So Far…Benign Decline 12-5-2005

Good Afternoon.

The U.S. Equity markets seem to be consolidating in a rather harmless fashion. Although the breadth is poor at 2:1 negative on the NASDAQ and Semi's are leading to the downside, traders should not be too surprised that it is the recent leaders that are experiencing profit taking. So far the market has done nothing wrong that would lead us to believe that the uptrend has been broken. In fact despite the 1% pullback that the market achieved earlier in the day, we would hope for a little further downside action between now and Wednesday. The market technicals would remain healthy even if the NADSAQ were to pullback around 2235-ish.

We have been pining away recently for the market to pullback and offer the much needed rest before leaping forward. Unfortunately every pullback has been shallow and without the required dose of fear. The performance anxiety from fund managers is so thick that the fear has clearly resided on their missing the upside. Perhaps this particular decline that we are experiencing today will lead to something different. A pullback that shakes out some Bulls and emboldens the Bears would be an ideal setup for a rally that would likely flow right into the New Year.

However, rather than attempt to anticipate such a decline or over analyze the internals of the market we have stated on these pages recently that we intend on playing "follow the market leader". In other words, we will stay very invested as long as the market exhibits strong upside action and benign downside action. Remember, our definition of benign downside action allows for some fear. It is when major technical levels are broken on an extended slow drift down decline is when we would get concerned for our intermediate Bullish view.

Furthermore, short-term Cliffs may make us lighten up for short-term trades but we would be quick to get back in.

Staying the long-side course for now.

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