We're Into Swapping 12-6-05

Good Afternoon.

The market continues to feast on the diet of stellar economic news. This extended Thanksgiving Holiday feeling has come with a Goldilocks Productivity report coupled with lower Unit Labor Costs which bodes well for the Fed pausing soon. This is also a reason why we have been building our positions in the Financial Sector recently. The economy is expected to continue its robust growth led by the technology sector as corporate CEO's gain more confidence (which is clearly happening). Mergers and Acquisitions and other corporate deals will multiply in 2006. This combined with the end of the Rate Tightening campaign is an explosive cocktail for financial companies such as Goldman Sachs (GS), J.P. Morgan (JPM), and Lehman Brothers (LEH) etc.

The market refuses to rest as the underinvested Bulls chew down their nails to the bone. Breadth is good and the New Highs versus New Lows are also impressive. The volume could be better though.

There are a few catalysts this week that are potentially market moving, specifically mid-quarter updates from Texas Instruments (TXN) and Intel (INTC) may provide an excuse for some to lock in profits. Indeed many traders still have fresh in their minds the sharp decline that occurred in TXN the last time they spoke. Due to that fact, some weak handed players are selling into today's strength. Furthermore other players are holding back their buys until after we get through with these reports. The fact that so many were burned holding into the reports last time and are choosing to hesitate this go-around makes us feel that any profit-taking in these stocks after the announcements will not be severe.

Your friendly neighborhood Kcap Team has decided to lock in some profits before the event and then sell the balance into post announcement action when's today's sellers come rushing back in once they see the decline is shallow. Sidestepping with your total position rarely offers traders a better price at reentry even though we often encourage it.

Our recent overall strategy has been to sell extended names and rotate into strong names that have already rested. We continue to believe that this is the optimum strategy at this point in time. We are still very long despite all of the swapping that is occurring in our portfolio's over the past few days.

Hope you're doing well.

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