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Breakfast with Brodsky


My head is killing me...

Good morning. Yesterday's wild market moves have really become synonymous with how 2004's trading environment has been. While the NDX has been trading lower in a steady trend throughout the year, recently, the S&P has caught up in a much more violent fashion. Now, I am certainly not one who has called this market correctly or has been 100% short throughout 2004 but as we head into earnings season in a few weeks and close out the quarter it never hurts to review.

Certain things go without saying and one of them is that trading had become a bit out of control. Where current headlines are starting to become more bearish (which to me is a sign of bullishness,) the beginning of the month was filled with talk and print about how we were going to the moon. People were buying stocks like Natus Medical (BABY: NASD) because (MAMA: NASD) was bid up. Looking back this is ridiculous but a few weeks ago (on March. 3) this took place.

Since this time the environment has had a dramatic change. Not only have high beta names been chopped down, but also so have safety stocks whose earnings and business are growing and healthy. This month has been painful for me and I am sure many others out there but I have no one to blame but myself. Recently, I read through some of my past missives with the hope of trying to get some guidance in a marketplace, which currently offers none.

It is almost as if this year was destined to start off with a downdraft. On January 22, 2004 something happened that should have sent us all running for the exits and judging by the NDX's performance since then, they have. A little company named Global Crossing (GLBC:NASD) was re-listed on the NASDAQ and two days later the NDX topped out, as did the stock. Coincidence or did this company bag people for the second time? Have we learned nothing from out past? Hindsight is 20/20 and clearly the first quarter of 2004 has been marked with many of these instances.

This is neither here nor there anymore and our sights are now focused on the remainder of 2004. One hope that I have is that the current correction has priced stocks in such a way that people may get excited about earnings again. The general psychology of people has been beaten down to a pulp and the market, in my opinion, is at a very critical juncture.

On one hand, we can think about some of the possible catalysts to get excited about and that may juice this market up again. Will it be an up tick in IT spending? Will companies again start spending money in a fashion that will hopefully make up for the consumer who is awash in debt? Hopefully with all the media attention given to the price of crude right now, we are at a top (temporary, as the price of oil in my opinion will continue to rise for a greater part of the decade); and will we see prices start to come down which may alleviate business costs? Or will it be job growth? Could it be a widening of the current Presidential race and will the market price in less uncertainty?

Whatever it is there are some beacons of light that could lift us from this poor picture. As for now though, we are stuck in the hangover phase. The drunk delight that was experienced in 2003 is being worked off and for now it looks like we will need more than some aspirin and a big breakfast to get out of this one. For now, the best we can hope for is some stabilization, which may hook the big money to jump back in.

One thought I will leave you with and that is worrying me to no end is the fact that on Monday we experienced a 12 to 1 down vs. up day. Historically, this is the sign of a bottoming market since the 12 to 1 ratio is indicative of panic selling. The fact that we were unable to rally yesterday and HOLD is a bit concerning. The last half hour of the day was marked by selling but it almost felt as if someone was trying to pin the market down. That being said, the next few days will be critical and will be telling as far as where we are headed. Good Luck.

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No positions in stocks mentioned.

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