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Breakfast with Brodsky


I don't know how much longer I can hold on to the S&P...

Good morning. As we get ready to fire up the machines on this Friday, we will have a slew of economic data thrown at us as well as more Intel (INTC: NASD) news to stomach. I want to examine the SOX for a quick moment because if there is one sector to me that personifies the NDX, and tech in general, it is the semi sector.

This past week almost every bank made comments in regards to the semis. We had banks cutting estimates, other banks raising guidance and everything in between. With all of this news being thrown at this sector it is no wonder it traded in a tight range (500-510 with a small deviation.) Since this sector is so heavily trafficked by so many different types of investors, a tight trading range allows all of them to battle it out. One can imagine the shorts that have piled in this week as well as many people who probably got long the sector thinking all the bad news was priced in. Bottom line: with so many interested parties involved now, when the SOX breaks out of its tight trading range, the move could be violent.

This is something that I will be keeping a watch on simply because in my opinion as goes the semis, goes the NDX. Also by watching the SOX trade we get a feel for investor sentiment, or at least where and how the fast money crowd is positioned. Aside from the SOX (where all eyes will be after INTC's mid-quarter last night) where are we in terms of the overall market?

We did see general interest in the market yesterday as everything from tech to banks was actively bid for. The Broker/Dealers were exceptionally strong and the BKX (Banks) did not back down although they have yet to breakout to new highs again. Look at a 10-day chart of the S&P 500 and you will see a cup and handle formation (bullish) and a trade above 1157.50 could ignite a market rally. Remember we have been at this level three times in the past month and a half and one has to wonder how much supply is left at that level.

Although Intel is currently trading down, would a snapback rally send the NDX to test 1500 again? With the market bumping up against resistance (that has recently been tested numerous times thus reducing its effectiveness as a key supply level) could today bring us to fresh new 52-week highs? Stranger things have happened on Fridays before.

Again, I am letting the S&P action dictate my trading and a hard break above 1157.50 could push the S&P and the entire market, much higher. In regards to the NDX, a breakout above 1506 would pierce that descending trend line that traces back to the January highs. Considering all these factors (S&P close to breakout, NDX on support) one could say that the risk/reward is leaning towards being long. Good Luck.

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No positions in stocks mentioned.

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