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Breakfast with Brodsky


Here come the sellers! With Cisco (CSCO: NASD) trading down 5% in Europe, you can only expect our markets to be hit with sellers across the board to start the day. Were Cisco's numbers terrible? Was guidance that bad? Did Chambers finally break his optimistic ways and say that business was slowing? No, the numbers were not terrible, and Chambers said that business trends were stronger today than three months ago. Ok, guidance was not as bullish and that will be the rationalization for the stock to be down 5%.

Couple Cisco's numbers with a pre-announcement out of Ciena (CIEN: NASD), and one can gather what will be the weakest sector to start the day! I will not deny that these pieces of news will help the bear case and will weigh heavily on the tape. With the futures offered lower and nothing but negative news on the tape, we will see what this market is made of. Do buyers still exist? Are people still hungry for stocks?

As the first real test of this market since November continues, things are soon going to get interesting. The NDX, which is where most of the news is coming from today, could get its first test of its 50-day MA (1446) since mid-December. As we approach the 1450 area things could get a bit dicey. That level, 1450, was where we broke out from and is our first big level of support. If we trade down to the 1450 range, that would represent a 7.3% correction from the peak. Maybe all those people calling for a 5%-10% correction will finally be satisfied! We have already pulled back 5.5% as of yesterday's close from the high on 1/20.

The sell off in the NDX got a head start on both the Dow and S&P and with the futures lower; we could breakdown from that tight channel that has formed in the S&P over the last four trading days. In regards to the S&P's support levels we can look for 1126 to provide the first level of support and then 1121, which was where we held last Thursday, to be the next level of support. If the 1121 area is broken, look for support to come in at 1109. This would represent about a 4% correction from the peak.

The Dow has been struggling to hold the 10,500 level and has not closed decisively above it since mid-January. One reason for the lackluster action here is the fact that the Transportation index (TRAN) is down close to 8% since it peaked in mid-January. The first level of support in the Dow is at 10,400 and the next level comes in the 10,315-10,365 area. If we do trade down to the 10,300 area, that would be close to a 4% correction. Good Luck.
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