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Breakfast with Brodsky



Good morning. Gracing the top of the headlines this morning is the 3% decline in the Nikkei and Gold making new highs as the USD (US Dollar) makes new lows. On television, they are saying decline in the Nikkei is due to selling off of Friday's jobs news but nevertheless down 3% is still down 3%. We have no economic numbers due out today but all eyes are on the FOMC meeting tomorrow. Will we receive any clues as to if and when a rate increase may occur? That's what everyone will be listening for.

As we rapidly approach the end of this year people are beginning to look toward 2004 and project what may come. As traders/fund managers/investors we are always looking toward the future and trying to gauge what the playing field may look like. With a falling dollar, a shaky global environment (both politically and economically) there may be much pessimism that the gains we experienced in 2003 may not be able to carry through into 2004. Whether that holds true or not we do have some catalysts to starting thinking about. It's never too early!

First off we can look forward to the Senate tackling the Energy Bill which may or may not help boost this sector which has been lagging over the past/current year. Secondly, it is an Election year and we can bet that the current administration will pull out all stops to ensure that this market remains strong into the re-election. At some point next year there may be a rate increase as well. What is this going to affect?

Tomorrow will certainly bring much speculation about that subject. How are our trade relations with China and Europe going to affect our economy? I could go on and on about what issues may be the focus of 2004 and I know it is early to start thinking about the macro-ish catalysts of the coming year but I think it is important to try and gauge them now. In my opinion, too often people focus on what's hot now and miss opportunities in other areas because of focusing on the immediate short term. There is nothing wrong with this, and in fact I trade a lot off the near term, but I certainly think it is important to have exposure in what may be the next bullish/bearish ideas before everyone else gets involved and saturates the market.

Now let's take a look at the short-term technicals of the market. The SPX continued to pullback on Friday and closed in the support area of 1060-1063. If you remember this is where we had difficulty breaking out back in November, where we topped out three times before ultimately getting through. Since it was such serious resistance one could gather that in terms of support it may also hold strong. Under 1060, look at 1057 (38% fibo retrace of recent move) then 1050-1052 (50% fibo retrace) to provide support. In regards to the Dow we can find support at 9800 and then 9721. In terms of a retracement from the November low to the recent highs, the NDX has pulled back the most. It closed at 1406, which is right above its 50% retrace of 1403, and its 50-day MA of 1400. In my opinion, I have found that when a major retracement level intersects with a major moving average it usually holds.

In regards to sectors, the XAU (Gold/Silver) should gather the most attention today with Gold breaking out to new highs. The index had an outside day on Friday (outside day is when the high and low of the recent day are higher and lower then the previous day's and it is a reversal in price) and appears to be heading higher. Look at 112.75 to provide resistance and 109 to be support. After Intel (INTC: NASD) released its mid-quarter Thursday night, the semis sold off all day on Friday to close on their lows. The SOX (Philly Semi) closed on support at 498. If the 495-498 area is breached look at its 50-day MA (488) to provide the next support area. In the last six months each time the SOX has tested its 50-day MA it has held. The BKX (Philly Banks)continued to pullback as well and could be setting up for a test of its 50-day MA (931.) Interestingly its 50-day intersects with a Gap opening that was made on Nov. 24. This is the next area of support. The OSX continued to move higher on Friday closing at its highs and just under the key 90 level. Retail stocks (IRH) were once again under pressure closing under support of 90. The DRG (Amex Pharma) continues to trade in a very tight range (318-321) and a breakout above 321 should push this index higher.

Good Luck.

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