12-14-05 Traders Leave "Sox" on the Mantle

Good Evening

Yesterday on our post we mentioned that the market has been showing cracks in the internals and this was not going unnoticed by the Hedge Fund community. We further went on to predict that many Hedge Funds will get shaken out of the market due to their over analyzing of the internals. Ohhhh this market is sooo cruel…as once again it has Bitch Slapped most Hedge Funds with an intraday upward reversal after a small "shakeout" decline. Can we say Bitch Slapped? There…we just said it twice!

Nonetheless, the market is still in a consolidation mode as the internals in the NASDAQ are still underwhelming. The U.S. Dollar has been weak which is traditionally good for Gold but that group is still under consolidation pressure as well. The biggest problem with the market right now is the underperformance from the Semiconductors. They need to kick in to gear soon or this intraday upward reversal may be reversed in the coming days! Don't get us wrong, we would be very satisfied with another day or two of sideways action. A little more consolidation would be ideal for a rally just prior to the Holidays.

Has anyone seen that other index called the Dow? Once again 11,000 has come within sight. Boeing (BA), Exxon Mobile (XOM), Honeywell (HON), Merck (MRK), as well as utilities and the energy complex are all leading the Dow higher. While this display is admirable, most beta chasers that need to play catch-up prefer the four lettered freaks in the NASDAQ. Therefore, post a little more consolidation, we still expect new highs in the NASDAQ before Year End, possibly in the next few days.

If You Held a Taser to Our Head:
Although the NASDAQ did a little shakeout and managed to close in respectable territory it is still clearly not out of the woods. The action in the final two hours of the trading day further demonstrated the lack of positive follow-through momentum. No serious damage has been done; in fact the small shakeout this morning has actually strengthened the consolidation. We are closely watching the slight downtrend that has developed since the peak immediately following the Fed announcement. The NASDAQ needs to breach 2272 in the next few days in order to negate this pattern.

We believe the NASDAQ will be able to accomplish this feat and more.

Have a good night.

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