The Internals Mess with your Internals! 12-2-05

Good Afternoon.

The Nonfarm payroll report this morning had long curly gold hair and bright blue eyes. In other words, Goldilocks…not too hot not too cold. 215,000 new jobs was right inline with estimates and a healthy revision in September of 80,000 jobs didn't hurt. The market continues to impress as dip buyers continue their THANG! There is no doubt that the tremendous liquidity from sideline cash on a Global basis is fueling the U.S. Equity Markets. In addition, rotation out of asset classes that are in a topping formation are a powerful force for the Bulls.

Despite the market being very overbought the above mentioned factors are trumping any fault in the internals. Most participants these days that move the markets are of the Hedge Fund variety. Therefore, the cracks in the internals are evident for everyone's viewing pleasure. This is the reason why traders refuse to get fully immersed into the long-side action. Consequently there continues to be a steady diet of cash preventing the dips from getting out of control.

In other words it seems that after all of the analysis is complete and the market is surely showing signs of fatigue that is when the upside Spikes ferociously show up, further sending Hedge Fund Bulls scrambling. The higher highs in the Russell 2000 is further evidence of the catch-up trades that are taking place as lagging money managers are searching for beta. Perhaps the market internals will need to glisten and be squeaky clean providing a breakout in the averages (Dow 11,000) to fully convince the underinvested Bulls to fully immerse. Ironically and as always that is when we may truly correct.

Your friendly neighborhood Kcap Team is just thinking out loud and following our own advice given yesterday of not trying to outthink the market at this juncture. Therefore, we are very invested until the price action tells us otherwise.

This will be out last post until Monday morning due to client meetings.

Have a nice weekend.

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