for resistance at 992 and support at 980. The XOI has been retracing and consolidating for most of January. It is testing the support level of 560 and a trade below it could push this sector lower. After such an orderly pullback a trade above 568 could put the index back into an upswing. Lastly, after three gap down days the XAU was able to hold its footing in Friday's market. Look for support at 96 and a trace above 100 could push this index higher.

Good Luck.
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