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Breakfast with Brodsky


Good morning. As we head into this short holiday week we can guess that most traders (that are actually in the office) will be treading lightly and not in the mood to take on much risk. It's so close to the end of the year and unless there is a hardcore reason to buy/sell (tax loss, tax gain, major news catalyst) I would gather that most people will stay out of the way and look forward to some time off at the end of the week.

If you have had the pleasure of turning on the news this morning you already know that the Terror Level has been raised one level to "High." The futures are bid up small this morning and seem to be shrugging that news off. Looking to the week's economic calendar we have GDP and U of Mich numbers tomorrow. On Christmas Eve, we will get jobless numbers and durable good orders to digest before the holiday.

The only theme that I continue to see is big cap stocks continuing to be bid up. Take a look at any major big cap Dow name (Alcoa (AA: NYSE), Boeing (BA: NYSE), Caterpillar (CAT: NYSE), 3M (MMM: NYSE) United Tech (UTX: NYSE)), and it's easy to see where the money has been flowing, and in my opinion, where it will continue to flow into next week. The "End of Year Rally" trade in these names could be coming to an end, and January will bring us more themes and opportunities to trade.

In the coming weeks will we see the NDX regain its footing and become the dominant index again? Looking at the chart it sure looks like that possibly could become a reality. The NDX is in a rising wedge pattern and the resistance levels that have capped this index over the past two months may soon be breached. The NDX's 52-week high of 1453 could be broken if the index can make a hard push through its descending trend line which is currently at 1440. A strong move through this resistance level could spark an interest in NDX names again and draw dollars back into Techland. Will this be the catalyst to cool down these red-hot Dow names? Could be. This is something to keep a close eye on as we quickly approach the end of the year.

The BTK (Amex biotech) seems to be tracing out a cup & handle pattern and a break above 480 could spark a push to 500. Watch resistance at 480 and support at 460. After pulling back throughout most of December, the SOX (Philly semi) seems to have found a home over the last week. The index is range bound with resistance at 500 and support at 470-474. A break and strong close above 500 could push the index back into favor and possibly carry it back to its 52-week high of 530.

The Banks (BKX) were able to firm up and pull away from the 950 level that had been resistance, and close on a new 52-week high. This is important because banks make up such a big part of the S&P and a healthy banking picture is viewed as a healthy sign for the overall market. Watch support at 954 and then 950 here.

After exploding last Thursday, the OSX (Oil service) and XOI (Oil) took a small breather on Friday. It is an undeniable fact that these indices are in a strong up trend and one could expect these areas to continue to perform well. The Retailers (IRH) held on its test of the 85 support level and on a break above 89-90 could see higher levels.

The DRG (Pharma) is testing the resistance at 329 and a push through this level could break the index out in the near term. Watch 324 as support. The CYC (cyclical) continues to move higher as it made a new 52-week high on Friday. Look at 657 as support.

Lastly, gold the metal has broken out to new highs this morning. The gold stocks however have under performed the metal over the past two weeks. If the XAU (Gold/Silver) can hold support at 101-102 and trade above 104.58, it could turn back in favor and possibly move into the 110 area.

Good Luck.

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position in Caterpillar, 3M

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