Oversold Bounce Getting Overdone 1-4-05

Good Evening.

The oversold bounce continued to frustrate the underinvested Bulls as we have been expecting. The NASDAQ drifted higher much of the day led primarily by Small Caps. This created attractive breadth at approximately 18:11 advancers to decliners and up volume trounced down volume at approximately 3:1. Overall volume was decent although slightly lighter than yesterday which is somewhat concerning. New highs versus new lows expanded over yesterday but have failed to exceed levels reached in early December. There is still hope since the NASDAQ is approximately 1% away from its 52 week high. However and most importantly the NASDAQ 100 (NDX) managed to reclaim the 1690 resistance level closing at 1695.

The Dow Jones was a laggard most of the day and needed a crane to get it up towards the close. The S&P 500 was perkier, having hit a 4 1/2 year high.

After the bell Xilinx (XLNX) significantly raised sales guidance and very solid retail sales hit the tape notably from Men's Warehouse (MW) and American Eagle (AEOS). The combination of "deer in the headlight underinvested Bulls" and their new found friends "DA BEARS" should make for interesting action when the market discounts the positive after hours news. There is nothing like a little fundamental good news to put the nail in the coffin of a great oversold bounce.

If You Held a Taser to Our Head:
We maintained virtually all of our very net long exposure throughout the day. However, this attractive oversold bounce is now facing limited upside from these levels. Our intention is to use any strength tomorrow morning to significantly raise cash, most likely between NASDAQ 2270 - 2280.

As we write this post we are seeing CNBC Headlines regarding the current condition of Israeli Prime Minister Sharon. This is a man formerly known for his hard lined stance but has since become an extremely integral part of the peace process. We hope that he makes a full recovery for the betterment of himself, his family and all of us. Remember, the market is always negatively affected when tensions in the Middle East begin to flare.

Hope you did well.

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