"Bernanke in The Sky With Diamonds"…NOT! 2-15-06

Good Evening.

In all honesty, we kind of miss the cosmic theoretical analysis that Greenspan so eloquently laid out for the market to ponder during his testimonies to Congress. No one was able to hone in on obscure factoids and extrapolate them out into the real economy better than Alan. He has a powerful mind and his analysis often proved brilliantly correct in the long run. Most market participants found him difficult to understand, but that's simply a function of today's trader's impatience and lack of fundamental emphasis. Nonetheless it is what it is. The new Fed Chief who thinks in a linear fashion, provides quick and clear answers, is exactly the "fresh air" that immature traders were hoping for.

Big Ben clearly articulated an easy to follow train of thought which also demonstrated his open mindedness and transparency. He went out of his way to emphasize inflationary risks due to high resource utilization (which could overheat the economy) as well as providing significant attention to the recessionary concerns of a deflating housing market. His well balanced approach was not only easy to follow but calmed the fears of many traders that had positioned themselves for a very hawkish testimony.

Today the market continued its reluctant advance and even scored positive breadth of approximately 2:1 advancers over decliners. Volume was moderate and Semiconductors continued to underperform. However, we do believe the Semi's are setting up for better performance in the near-term. Gold and Black Gold continued to trap the dip buyers which is causing technical damage in both complexes. Although we expect that a viscous snapback rally is likely to occur in both Oil and Gold there has been enough damage to cap any further upside near the highs of the year.

The important focus for the market seems to be whether or not a rotation is taking place out of the Commodities and into Technology. While we believe that nothing could be better for our long term Bullish thesis, we are still doubtful that this is the time and place for such an occurrence. However, the perception of such a rotation or even the inkling will be enough to move the Technology Sector in the meantime. We will be monitoring this closely since this effect would be instrumental on where we set our upside market levels.

Regular readers of Kcap know that we recently (around NASDAQ 2240) stuck our necks out for the NASDAQ to reach 2292-2300 before the Bear comes growling. We have even suggested that those targets might be conservative. Should even a little rotation into Technology take place over the next several days we would most definitely consider raising the top end of our near term targets.

If You Held a Taser to Our Head:
Lately we are feeling very conflicted. We believe the near term continues to have upside potential but we fear the Bear more than usual. When Money Managers allow their convictions to rule the roost as opposed to simply reacting to the market action, they usually find themselves executing prematurely. Although we believe that the Bear will take control ultimately sending the NASDAQ down to 2150 in the intermediate term, we are less certain as to what level he will attack from. NASDAQ 2300 has been our working thesis, but we feel it is more prudent to let the market tell us when it is finished going up as opposed to us imposing our will on the market.

We will take defensive action at NASDAQ 2300ish however, it is a matter of degree as to how defensive we get. Often taking an unpleasant hit in the market can be more than justified by playing the trend and not anticipating its exact end. Note: we will also be watching closely for more euphoria to creep into the market before we even begin to get defensive.

After the bell AMAT, NTAP, and HPQ provided some good cheer, perhaps sparking more enthusiasm as the market moves higher.

We will be conducting interviews for the remainder of the week and might not be able to post until Monday.

Hope you traded well.

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