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Breakfast with Brodsky


Good morning. I hope everyone had a nice weekend. European markets are up across the board and our own future looks pretty strong. Friday's action was contained to a rather tight trading range with the SPX trading within a five-point range as most action was driven by options expiration. As we head into this holiday week one can expect that volatility may be a bit high since many trading personnel will be absent and volume may run a bit light. That being said, we do have a flurry of somewhat important economic numbers coming out tomorrow and Wednesday. Tomorrow, people will be looking toward third quarter GPD (forecast: 7.6% on Bloomberg), consumer confidence, and existing home sales to gauge whether this economy is still strong. We have even more numbers due out on Wednesday and people will be scrutinizing personal income, personal spending, durable goods, initial jobless claims, new home sales, and the Chicago purchasing manager's numbers. As one can see, economic numbers will highlight this week and we certainly can't overlook the fact that the Senate is debating the Medicare and Energy bills which will send currents through both of those sectors as news trickles out.

Technically speaking, the major indexes have experienced a bit of consolidation over the past five trading sessions. The SPX for instance has traded in an eighteen-point range for the past week. This consolidation certainly cannot last forever and we will breakout or breakdown and the question is: what is going to be the catalyst? Is it going to be the economic numbers due out this week? Will rallies continue to be sold as more and more funds sell to hedge out gains as we near year's end? Only time will tell, and in my opinion by watching the technical action we may be able to read where the market is going.

In the SPX, 1034 is serving as support and 1044 continues to be resistance. I think that a close either below support (1034) or above resistance (1044) will carry the market in that direction for a few days so watch for follow-through. In the Dow those levels are: support at 9600-9615 and resistance is at 9700-9715. The NDX was able to climb off its lows and make a strong push into the close. Watch for support to come in at 1360 and supply to enter the market in the 1390-1400 range. The lack of catalysts should make for some wild trading today so watch the levels and play them closely.

The BTK (Amex Biotech) has been consolidating over the past week and Friday's trading range was the tightest in nine trading sessions. The sector seems to be comfortable holding the 440 level and a trade above 450 may break it out so watch for some follow-though to the upside above that level. The SOX (Philly Semi) has also been consolidating and seems to be in a slight downward channel with the bottom at 492 and the top at 508. Be mindful of these levels because there will surely be some follow-though on a breakout above 508. The BKX (Philly Bank) held in very well and is trying to turn higher. Near-term resistance is at 935 and a trade above should push the BKX higher and the overall market that way as well. In my estimation, a close above this level would be an even bigger positive. On the same token, the XBD (Amex Broker/Dealer) may have ended its five-day slide and could be turning higher. Watch 600-605 as the support level and a strong push above 615 may push this index back up to test its 50-day MA which is at 629. The XOI (Amex Oil) and OSX (Oil Service) have been a source of weakness in the past few sessions and a break below 485 in the XOI may push the entire sector lower. The CYC (Cyclical Index) has been consolidating at the 600 level and a trade above 603 should send demand into this sector. The DRG (Amex Pharma) has been under some pressure during the last two trading sessions and the fact that the Senate is debating the life of the Medicare bill may provide increased volatility here so be cognizant of that. Good Luck.

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