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Breakfast with Brodsky


Good morning. Yesterday could not have felt better for the bulls as the breadth was strong across the board and the markets took hold and traded higher all day. Gold hit a new 15-½ year high, the dollar continued to slide and it felt that people were not apprehensive about owning shares into earnings season.

With earnings season about to get underway next week, we have a chance to see optimism get built into the marketplace. Will this be another case of a buy the rumor (good earnings) and sell the news (when they begin to be released next week?) That certainly could be the case as we continue to see this market climb on healthy internals.

One thing that certainly has not abated is the bear case that we are "due" for a correction. What is going to spark this correction? It certainly could be a number of things but most likely something that we have not anticipated. One thing that I have really paid attention to, and is increasingly bothering me, is the number of insider sales. There are a number of ways to rationalize the number of insider sales in the bull's mind, but it is becoming alarming how much distribution is underway. I think we could look back one day and point to this issue and say that the writing was on the wall.

The Dow broke above 10,500 for the first time since its 2002 peak. The index appears to be healthy although one could argue a good case that it is extended on a technical basis. The S&P is also trading in the midst of its 2002 peak. On a shorter-term basis, the index looks healthy and support is in the 1110 area. The NDX continues its run and is about to kiss 1500. The last time we were here was in 2002 although resistance on a longer-term basis appears to be more in the 1600 region. Look for near-term support at 1470.

The BTK (Amex Biotech) has been unable to breakout to 500 and has been in a tight holding pattern over the past five trading days. The recent range has been 490-496; a break of either level could push the sector hard. The SOX (Philly semi) acted well yesterday, breaking out of its recent range and closing on its high. Watch for resistance at 530 and support lies at 504.

The banks (BKX) continue to grind higher. The XOI (oils) continues to explode to the upside and the OSX (oil services) could be ready to move higher as well. Retail still seems a bit sluggish. The DRG (Pharma) continues its amazing accent, which is certainly helped by a falling dollar. The XAU (Gold/Silver) gapped higher and was able to close slightly above its old 52-week high. Watch for support at 110 and resistance is still in the 113 area.

Good Luck.
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