Covering Our Shorts 2-6-06

Good Afternoon.

We're back at our post literally, although we've only been M.I.A from the blog and not the market. Even Kcap needs a few days off from writing and we're sure all of you are still getting your money's worth.

We've been trading from the short side over the last few days when we put our Bear hat back on and ultimately brought our net long exposure to 20%. It is now time to cover all of our shorts at NASDAQ 2251 as a relief bounce seems likely. Don't get us wrong, we are still Bearish on the overall market in the intermediate term but every decline deserves a snap back. Our upside target is NASDAQ 2292. Our new net long exposure after covering all of our shorts is 58%.

The Russell 2000 and the S&P 500 have done a nice job holding recent lows . . . 1259 on the S&P 500 seems like decent support. As far as sentiment is concerned, Bears have been increasing recently as the market has pulled back. Clearly the trouble spot has been in the Large Caps as is reflected in the pathetic NDX. The head and shoulders pattern in the NASDAQ which is evident to most chartists is directly resulting from the poor action in Large Cap technology.

However, this particular Large Cap complex is looking a little washed out and may be due for a little relief rally. When even just a few of the big boy stocks start to move it can suck in sideline cash rather quickly. A combination of this and some frantic short covering bodes well for a little upside action before the continuation of this down trend. In fact the relief bounce that we are expecting will be the perfect fuel for a more rapid downside move later on.

The NDX wants to visit 1635 in the not too distant future and will likely get what it wants. However, we need to suck in some more Bulls first. Mind you, 1635 on the NDX is not our final downside target but does represent the next level of solid support.

Small Caps, Internets, breadth, and especially Semi's are telling this Kcap Bear not to get greedy with our shorts and book those profits. Usually, it is not good to anticipate turning points, however our large cash hoard of approximately 40% will provide enough cushion if we are slightly early. We will keep stop loss positions on but do not feel it necessary to make them too tight at this juncture.

This will be our only post for the day. Hope you made money on some bearish bets when you put your Bear hat on along with Kcap a few days ago at NASDAQ 2303. If you missed the most recent opportunity to lay out some shorts, there will be another round of more attractive opportunities sooner rather than later.

See you tomorrow.

P.S. The Seattle Seahawks were able to move the ball well but lacked the courage to press their advantage WHEN THEY HAD IT. This should be a lesson for all of us in any venue. A little better luck wouldn't have hurt either.

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