Next Dip Playable…"BEARLY"

Good Evening.

Today was the day that everyone suddenly found religion. Never mind that the religious holidays were last week, the underinvested Bulls finally want in. Volume was a tad disappointing, only matching yesterdays on the NASDAQ. Breadth was even more troublesome barely keeping its head above water. Chips were HOT and we're not talking about Eric Estrada. The Dow continues its lethargic ways having been held back by the Transports. However, we believe the Dow will challenge its 52 week high relatively soon. The NASDAQ failed to make a new 52 week intraday high but did manage to close at a 4 1/2 year high. Biotech's and Retailers were M.I.A.

All of this excitement was exactly what we were hoping for in order to raise significant cash. One of our last posts in 2005 stated that patience is a virtue. Well, your friendly neighborhood Kcap Team has been richly rewarded with very attractive prices to unload many of our high beta names today. Don't get us wrong we are still long-term Bulls however it is now too dangerous to be holding the high risk momo names with so many cracks developing in the technical picture.

It always makes us laugh when the market is facing a major economic report and does not know what to wish for. Tomorrow's Non-farm unemployment report is a shining example. Traders are concerned that too much strength will negate the newfound dovish Fed. They are equally concerned that a weak report will validate the message from the inversion of the yield curve (recessionary implications). All one would have to do for clarification would be to read the Fed minutes in its entirety. Clearly the Fed is more concerned with high resource utilization (tight labor markets) and high energy prices (being passed through to consumers) then they are with some softening in the economy.

Anyone in this business long enough knows…when in doubt "DON'T FIGHT THE FED". In fact, even when you have conviction…"DON'T FIGHT THE FED". Therefore, should traders receive a strong jobs number the market would likely sell off after a possible knee-jerk reaction. There are profits to protect and some of the smartest Bulls will use that strength to unload. Seasonality and recent data suggest that a very weak jobs report is unlikely.

If You Held a Taser to Our Head:
Admittedly, this market is not likely to roll over immediately. There are still too many people who completely missed this rally. Therefore a shallow pullback (perhaps to NASDAQ 2257) after a knee-jerk pop tomorrow is highly probable. At that point the market may stage one final upside gasp, taking out the 52 week high perhaps culminating slightly above 2290. That would mark the beginning of the serious intermediate-term decline we have been harping about recently.

Keep in mind, we are not opposed to trading the initial shallow pullback from the long side but with ETF's only. Flexibility will be key for this last upside trade before the real correction ensues, perhaps taking us below NASDAQ 2150…OUCH!

Lose your beta!

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