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Breakfast with Brodsky


Watch the leaders for insight!

Good morning. Waking up this morning I wondered if I was in the twilight zone as I scanned today's news. Is it me or are stocks acting like they should? Yahoo! (YHOO: NASD) blew away numbers and the stock is trading UP! Dell (DELL: NASD) raised guidance and the stock is trading UP! Research in Motion (RIMM: NASD) slightly disappointed and the stock is trading LOWER! Things are acting like they should and that makes me nervous folks!

It's not that I am worried about the quality of earnings or even the level at which we are currently trading. It seems to me that most people have taken a sideline seat as we are about to enter into earnings season. Remember, the market is a reflection and a function of human psychology and after an extremely volatile month (March) coupled with the fact that the last four earnings periods have been particularly wild, it seems currently, that people prefer to be reactive opposed to proactive.

Again, this observation is made after one night, the first night of earnings season. But we are seeing what I like to refer to as a Vacuum Effect. This is when a company reports or announces something and you have everyone rush in on the same side at once. The hard part to trading this type of market is that we have no idea if people are really paying $53 for Yahoo!, or they just feel like they need to own the shares, in which case the first downtick will flush out the weak longs.

I think Bodhi from Point Break said it best when he said, "Fear causes hesitation, and hesitation will cause your worst fears to come true." That sums up my feelings on trading during earnings season. We hesitate to buy shares and when we do it is often at a terrible entry point, which causes us to second-guess ourselves. This pattern of course leads to our worst fears coming true: Losing money!

As we head into the long weekend you can bet people will be gearing up for earnings season. We will be looking at what got hit last period, what stocks disappointed, which ones raised guidance in the middle of the quarter, and what charts look like everything may be priced in. What stocks are hated? Which ones are loved? It's war out there and you better do your homework because you know your competitor is!

On the economic front we are getting Initial Jobless Claims at 8:30 but I think it is going to be overshadowed by corporate earnings. Again, be careful out there and try to fight that human emotion of having to get into every stock. It's poison to play like that during earnings and it is tough to watch stocks move that you think you should be in. With the market at the top of its range and everyone (TV analysts, print publications) expecting solid earnings we have to wonder what is priced into the overall market. I have said it before but I think that many people are not putting their money where their mouths are. What I mean is that although people may expect solid earnings it doesn't mean that everyone is long. Watch how stocks react and look at leaders to gain insight into what people are thinking and how they are positioned. Have a great weekend and as always, good luck.
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