Breakfast with Brodsky
Ok, so we brokeout and made a new 52-week high! The SPX is breaking into a new range, which I will discuss in a minute, and all this while Gold makes new highs and the US Dollar is making new lows. The economic environment is clearly in a recovery stage and businesses in every sector are continuing to pick up on both the top and bottom lines. I know it is only early December but it does feel like we could get that highly anticipated "Year End" rally that people have been forecasting.
The bears are out there pounding the table on this issue saying that the fact that EVERYONE is looking for a year-end rally is evidence enough that it will not happen. This brings me back to a more recent time when I heard the bears screaming this argument, March of this year. As we headed into war EVERYONE said that we would rally once we got word that the war would be a quick one, and guess what!? We did rally. In fact we are still experiencing that rally. My point? People often talk but very few put their money where their mouths are. Looking at the volume we can see that this is setting up to be another example of this phenomenon. Volume is not at explosive levels and we continue to chug higher. No one is throwing tons of money at this market, even here! So as we head into the New Year and are setting up for what appears to be a nice run, the bulls thank you. The bulls thank the people that keep talking about the rally into the New Year but don't buy; it is you who is keeping this run alive. Because in my humble opinion, there one thing that is for sure, once you see massive volume trading here, you will see me writing from Colorado. At that point no one will be left to buy and we may have topped. Only time will tell.
As the futures hover around unchanged this morning, I would like to take a minute and review yesterday's action especially since we closed at 1070 in the SPX. This is a rather big level and not only because it is a new 52-week high. If we take the peak of the S&P 500 (1552), which occurred in 2000, and the low tick in Oct. 2002 (768) we can see that 1070 represents a 38% retracement from the high to the low. This is a Fibonacci number that tends to be decent support or resistance on most charts. Not only is this 1070 level a 38% retracement but it is also where the S&P made a triple bottom in late 2001 and early 2002 before breaking down to 768 where it bottomed in late 2002. So while we can celebrate that we have made it this far, remember that the area from 950 to 1070 did not provide much resistance on a longer-term chart. Does this mean that we fail? I don't think so because the economic and business environments are in an up trend rather then a down trend like the last time we were here. But I would be on the lookout for some supply as we enter into the next trading area of the SPX, which is 1067-1070 to 1160-1170. Yes I know that it a 100 point range and represents a little less than a 10% move up but that is the new trading range if we are able to hold this current level.
In the near term, resistance for the SPX lives in the 1075-1080 range while support can be found in the 1060 area. The Dow stalled right at its old highs that were made in early November. The 9900 level is proving to be a resistance level and look at 9800 to provide support. The NDX also stalled at its November high which is 1453. This is still resistance, while 1425 represents new support.
The BTK exploded to the upside once the 462 level was breached. It did stop at 480, which I highlighted as resistance in yesterday's note. Look for 470 to provide support. I usually write about the action in Gold last but I want to highlight it for a second here. After opening on its high, Gold stocks (XAU) faded before catching a bid at around 11:00 AM. The XAU went on to take out the morning highs (111) and close strong and extremely bid for at 112.21. Gold, the metal, is trading above $400 and in my opinion higher prices are on the horizon. Look at 110 then 108 to provide support. The SOX was left out of yesterday's rally. After opening on its highs the semis faded and did not wake up until late afternoon before staging a nice rally. The semis have been leading the market all year long and I wouldn't expect them to stop. Look at 536 to be resistance and 528 then 521 to act as support. The banks (BKX) acted tremendously closing above 950. Watch 957 to be the next meaningful level on the upside and 946 as key support. Retail was left out of yesterday's rally and the IRH (Amex Retail) appears to be building a bull flag. A break above 94, in my estimation, should push this index to new 52-week highs. The Cyclicals (CYC) also continued to breakout closing at new 52-week highs and also at the daily high. Lastly, after pulling back over the past two weeks, the DRG seems to have reversed and was able to close above 320. Resistance is now at 329 and support is at 315.
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