Consolidation Starting to Look Promising

The wall of worry is starting to be rebuilt as the market for a second day in a row has failed to inspire the Bulls. Despite bouncing nicely off of the lows, the NASDAQ still managed to lose 0.4%. Breadth was poor at almost 2:1 negative yet the volume was a little lighter than yesterday. Thus far this pullback still smells like orderly profit taking. Perhaps if some Bears can be found they may attempt a little follow through selling tomorrow which would finally inject some fear into the market. Clearly the Bulls have been too complacent and need a good spanking.

After the Bell General Motors (GM) confirmed that they are in discussions with Kirk Kerkorian for representation on the Board of Directors. In addition Texas Instruments (TXN) and Xilinx (XLNX) provided solid earnings and guidance news. Will the Bears seize the opportunity to fade any morning optimism that materializes from this news? More importantly, will the Dip Buyers fade the faders once it is evident that fear has finally arrived?

Tune in tomorrow…same bat time…same bat channel, for answers to these questions.

If You Held a Taser to Our Head:
We have been using the select moments of strength in the last few days to decrease our net long exposure. We have also rotated out of extended high beta names and purchased strong companies with good news that seem less vulnerable. Some recent sales over the past few days were in the Internet space i.e. Google (GOOG), Yahoo (YHOO), Overstock.com (OSTK), and ValueClick (VCLK). Some recent buys include Cisco (CSCO), General Electric (GE), Goldman Sachs (GS), J.P. Morgan (JPM), and Hewlett Packard (HPQ). Our intention is to use our cash to buy back some of the names that we sold as well as high beta, solid performing, low priced technology stocks. We believe these types of securities will be used by underinvested Bulls in a last desperate attempt to play catch-up. However we're hoping for the Fear Factor (and we don't mean the TV show) to rise before we take the beta plunge.

Hope you traded well.

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