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Breakfast with Brodsky


Good morning. The futures market reflects some follow-through from yesterday's strong move and is bid up slightly. Last night Novellus (NASDAQ: NVLS) released their mid-quarter update and stated that EPS and Revenues would be at the high end of the previously given range. The CEO made comments in regard to seeing the overall business environment continuing to improve and that the upturn was broad-based. Is this going to provide the fuel to keep the semis humming? Or is this going to be another sell-the-news situation? Personally I feel that this news is already built into the sector. Does that mean we can't go higher? Of course we can! If anything, news like this rationalizes purchases made in these companies at these levels. Everyone knows that the semi world is booming! Demand continues to improve and we are certainly not at the peak of the cycle yet, so one may conclude that fundamentals should continue to progress.

In regards to news, I think the GDP number due out at 8:30 will overshadow this and set the tone for today's trading. We "know" that the economy is gaining ground. How can we not? It is the subject of every financial television show, financial publication and political discussion (especially as we are about to enter into an election year.) With a weakening dollar (that is only good IF you are able to export and currently who are we ABLE to export to?) and a shaky global political stage, this GDP number may provide us with some comfort away from the aforementioned noise (papers and TV.) Also on center stage is the Medicare vote due to take place at 9:15 AM. It is expected to pass so watch flows in the Drug stocks as they react to news in regards to this bill. Once again do not discount the fact that this is a holiday week and trading personal is lighter than usual, so volatility may be increased.

Technically, the broad indexes acted well and closed on their highs well above what was resistance. We are eleven points off the year's high on the SPX (1063) and it certainly feels like we will test that level! The levels to look for are pretty clear-cut here. Support is at 1042-1046 and resistance is at 1058-1062. Will GDP be the catalyst to break us out? Will it be more mid-quarter updates like the one we had from Novellus (NASDAQ: NVLS)? More likely it will be something NOT on everyone's mind. The Dow acted well, breaking out above its near-term resistance. Look for supply to enter the market in the 9775-9800 area. Support will be at 9690 and then at 9600 if we get there. The NDX put in a great show, gapping higher, clearing the 1400 level, and going on to close at 1419, its high. The new levels in the NDX are; resistance at 1430 and support at 1400.

As you might be able to infer, most sectors acted amazingly well. The BTK was able to breakout of its near-term resistance at 450 and move strongly higher to close at 461. In my opinion, this is an even more critical level because the index is pressing up against a descending trend line that connects the highs from September, October, and November. Coincidently, this level is also represented in its 50-day MA at 463. A strong close above 463 should push the BTK higher and into the 480 level. The SOX broke out if its descending channel that was mentioned yesterday. It closed at 520 and appears ready to test its 52-wk high of 532. The news out of NVLS will have some impact on flows here and in my estimation the technicals look great. Watch for resistance at 532 and support at 510 and then 500. The BKX (Philly Bank) turned on 11/19, which was three days before the overall market did, has now retraced 50% from its recent high and recent low. Often times, this level provides a point of resistance where end rallies (or declines) sometimes reverse. I think this is something to be very mindful of. Any signs of weakness may also precipitate a decline in the overall indexes (i.e. SPX, Dow, and NDX.) The retailers were able to breakout and look great. As we enter into the busiest shopping weekend of the year we see this sector bid up in anticipation of a strong holiday shopping season. Cyclical stocks (CYC) exploded as well rallying off the 600 level and closing at their highs. Oil (XOI and OSX) was able to hold on to its low and the XOI (Amex Oil) rallied to close a touch below its 50-day MA (490). Obviously, a breakout above this level would be a positive. Lastly, the XAU (Philly Gold/Silver) traded lower but gained some ground in the afternoon. After a strong three-wave ascension the index retraced to its trend line where it held. In my opinion, Gold is in a pullback stage and weakness will be followed by strength. Watch resistance at 105, a break above that will not only set a new 52-wk high but also allow the index to enter into its fifth wave, which in my estimation should carry the XAU to 110.

Good Luck.
positions in various pharmaceutical and gold stocks

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