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Breakfast with Brodsky


Good morning. The market stalled in the face of more earnings announcements as the tech heavy NDX lead the major indices down. Is this it? Should we pack up our bags and call this rally over? I think not. Last night, I was talking with some people whose opinion I hold in high regard about the market, their thoughts going forward, and what areas might yield the best opportunities in the coming year. Some of the bears at the table kept alluding to the old adage that things look the best at the top. Their argument was that both technically and fundamentally things could not look better. Charts that look like shorts are hard to come by and earnings and outlooks for the most part have been nothing short of stellar.

To back up their position they referred to March of 2000 and the environment then. I couldn't agree with this person more about the market and how things looked at that time. Sure, in hindsight it's easy to say where the signs were and this person was extremely negative at that time so credit must be given to his opinion. The part that doesn't sit well with me about comparing right now to the 2000 top is that the 2000 top was comprised of years and years of gains. We have not even closed the books on the twelve-month mark from the low and people are already calling for a top!

One thing that is a bit alarming is that one of the creations and ultimate disasters of the late 90's bull has come back and is trading on the NASDAQ once again. Global Crossing (GLBC:NASD) epitomizes so much of what was wrong (or maybe right depending on your position) with the market in its heyday. What does it mean? To me it means a couple of things. First of all, that people's appetite for stock is back in a big way. Secondly, that many of the "bubble stocks" certainly did not deserve the valuation that was slapped on them in the 90's but many of those companies had technology that was great, the public was just not ready for it. Cable and DSL companies flopped! VoIP companies collapsed and now we are embracing that same technology today and bidding it up and more importantly using it in our homes and daily lives! It has a real application now.

Just like life, the market and many technologies are all about timing. My point is that just because something did not work at one point in time certainly does not mean it won't ever work. Everything has its time and to short a stock on the premise of something that happened years ago is narrow-minded. If there is something wrong with the company then sure, I will be out there participating too, but I am hearing way too much chatter about how these companies did not work in 2000 and they will not work now. That's dangerous thinking in my opinion and I would need more reason than that to pull the trigger on a short.

Could we have a correction? Sure! That could come at any time and any number of catalysts could cause it. Even yesterday I got a few emails from people trying to tell me that right now is exactly like 1987 before The Crash. I think that comparison is ridiculous and things are not even close to being the same. But I must say that I do love this thinking. It keeps the short money piling in the marketplace, which helps create that ever-present underlying bid!

On the technical front, as I mentioned above the indices did take a breather yesterday. The S&P touched 1150 again before pulling off and closing at 1144. Look for trendline support at 1034 although 1038 could hold as well. Resistance is in the 1150 area. The Dow attempted to breakout of its near term range but could not hold its highs and closed at 10,623 which is the upper band of resistance. The NDX was a bit heavier and closed in the mid-range of its support level. Watch 1515 as the bottom of this range and 1540 as the top.

The BTK (Amex Biotech) stalled out a bit yesterday but held the 520 level. The SOX (Phil Semi) is drifting into its 38% retracement level from its Dec lows to its Jan highs. That level is 525 and that could be considered support. A close above 539 would put the index back in its trading range (539-560) where it has been for most of this month.

The BKX (Phil Bank) shot up above 1000 and was able to close there for a second time in as many days but the index did close off its highs. Look for 987 to be support and 1008 to be resistance. Lastly, the XAU (Gold/Silver) closed below 100 and could test its recent low of 96 again. Support levels could be 98.50 and then 96. Resistance is at 101 and then 103.

Good Luck.

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