There's Nothing Like a Nice Pair of SOX 11-2-05

Good Afternoon.

Our feet are feeling all warm and toasty as our heavy exposure in the Semiconductors (SOX) starts to heat up. The SOX seems to be finally coming to life which is leading the NASDAQ higher. As goes the SOX so goes the NASDAQ and as goes the NASDAQ so goes the overall market. The solid performance in Small Caps doesn't hurt matters either. In the face of some controversial earnings reports from Mega-caps recently the market is acting very well.

There is nothing more fascinating than to watch traders and money managers freak out with a heavy dose of performance anxiety. Fundamentals be darned, they want in this market with only two months left in the year if they think they are going to be left behind. Not only do they want in but they want beta. Few money managers are hitting the ball out of the park this year and many are in danger of closing down. Chasing beta at this point not only seems like the right thing to do but is perceived as almost a no choice scenario. The interesting thing is that despite their skepticism the fundamentals under the surface of this market are quite strong.

We were please with the results of earnings season and remain confident that pullbacks will be met by strong buyers who also appreciate the underlying strength. As it becomes more evident that earnings expectations and top-line sales forecasts will need to be raised dramatically for Technology companies in 2006; we expect the Bull to actually get out of control with giddiness.

In the near-term we need to see the NASDAQ close and base above 2147. Our analysis shows that many traders consider this to be breakout territory. Until we can convincingly capture that level the market will still be subject to large swings. Watch for the dips to become increasingly shallow as time progresses.

Your friendly neighborhood Kcap Team has been preaching recently that macho traders should remove their trading hats and FORCE their heads into investing hats. We know this makes them feel un-cool and a little nerdy wearing an investing hat but when it comes to big money nerds often rule the world.

If you're long stay the course. Don't trade. If you're not long then you haven't been paying attention so there's no use in us giving you advice now!

Hope you're doing well.

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