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Breakfast with Brodsky



Good morning. The futures are bid up this morning off a strong day for the market across the board yesterday. Some may attribute the strong action to a number of factors but to me the reason is simply that the trend is higher and this bull is not ready to die. Over the weekend, I did some reading and spoke to a number of people about their views on the current marketplace. Almost all of them had one thing in common - they all thought that this was the top and that we would sell off soon. I couldn't hide my excitement upon hearing this because as we all know, the more people looking for something specific to happen in the marketplace, the less likely it is to happen.

Take the massive amounts of deals recently. I have stated time and time again that I view this as such a positive for overall health of the market. Each time that I have offered my opinion, it is met with comparisons of 1999-2000. This is alarming for two reasons; one: people are still reeling and living in the past, and two: in my opinion people are failing to look at the forest and are instead focusing on the trees.

Everyone loves to reminisce about the heady days of 1999-2000 where so much was gained and lost. That's fine and I love talking about it too, but if you want to talk about that period of time, I suggest looking at it from a different angle - the business cycle. We all know that there are four stages to this cycle: 1) growth 2) shakeout 3) maturity and 4) decline. In my opinion, the 90's was all about growth. We had new companies popping up and doing business in ways that were never before imagined. The growth was tremendous and was shared by all - from Microsoft (MSFT: NASD) to start-ups everywhere.

Of course, frenzies never end well (looking back through history) and in 2000 we peaked and tanked. This, to me, was a nasty shakeout phase where the "real" companies survived and the speculative ones went by the wayside. In my opinion, this current bull has lifted everything once again but so far this year we have seen a divergence. We see companies with solid earnings, solid product cycles and good stories being bid up, while high fliers of 2003 are having trouble gaining ground. Take a look at Silicon Labs (SLAB: NASD) and Broadcom (BRCM: NASD) (which will make headlines today with its surprise conference call to discuss a stronger business outlook) and there are others that continue to travel higher and with good cause.

So as we take a step back and look at an overview of the business environment, we can see that things acted as they should. Could anyone time it perfectly? I sure didn't. But, if you are one of those people out there screaming that the market doesn't make any sense, maybe you should look again. Take Microsoft (MSFT: NASD) for instance. Here is a company, which I like to call a growth/value play. It is a technology company, but one that has matured. It has its hand in everything technological but to really achieve growth it may have to acquire. There is nothing wrong with this, take a look at GE (GE: NYSE). Even though this company has certainly entered into its "mature" phase of the business cycle, people will still look to it as a tech/growth bellwether! Makes no sense to me.

In conclusion, I think the business environment is strong, at least for now, and we are seeing signs of health across the board. The playing field is different from 1999-2000 and the sooner people realize that, the easier it may be to trade it.

The S&P has been in a tight trading range over the last four trading days. It keeps bumping its head up against resistance at 1157. A decisive break above this level could send the markets higher, so look at that level as a key market catalyst. On the downside, look for support in the 1140-1143 range. The Dow is trading in a similar pattern. Watch 10,735-10,745 as resistance and the 10,600 area to provide support.

The NDX has been flirting with the 1500 level since the end of January and it could be ready to breakout above this range. A strong trade above 1515 could set off a flurry of buying so watch that level to provide resistance. Look for 1494, and then 1480, to be the two key support levels. Good Luck.

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Position in BRCM and SLAB

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