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Breakfast with Brodsky


I believe it was Gann whose primary thesis involving what drives stocks included two factors: price and time. As we look at the price action that has occurred over the course of 2004 (almost a month and a half so far) we can see that the market has been range bound. The S&P has been trading in a range where support is at 1115 and resistance is at 1155. The Dow's comparable levels are 10,400 and 10,700. Both of these ranges span about 3.5% from highs (1155, 10,700) to lows (1115, 10,400.) As we approach mid-February we have spent almost seven weeks trading within this range.

So what is my point? Why am I outlining these levels and this time frame? We can't trade in this range forever. I am simply pointing out the levels where we are trading and stating that I believe when we break, it will be up and we will continue to trade along with the primary trend of the overall marketplace (please note this is not intended as advice).

We are beginning to see more and more consolidation with the Juniper (JNPR: NASD)/Netscreen (NSCN: NSAD) deal yesterday and we see NT Assembly (STTS: NASD) buying Chipaac (CHPC: NASD) today. I believe that these deals are healthy, not only because consolidation is always good, but it also shows that in light of everyone saying "the market is overvalued" deals are getting done.

After Friday's big move up, we saw a little pullback across the board. The S&P closed just shy of 1140 after topping out at 1145. Look for 1135 to provide some short-term support and 1145 to act as short-term resistance. Look for the Dow to run into supply at 10,620 and demand to enter the marketplace at 10,525.

The NDX couldn't break and close above 1500 yesterday. It was able to trade above it for a bit before reversing and closing at 1490. Look for resistance at 1500 and then at 1507 while support will enter at 1470. A strong close above 1507 could push this index right back on its way to its highs of 1560.

With Greenspan speaking tomorrow and everyone on edge about any hint that he may give about when rates might be hiked, we may see little action ahead of that report. I will be paying attention to the levels of the major indices to guide me through the next few days where we could see increased volatility. Good Luck.
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