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Breakfast with Brodsky


Be careful during earnings season...

Good morning, as the S&P took a breather yesterday, we are once again eyeing that 1158-1160 level that seemed so far away just a short time ago. So now what? The pressure to get long is certainly on the top of everyone's mind as we are all waiting for a dip to buy everything across the board. Technology is leading the way ever since the NDX broke out of its descending trend line and rallied about 10% from the March lows.

Traders' eyes are less focused on the Economic numbers as we are about to get the first major earnings announcement tonight. Yahoo! (YHOO: NASD) and Genentech (DNA: NYSE) are reporting after the bell and taking a look at both charts one could certainly make the argument that high expectations are built into the stocks. Research in Motion (RIMM :NASD) is also set to report tonight and if there is one stock that epitomizes this bull run, I believe it is RIMM.

Although one could make the argument that everything is priced into the shares the real test will come tonight/tomorrow as the stocks react to the news. The market as a whole has rallied, but I still have the feeling that a lot of money remains on the sidelines and it will be interesting to see what the initial reaction is to these earnings and more importantly the follow through into tomorrow.

Technically the market acts well but as we head into a minefield of data (earnings season) it is important to remember that technicals will take a backseat to fundamental data. Sure we see that the S&P has overhead in the 1158-1160 area and support is at 1134 and then at 1123. The levels in the NDX are support is at 1470 then 1460. Overhead remains at 1500 and then 1510-1520. Again, it is important to keep in mind that the market will be moving off of company specific news and NOT technical levels. To me, the best guide during earnings season is to watch and see what is bought and sold and WHY. Although the heart of earnings season is not yet upon us, it begins today and looking back over the past two to three quarters we can see what a tough time to trade it has been. Good Luck.

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