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Breakfast with Brodsky

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Good morning. Earnings news peppered the tape last night and will continue to do so this morning. We have SanDisk (SNDK:NASD) getting pummeled, Eastman Kodak (EK:NYSE) beating numbers but cutting a tremendous amount of jobs, and a whole slew of other companies that will be trading significantly away from where they closed last night.

Yesterday, I touched on the fact that many institutions have hedged out risk by shorting ETF's and futures against longs they may hold. In my opinion, this creates an inherent bid in the marketplace since people are always looking to buy in market risk they have shorted. With the futures offered a bit lower today we will see if this hypothesis works.

The S&P and Dow were able to hold their ground yesterday and traded higher while the NDX was able to stage a late day rally but could not close in the black. The S&P kissed 1150 before closing just under it. The S&P keeps grinding higher and we are closing in on major market resistance at 1160-1170. This is the level where the market made a triple top in late 2001/early 2002 before descending to the 770 level. The Dow was able to reverse its course yesterday and had an outside day to the upside. That's a bullish technical sign but with all the numbers being released one would have to think that fundamentals would take center stage here. Watch 10,640 as resistance and 10,500 as support.

The NDX broke the trendline (1534) I mentioned yesterday but was able to regain its footing and close above it. With darling SanDisk (SNDK:NASD) taking a beating we could see tech selling across the board. Look for 1512 to hold. Resistance is 1555-1560. Quick thought: Bears will point to SanDisk's (SNDK:NASD) numbers and action as an overall market negative. Are we forgetting that this company already broke? In early December the company got hammered for an entire month and while it was able to regain its footing it is clearly a negative trending name. Did the tech sector plummet off this in December? No. The NDX was able to breakout and make fresh new 52-week highs. So while people will try to push this bear story as a market wide sign to sell, look closer.

The BTK (Amex Biotech) was able to breakout to new 52-week highs once again. This index is trending higher and look for support at 515. The SOX (Phil Semi) was heavy yesterday and continued to trace out a retracement pattern after a strong one-month move. It is now constricted to a new trading band, 535 is support and 556 will be resistance. A break of either level could see follow-though in the same direction.

The BKX (Phil Bank) was able to close above 1000 for the first time ever. A healthy bank picture is good for the overall market and the chart of the BKX looks pretty good. Look for support at 987. The Oils were able to continue to push higher and we can look at 100 in the OSX (Oil Service) as support and 580 as a key level in the XOI (Amex Oil.)

The DRG (Amex Pharm) was able to break higher yesterday and closed right under 340. Resistance is at 342 and support is at 336. The cyclical stocks continue their massive move higher with the CYC (Cyclical) closing above 700 for the first time ever. With banks and cyclicals continuing to close at all time highs, it is hard to make a bear a case here. Lastly, the XAU (Gold/Silver) held 100 again. Watch 100 level to hold and a trade above 102.35 could push the index higher.

Good Luck.

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No positions in stocks mentioned.

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