Most Traders Will Get Chopped Up! 2-9-06

Good Evening.

The Large Crap…umm, CAP stocks stunk up the joint again, disappointing many folks. After yesterday's nice reversal it sure looked like a little rotation out of commodities into Large Caps was finally taking place. We even had good follow through for most of today's action further converting some of the nonbelievers. Oh no Mr. Bill…we can't have that...Oh nooooo!

Mr. Market wasted no time in reigniting doubt and disgust into the Large Cap complex with a sharp relentless afternoon sell off that lasted all the way into the close. Whatever confidence was built over the last day and a half was sapped in the blink of an eye. However, under the surface it does not look nearly as bad. Small Caps and Semi's faired much better while breadth wasn't bad either. In fact, new highs versus new lows were fairly attractive. Even gold and gold related stocks staged a nice recovery which provided an attractive hedge for Kcap. We have been using the recent decline in commodities to build up our exposure in that complex.

A reader e-mailed us today asking "whether or not our NASDAQ 2292 target was essentially achieved when the NASDAQ hit 2284". This particular market is very hard to forecast however, push come to shove, we continue to believe there is more upside ahead. If the market can "shake off" today's "sell off" in quick fashion we still feel an attempt to NASDAQ 2292- 2300 is possible. The problem is that between now and when those levels are reached, most traders will have their Kishkas torn out.

The market is in the mood to whipsaw both the Bulls and the Bears giving them a healthy reminder of the unpleasantness of 2005. Everyday felt like "opposite day" as traders were easily spooked just after they built up large directional bets. Traders went from long to short and back to long several times within very short spans of time.

In the past couple of days Kcap has added long side exposure in the Gold and Energy complex. We have also nibbled on the following names: PFE, JNJ, NTAP, NDAQ, PMCS, IBM, SBUX, TXN, FDX, JDSU, ARMHY, IIF, CNXT, XLK, BOT, MRGE and last but not least CSCO. We are currently not carrying any short exposure but are fairly diversified and still have significant cash to weather the choppy seas. We also made several sales in extended positions such as SIFY and sold down some IWM in order to make room for Commodity related stocks and Large Caps.

It is our intention to add more long side exposure over the next couple of days in the following names: FFIV, GOOG, GLW, DELL, INTC, CIEN, and YHOO. However, should the market have back to back distribution days on large volume that breach the recent lows, we would not hesitate to significantly hedge our positions in the form of ETF shorts. Due to the diversification of our portfolio we will need to use several ETF's for positive correlation.

If You Held a Taser to Our Head:
The market will be more difficult to forecast than usual due to the transition from Bull to Bear mode that is taking place. Trying to squeeze out some cute long side trades is possible but not for the faint of heart. Ultimately the battle will resolve itself to the downside setting up an amazing buying opportunity for the very long term players. That's the good news. The bad news is that after one more short term push higher traders will need to survive a ferocious Bear for several months.

Hope you have the capability to Sell Short…you will need it!

___________________________________________________
The analysis, opinions and/or forecasts expressed on the Kcap Trading Blog (“KTB”) are for informational purposes only and should not be relied upon in making investment decisions. By using this site you agree that Kleiner Capital Management, LLC (“KCAP”) and its principals are not liable for any action you take or any decision you make in reliance on any content. Please be aware that there is no commitment by KCAP to update the KTB. Furthermore, there may be inconsistent timing and follow up (if any) of posts.
None of the information on KTB is considered individualized investment advice and should not be construed as a recommendation or solicitation to purchase any securities. Reliance on information provided on KTB in no way establishes an advisor-client relationship. Investors are encouraged to seek the advice of a qualified investment professional prior to investing funds.
Clients of KCAP, as well as the firm’s principals and other employees, may be invested in securities discussed at KTB. However, any mention of said securities is not intended to influence market conditions for the security to the benefit of KCAP clients and/or principals and employees. KCAP is not affiliated with any advertisers on this site and does not endorse any of their content. For additional information and disclosures, please visit www.kleinercapital.com.
The information on KTB has been furnished from sources we consider to be reliable, but no guarantee is made with respect to accuracy.
___________________________

Click Here To E-mail Comments