Home Sweet Home…We Think

The stock market acted like Vincent Price and gave us a little bit of "Fright Night". The volume was heavy at over 2billion shares on both the NYSE and the NASDAQ. However, the breadth was only around 2:1 negative; lighter than you would imagine on a capitulation day. Furthermore, the Small Cap Sector outperformed the Semi's which indicates some speculative buying under the surface. The Semiconductors retraced most of their recent gains. The Volatility Index (VIX) got a little bit jumpy but resembled more of a Mexican jumping bean than a Kangaroo. Oil declined and closed under $62/barrel yet that did not even help the stock market.

There is no more powerful force in the market than that of the Federal Reserve. Even minor players such as Richard Fisher (Dallas Fed President) have the ability to cause severe market reactions. The stock market was already in a downtrend and Mr. Fisher's comments accelerated the selling. The Fed seems to be going out of their way to remind the market that their job is not done. A true contrarian should welcome this news and start to believe that as the jaw-boning of the fed increases the resolve of the fed to actually raise rates may decrease. However, this is not enough of a reason to make a substantial contrarian bet.

Regular readers will know that your Friendly Neighborhood Kcap Team has been eyeballing NASDAQ 2077 as our target for the capitulatory rinse. Many of you have been reminding us to be careful of what we wish for. Indeed our adrenaline has been pumping as we have added significant exposure into this panic sell off. We scaled into numerous positions with the NASDAQ averaging 2077. Our new net long exposure is 60%.

If You Held a Taser to Our Head:
We are not declaring that the market has reached the ultimate bottom at this point in time. We are simply suggesting that a window of opportunity now exists that we MAY have reached the ultimate bottom. Over the next few days we will observe the stock market's reaction around these levels and whether or not more significant selling pressure is ahead. We will be analyzing the internal health of the stock market i.e. the makeup of bounces, leadership, breadth, fundamental news flow, etc. in order to get a full determination. This is the markets first trip down to these levels since the London Bombings in early July. A bounce and at least one retest are likely before the market blasts off. For this reason our 40% cash hoard will remain safely tucked into the money market until we have the proper evidence. We will not hesitate to hedge our positions if we feel uncomfortable with the action in the market over the next couple of days.

See You Tomorrow…We're getting horny!

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