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Breakfast with Brodsky


Seems the holiday cheer has spread to the S&P and Dow as they were able to climb yet again to another new closing 52-week high. On the flip side it looks like the holidays arrived early for the NDX (try back in Apr-Sept.) and now it is acting more like the Grinch. The NDX seems unable to get out of its own way and has been consolidating for the last two weeks. Lets take a closer look at this index.

Each time the NDX has consolidated over the course of the past year (end of April, June, end of Sept.) it has more or less exploded to the upside. After opening at the height of its recent range, 1450, the NDX has sold off steadily throughout the month of December. The SOX, which has been the year's best performing sector in tech, has been a root cause of this as the semis have corrected in recent times. Is the move in tech over? Should we pack up our things, throw money into defensive names and shun tech? I'm not!

Yes, I own many "defensive names" (this term bothers me somewhat because what is defensive? If the market is going to tank, people will sell across the board) but I certainly don't think the move in tech is done. Tech, like the overall market, is a big game of musical chairs where you have to find the next chair (sector) before the music stops. So while the NDX is waiting for the music to start again, everything appears to be resting. So when will the music start again you ask? If I had to guess, after the New Year.

Right now the music is blasting in the Dow and its components continue to trade higher in what looks like a move into the end of the year. Those who have been reading me for a while are probably sick of me talking about this move because I began to forecast it back in November. Keeping that in mind, realize that the move may in fact be in the ninth inning and I am riding my longs here and will look to scale out over the next two weeks. At the same time I will be looking for a chair, as the music here will stop soon.

I bet that when the Dow begins to consolidate we will once again see the NDX get up and start moving and shaking to the beat of the music, until people are so into the dance that they will continue to hear the music long after it stops! I think they call that song the Jig of 2000-2001.

Yesterday's action was good as the S&P double bottomed at 1071 before rising to a new closing 52-week high. We are at a critical level in the S&P and Dow because they are close to breaking above their recent resistance levels. Look for the S&P to break above 1080 on a push higher and the Dow needs to hold the 10,140 level and push above yesterday's high to get the juices flowing. Look for resistance in the NDX to be 1410; a push here could ignite buyers.

The BTK (Amex biotech) has been holding the 463-470 area very well and a push above 473 could break these stocks out. The SOX (Philly semi) has been extremely weak recently. Support is at 470 and a break of that level could send this index down to its October low which was 450. A strong trade and close above 486, in my opinion, may turn the sector back into a buy.

The piggies (BKX; Philly bank) have been hanging tough and a break above 950 could fuel a strong move higher. I am going to be watching this level like a hawk because we all know that when the banks move higher, the market usually follows suit. Oils continued to move higher as it appears that money wants to be put to work in the XOI (Amex Oil) and OSX (Oil service) names. Retail woke up yesterday although I am going to watch the IRH to make sure that 86.70 holds (yesterday's low) before looking to put any money to work here.

The DRG (Pharma) appears to be tracing out a cup and handle pattern and resistance is at 326. A strong close above that level could break the index out. The Cyclical (CYC) stocks appear to be strong and are close to breaking out as well. Watch for the 650 level to hold. Lastly, the XAU (Gold/Silver) has had, in my view, a pretty decent and orderly pullback. A trade above 107 could push the index back into favor and carry it to 112. Look for support at 104.

Good Luck.

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positions in various pharmaceutical, cyclical, and gold stocks

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