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Breakfast with Brodsky



As I shuffled out of the office yesterday I had a sick feeling in my stomach. Not sure if it was related to my meager performance yesterday or if it was something else. Something bigger. I find that one of the hardest parts of managing money is not the development of a sound plan but the execution of it. To have the conviction to know you are right is something that is so much harder to do than it is to say (what isn't?) As I mulled over the past two weeks (never a healthy thing) I came to the conclusion that not only must one develop a sensible plan but also one must have an edge. Without an edge we certainly cannot expect to be able to make money and return solid gains.

The type of edge I am talking about is something slightly ahead of the rest of the group. Whether you use technical charting, fundamentals, market/human psychology, an anticipated catalyst or anything else, you have to stick to your plan and let your trade unfold. That's the hard part. The combination of waiting for your trade to take place and being able to stick to your conviction is what plagues not only me at times but most traders.

I had a brief conversation with a well-seasoned fund manager last night about this current market and how it is so important to let a trade unfold. To stay with it and believe in your original thesis. This conversation was comforting to me on two levels. One, that this happens to veteran traders and not just me. And second, it made me realize how hard it is to get an edge these days. With so many market participants looking at the same charts, the same information, and using the same catalysts you have to alter your trading to compensate for that. Bottom line, develop a plan and adhere to it unless some parameter is broken. In these whippy times I thought that sharing this perspective might comfort some to know that you are not alone with your frustrations.

The market continued its slide yesterday although we did rally back late in the day to close down small. The S&P criss-crossed the 1060 level seven times before failing at around 2:30. After falling into the support area of 1050-1053, the market gained some footing and was able to close at 1059. Look for resistance in the S&P at 1060, and then at 1063. Support still lies in the 1050-1053 area. The Dow traded sideways and tested its near term support at 9900, which it held and rallied to close unchanged on the day. The NDX also had the same intra-day pattern and came close to touching its support of 1364 before rallying back to close up small on the day.

The BTK was able to hold the 460 level which I highlighted yesterday as a key support area. I would continue to watch this level and if the index was able to trade above yesterday's high (465) it could rally back above 470. The SOX traded in an extremely tight range and held the previous day's low of 478. Support still exists at that level and resistance is at 490 and then 495. The BKX (Banks) were able to hold their 50-day MA (934). Continue to watch this level for support and now that the index is back in its trading range (936-950) it could float back to the top of the range.

The Oil indexes (OSX and XOI) stalled out a bit yesterday and after a bit more than two weeks of gains a pullback would, in my mind, be considered healthy. In the OSX look for support in the 87 area and in the XOI look for 508, then 504 to hold. Retail (IRH) continued to slide for the seventh consecutive day and continues to paint a bearish picture. A strong trade back above 90 could put it back on track to trade higher.

The CYC (Cyclical) is having trouble breaking out above 638 which is its upper-trend line resistance. A break above that level could carry it higher. Look for support at 628. The XAU (Gold/Silver) got hammered yesterday and was the day's biggest loser. The index has now retraced 50% of its move from the November low to the December high. Look for 103 to hold and the next support level is at 100. Near-term resistance is at 105.

Good Luck.

positions in various pharmaceutical and gold stocks

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