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Breakfast with Brodsky



Unless you have been out of touch, I mean really out of touch, you all know that our armed forces have captured the elusive Saddam. As I, and I am sure most of you expected, the markets seem poised to rally. The Nikkei was up 2.8%, European markets are up over 1% across the board, and our markets look set to take off. Does the capture of one man, one man that has been out of power since March, justify a massive rally? What is so different from Friday that allows us to buy with more ease today? Was Saddam such a threat to our markets? Was he a massive threat to how business was being conducted?

Ok, I will buy the argument that Oil and Oil sensitive industries (transports, chemical companies, paper producers, etc.) will benefit from this because with Saddam out of the way, attacks against Oil fields may decline. But a broad based market rally? I mean think about it. Are you waking up and saying, "I am so happy we captured Saddam, the first thing I am going to do is to take some money and buy Cisco (CSCO:NASD)!!!!!" Funny thing is, there are some people saying that right now.

So let's recap some psychological barriers that have been broken over the last week. Dow 10,000 has been broken and we have closed higher than that magic level the last two trading days. Now Saddam has been caught (the media types are so happy because they have something to talk about other than how the flu is going to end us all, massive rain storms, or anything else that will fill the hours) and we have sent a message to the world and to the Iraqi forces that are still fighting against the good guys and that message is: we will get you.

I had mentioned a week or so ago about how some friends of mine have begun to get excited about the markets again now that we are trading around Dow 10,000. Does this latest piece of news force more retail money into the market? At some point we are going to have a correction and there are some factors that need to be addressed. Insider sales (stock options, IPO's, secondaries, converts) have been extremely high. This is called distribution. It is usually what happens in the latter stages of a market advance. This has been going on for a few months and yes the market has sucked up the supply but one has to wonder where it is going. Who is buying all this stock? Chances are that all that money which flowed into mutual funds since July has been buying it. Billions and billions of dollars have flowed into the US equities markets since July, and the SPX is up a touch more than 7%. Think about that. I don't have to spell it out for you.

Last subject I want to discuss is the matter of a "blow-off" top that people have been forecasting. This may be the spark needed to get it going. With Saddam out of the way and Dow 10,000 broken market shorts may throw in their hats and Mom & Pop may once again sink more money into the market. After all if you turn on the teletubbies and listen to them, this is a GREAT time to buy!!!! Today certainly marks a new chapter, the question is, is it a new beginning, or the beginning of the end.

Friday's markets continued the advance that began last Thursday and once again managed to close on their highs. The major indexes will all open higher this morning and it appears that the S&P and Dow will make new 52-week highs on the opening bell. Look for support in the S&P to be in the 1070-1075 range. Support for the Dow can be found in the 10,025-10,040 range. In my opinion, the chart of the NDX looks great and a trade above Friday's close of 1417, could push the index back into the 1450 range. Look for support to be at 1425 and resistance to be in the 1450 area.

Most indexes will be opening higher so let's take a quick rundown of support and resistance levels. The BTK (Amex Biotech) looks great and a trade above 472, could push us back into the resistance area of 488. The SOX (Philly Semi) is pushing up against the 500 level. Look for 500-503 to be resistance, and 494 (50-day MA) to act as support. If the 500-503 level is cleared, 515 should be the next resistance point. The banks (BKX) also look great and 956 should be the first level of resistance. The CYC (cyclical index) pushed to new 52-week highs on Friday; look for 639-643 to be the first support area. Lastly, Gold is trading down a few dollars and this will probably weigh the XAU down. Look for 103 to be the first support level, then 100-101.

Good Luck.

No positions in stocks mentioned.

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