Google Sell off Sends Message to Kcap

Now that wasn't too painful…was it? But that's exactly the problem…it wasn't too painful. We need a little more battle between the Bulls and the Bears in order for the rally to thrust impressively higher. Like any good battle between couples, the make-up sex is usually very rewarding!

The breadth was negative but not terribly so. Volume was lighter than recent which is showing characteristics of an orderly pullback. In fact the new highs versus new lows improved pointing to a positive development with the internals.

Should the market provide a little more fireworks during this pullback and find stability mid-week, the stage will be set yet again for the Bulls. We're trying to find a way to incorporate performance anxiety and make-up sex into this post…but we'll leave that for your imagination.

We decreased our exposure in the internet sector today by selling Google (GOOG), Yahoo! (YHOO) and a few others. Our concern is that this specific group is showing some cracks foreshadowing something negative that could be quick and ugly. Should the internet group come under pressure it will likely be isolated due to the fact that rotation will likely occur into other sectors of technology. Furthermore, the financial sector, specifically the Brokerages are looking like a sweet candidate for some new cash. Therefore, we have increased our size in Goldman Sachs (GS), Bear Sterns (BSC), and Lehman Brothers (LEH) and are looking to add J.P. Morgan (JPM). When the internets pull back 5% or so, we will be happy to add back those names into our mix. If we are wrong on this projection we are not opposed to adding back our internet exposure into higher prices over the next few days.

If You Held a Taser to Our Head:
We are still positioned aggressively long despite our rotation from Internet exposure into Financials. We also continue to look for select buys in technology names that have had large runs, already pulled back and are showing some signs of being washed out.

Hope you traded well. See you tomorrow.

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