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Breakfast with Brodsky


I'll take over from here....

Good morning, as we enter into April (is it really April already?) the futures are flat after ending one of the toughest months for the market in almost a year. We certainly saw our fair share of volatility with earnings news, upgrades/downgrades, and of course, end of the month/quarter action. Trying to separate what was really important versus just noise I think we are left with a few things to consider: the action in Best Buy (BBY: NYSE), the Qlogic (QLGC: NYSE) disaster, the Sabre (TSG: NYSE) upside pre-announcement, and lastly the overall action in the S&P.

Looking at a chart of Best Buy from December, we can clearly see that the stock has had some issues. After falling from a high of about $63, it steadily drifted lower where it found some demand last week at the $46-ish range. The stock has been lagging, much like the entire market, and yesterday they reported earnings. The earnings were not bad, but they also were not stellar, blow away numbers but the stock rallied to finish the day off its highs but still up $3.32. Call it short covering, long buying, momentum guys piling in, whatever it was the stock pushed higher and this may be a sign of what we can expect from earnings if the market stays at its current level.

Expectations are so low right now that anything short of a disaster may be rewarded and in a big way. This brings me to Qlogic. The company pre-announced negatively and said that numbers would be a bit lower than expected. The stock got pummeled and finished the day down almost $10 and about 25%. This is the type of environment we are in right now, you get killed, you make get rewarded. One thing to point out is that this stock has been grossly under-performing the market. Looking at a chart this is not a company that had been trending higher.

The last mover and shaker was Sabre Holdings. This company pre-announced positively, and said that its holding was performing well. Again, we are seeing a company finish the day up almost $4 off of news that things would be better than expected.

I have highlighted these examples because I believe they accurately depict what is going on right now in the marketplace. People's expectations have been hit so hard by the correction that we experienced last month and although the market has rallied back some, our optimism has not. In the next few weeks leading up to earnings season I believe it will be important to examine what moves, and why, each day in the marketplace.

The overall market action is always a bit skewed on any month/quarter end. The S&P did break above the 1125 level mid-day yesterday setting off what looked to me like stops that carried us into the 1130 range for a few minutes. The market did settle down and closed right above the 1125 mark. I am still looking at 1135 as the next level of resistance but the market does feel like it is going to take a rest. The RSI is topping out a bit and a pull back into the 1100 range would not be out of the question in my opinion.

We have a slew of economic data coming to market this morning. PPI, Initial Jobless Claims and the ISM numbers will be sure to shake us around a bit. After people jumped in headfirst last quarter (look at the beginning of January action) I have a feeling that the money may remain on the sideline until a better picture of the market forms. Good Luck.

No positions in stocks mentioned.

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