"Denial" Ain't Just a River in Egypt

And that's how it feels when the Bear does the "nasty" to you (in case you've forgotten)! For the first time in two weeks, some Bulls are underwater. Their staying power has always been in question therefore; they will most likely use any strength to fly the coop (since when do Bulls have wings?).

The Dow Jones was down 0.8% and the NASDAQ was off 0.5%. The real news is the poor performance in the Small Cap sector, down 1.1%. Once again, had it not been for the decent performance in Semiconductors this market would have picked up downside acceleration. In fact, the strength in the Semiconductors spilled over into the Large Cap sector, with the NDX only down 0.3%. A problem for the Bulls is that it's hard to trust the Semiconductors to sustain any trend. The Volatility Index (VIX) was up 6.4% but closed at a relatively low 12.39. Not until this measure approaches 14 to 15 will we consider it jumpy enough to signal capitulatory fear.

We are in the infancy of earnings warnings season and Best Buy (BBY) gave us a prelude. Expect more of the same as companies uniformly blame Katrina for everything from light revenues to the CEO's battle with his ex-wife. The positive reaction from the stock market to bad news over the past two weeks was most likely unsustainable as we have discussed in previous posts. Mr. Market was just evil enough to bring in more underinvested Bulls before taking them to the slaughter house (kind of like a science fiction movie).

If You Held a Taser to Our Head:
We will maintain our Bearish position of less than 20% invested for the time being. The "In-Denial" Dip Buyers may provide a few more quick pops. We may consider playing some quick long-side trades with tight stops however, our larger inclination will be to build up our short position.

See You Tomorrow

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