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Breakfast with Brodsky


Good morning. What a solid day for the markets yesterday as we witnessed the Dow and S&P climb to new 52-week highs while the NDX appears to be on the same path. Market breadth was healthy but the one thing I was surprised about was the lack of participation in the rally within technology. The semis were the leader within tech but for the most part we did not see the typical "melt-up's" that have been synonymous with rally days like the one we had yesterday. What does this say? Nothing yet, but it certainly could be telling us that people's appetite for risk may have abated or it could be as simple as people's money may just want to go into other sectors!

With the dollar continuing to fall we are seeing the Cyclical stocks regain their footing and although the index (CYC) did not confirm a new high there could be enough shorts in those names now to continue to push them higher. The metals also picked up their pace and stocks like Phelps Dodge (PD: NYSE), were on the move, breaking out and not looking back!

Although most people were expecting rosy comments from Greenspan (and we got them) yesterday, we still have to ask ourselves if this was a continuation of the bigger trend (up) or if it was a snapback rally. While on the surface the indices certainly look healthy and I do expect more upside from here, I am more focused on whether we will get a chance to buy things at better prices. With technology lagging a bit, one has to question if it will catch up or if it is going to get left behind.

Personally, I think that some of the best earnings reports in recent times came out of the technology sector and what we may be seeing now is a "flight-to-quality" within tech. Sure the first 9 months lifted everything, but as we enter into the prolonged leg of this bull, we may start to see a divergence away from everything tech into tech with solid fundamentals. Companies like Silicon Labs (SLAB: NASD), Juniper (JNPR: NASD), Nortel (NT: NYSE), and Broadcom (BRCM: NASD) all reported blockbuster quarters and could see upside versus counterparts in their respective sectors who were unable to achieve such stellar results.

So where does this leave us now? With the indices breaking out, metals breaking out, the dollar falling and earnings season just an out behind us, we could be in for another month where the market trends higher. Generally speaking, over the past year or so, without many catalysts the market has taken to its overall trend, which appears to be up. Is this the beginning of yet another leg higher in the market? Only time will tell but so far it looks good to me.

Technically speaking the S&P, while making a new 52-week high, is not out of the woodwork quite yet. Resistance is in the 1155-1157 area and look for support if we pullback, at 1142, 1135, and then 1126. The chart of the Dow looks similar and the 10,700 area could fail and then look for support at 10,600-10,550.

The NDX was unable to make a new high yesterday but it does appear to have turned the corner and breakout of a reverse head & shoulders pattern with its close above 1507 yesterday. This is a bullish signal so watch for resistance at 1525 and then at 1555. Support is at 1500 and then at 1490. Good luck!

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position in SLAB, BRCM, NT

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