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Breakfast with Brodsky



Good morning. Well Dow 10,000 came and went and all that it left us with was the question of why we all didn't fade that level! Ever since this number was touched every media engine has in some manner publicized this meaningless level, and it couldn't happen at a better time. I have two gripes in regards to this current issue. First I have a problem with today's media. Secondly, the timing of Dow 10,000 is happening, in my mind, in the 7th or 8th inning of this current rally.

Let's talk about the media for one second. If you turn on the news and listen to the headline stories, I am amazed that we as a people have lasted as long as we have. Whether it is the "most dangerous strain of influenza ever" or some other cockamamie headline designed to instill fear in you so that you either, a) spend a quarter on their newspaper or b) tune into the station long enough to hear a commercial sponsor or two, it is getting to be enough. I am getting sick of listening to new things that are bad for my health, or issues that have zero or little affect on me and most people (domestic and foreign.) If you don't know that smoking is bad for you, McDonald's gets you fat, or sun bathing for extended periods of time without sunscreen gives you cancer then get a clue.

Why this tirade against the media today? Because this morning as I turned on the television I heard two things, the first was some kind of muttering about Dow 10,000 and the second was about some horrible, terrible rain storm that's going on down south. It's a rainstorm and here the media is trying its best to blow that up into something to get us scared. I am sick of it.

Second issue of this morning is about Dow 10,000. Last night I received many calls from friends of mine that do not work in the financial markets asking my opinion about the current level. I asked them what the catalyst was behind this call and they all said the same thing. It was something to the effect of, "I have been waiting to invest and it's Dow 10,000 and I missed everything. Give me something to buy." That's just my friends. Multiply that across the country (and world) and you can imagine the anxiety of the average investor. They all feel they missed the latest run and anyone that's isn't involved in the market currently will be soon enough. It was either Livermore or Gann who said that the retail investor creates the last leg of a top or bottom. They come in and buy or sell stocks and are driven by either fear or greed (aren't we all). We very well may be at that point again. One thing for sure; people are sucking up the supply created by secondaries, converts, IPO's, and insider sales. Is this a classic distribution phase (also Gann)? Only time will tell.

The SPX pulled back to support at 1060 where it has held for the better part of the past three trading days. The Dow hit 10,003, turned lower, and closed at 9923, which had been resistance before the breakout two days ago. The tech laden NDX was the worst performer on the day. In the morning it took out Monday's high and looked like it was going to push forward but then abruptly turned around and closed below its 50-day MA (1403). Where do we go now? What will be the catalyst to take us higher? Lower? These are all questions that we should be asking ourselves.

As far as resistance and support levels go in the major indexes lets take a look. The SPX closed on support at 1060. If this level is breached look for a trade down into the 1050-1053 area. On the upside, resistance exists at 1070. The Dow's upside will be capped at yesterday's high of 10,003 while support is at 9900, then 9850. Aesthetically, the chart of the NDX looks the worst. Support lies in the 1350-1355 area where it held in October and November. Resistance is at 1400.

In terms of sector performance the Semis (SOX) was among the worst performers of the day. The SOX broke 498, then its 50-day (490) and went on to close at its low of 478. This is not a pretty chart and after being up almost 75% YTD at yesterday's onset one can imagine that there may be more long money to unwind out of this sector. The BTK (Amex Biotech) pulled back to close at 465. It is still above the 460 level where it broke out of at the end of November. Pay attention to support at 460. If it is broken we may see selling like we saw in the SOX yesterday.

The Banks (BKX) retraced Monday's entire move. They closed on support at 938. A break of this level may push them down to their 50-day MA, which is 933. Below that, look for support at 920. The Oils were strong all day and both the OSX (Oil service) and XOI (Oils) held their ground and advanced. Retail and software were among the laggards and do not appear to be bid for at all. The DRG (Pharma) and the CYC (Cyclical) ended the day down small but had some relative strength against the indexes. Lastly, the XAU (Gold/Silver) pulled back and closed on its low. Look for support at 105 and resistance at 109, then 111.

Good Luck.

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