Santa Santa Where For Art Thou Santa? 12-27-05

Good Evening.

On Friday your friendly neighborhood Kcap Team predicted that sometime in the final week of the year we would likely have traders grieving over the demise of Santa. Today's action went a LONG way in cementing the notion that Santa is DEAD. Despite the fact that holiday sales were up almost 9% over last year and online sales practically reached 30%, there were no buyers to be found in today's stock market. The lack of buyers coupled with light to moderate selling was too much for the market to handle.

The combination of a low demand for stocks plus investors exiting positions over bad memories of January 2005 has created the perfect Bear Trap. Remember our thought process has been that the cruelest way for Santa to make an appearance would happen late in the week when nobody is around to receive his presents. We are still of this mindset.

If You Held a Taser To Our Head:
Despite our anticipation of upside action late this week and our very Bullish outlook for the longer term, we are developing serious concerns over the intermediate-term. For these purposes we are defining intermediate-term as the middle of January '06. The number of stocks making new highs has not reached the peak of a few weeks ago. There are still too many Bulls yet momentum is very hard to find. The low put/call ratio is indicative of complacency.

All-in-all we are expecting upside action in the very short-term starting in the next couple of days. However, the sustainability of an up move is in question until a more serious decline occurs mid January.

Don't get too discouraged yet.

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