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Breakfast with Brodsky


Good morning. Yesterday we saw the S&P and Dow climb to new 52-week highs while the NDX closed just short of its own high. The market, keeping with its recent trend, consolidated and then was able to move higher steadily throughout the day. Usually I would spend some time discussing why we are in a bull market and some reason we can expect higher prices, but come on, you cannot deny this move no matter whom you are.

Instead, I would like to touch on a few subjects as to why we are moving higher instead of merely defending it. When I first started in the business, and I would ask my boss why a stock would be moving higher, he would reply, "There are more buyers than sellers." That was all. We did not get too detailed and in fact we really didn't care about the reason for the move as long as we were on the right side of the trade. One could apply this same mentality to the current market landscape. There are no sellers out there. Selling pressure is extremely low across the board and with high mutual fund inflows we can take an educated guess as to who is piling in.

Now, if in fact it is mutual fund buying which keeps pushing us higher there are a few things we must acknowledge. First, sooner or later the huge amount of inflows will abate. The rising tide, which is pushing most issues higher, may lose some steam. Secondly, we know this game. Funds depend on each other to keep pushing the market higher. It is a game of musical chairs. As long as you are not the last one to buy, you are ok. Keep in mind that this could go on for months, or years, we have seen it before. But when the music stops, everyone will be rushing for a seat. We all know how this will play out. We will get one of those nasty downdrafts that are never any fun.

Of course no one can completely know what is going on at all times in the marketplace. As long as investors/traders have a general idea of what the landscape looks like we can attempt to navigate through the marketplace. My point is to try to be cognizant of the type of buying because that can often provide important clues as to the general psychology of the marketplace. One fact that is undeniable is that there sure is a lot of retail money flying into the marketplace right now. Now, do retail investors usually buy at the bottom or near the top? You know the answer to this.

Technically, the S&P looks fantastic and could be setting up to make a run at the 1160-1170 range, which is where we failed back in 2002. The Dow is less than 1000 points from its all time high and the NDX, while way off from its all time high is creeping back into its range where it met some supply back at the beginning of 2002. I am fully aware that these levels from 2-3 years ago have meant very little so far in providing a range of resistance, but they are still worth mentioning.

On a short-term basis, we find support for the S&P at 1150, and then 1139. Resistance is at 1155, yesterday's close. Support for the Dow is at 10,623, and then 10,566. The NDX may run into some supply at 1560 and look for support in the 1525 range.

The BTK has been consolidating for the past three days and could be ready to move higher. Watch 520 as a support level and a trade through the 527-530 band could provide upward momentum in the index. The SOX was able to holds its 28% retracement level of 525 and could have reversed trend back to the upside. A trade through the 540 level could push this index back on its way to its 52-week highs of 560. There may be some pressure on these names however in reaction to the earnings release from Novellus (NVLS:NASD). The equipment makers were heavy after-hours and could weigh down this sector today.

The Banks were once again able to close at new all time highs, which does lend support to the overall picture of market health. Look at 1000 and then 996 to provide near term support. Pharma, Cyclicals, Oils all look fantastic and keep pushing to new sector highs. The XAU, while relatively weak, was able to hold its recent lows and a trade above 98.50 could push the index back to the 100 level. A break of yesterday's low of 96.16 could push the index lower.

Good Luck.

No positions in stocks mentioned.

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