The awaited pullback?

The market finally had a day of consolidation. Is this just the beginning of the long awaited shallow pullback before the dip buyers pounce or is this the beginning of something more ominous.

The Semi's was actually up on the day while the Small Caps and NASDAQ approximately .06%, in line with eachother. Overall volume on the NASDAQ was lighter than yesterday at 1.6billion shares and 1.39billion shares on the NYSE. Pullbacks on decreasing volume should be the bulls desire. Breadth however was 2-1 negative on both the NASDAQ and the NYSE which is a little concerning.

Oil finished the day up approximately 1% at $60.57 and did not do much consolidation as we had expected. We are looking for the recent oil strength to have a day or two of consolidation before it could have a meaningful attempt to break to new highs; which we believe would culminate around the $65-$67 price per barrel.

Key stocks that we outlined in prior posts such as WFMI and IM maintained impressive strength through out the day and into the close. This is further evidence traders are willing to overlook valuations and pile into any names that show significant positive surprises.

In GOOGLE Land, the stock has been under slow but steady downward pressure which is a prelude, we believe, to the next significant upward move. We would scale into long positions on GOOG over the next 10 or so down points, looking for substantial profit potential for the stock to hit our price target of $375 per share over the next 6 months.

The market used higher interest rates today as an excuse to finally give back some of its recent gains. We believe interest rates will continue a slow drift higher over the next few months, primarily from stronger than expected GDP growth over the next few quarters. Today's jump in interest rates should not be viewed as an inflationary threat but rather as a foreshadowing of future growth that will likely materialize as inventories are replenished. The bond market which does an excellent job at forecasting future inflation and or economic growth is most likely recognizing that growth will be the key driver of higher rates, not necessarily inflation. As long as productivity remains robust, the economy is likely to enter a "sweet spot" of strong economic growth with inventory building, new product cycles, and benign inflation. Rather than get spooked by the jump in interest rates today we plan on scaling into positions on shallow dips and getting aggressively long on sharper more rapid declines. We will be watching future economic reports of productivity closely.

All-in-all the pieces of the puzzle are coming together for our theory of a second half bull market that we believe will have significant legs to carry it well into 2006.

If you held a Taser to our head: We are looking forward and are excited to deploy some of our cash into this pullback. In fact we hope that the pullback can go a little further. Should the market reverse and resume its upward trajectory on Monday we would most likely make partial sales into strength expecting the market to pullback more sharply midweek. This would afford us the opportunity to make more aggressive purchases.

-Everybody do your weekend thing and we'll see you on Monday-

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