4-25-06 Still Believe This Shakeout is a Fake Out!

Good Evening.

The NASDAQ held the 2325 level yet again and even managed to pare its' intraday losses to close over the 2330 level. More importantly the NDX held the psychologically important 1700 level but it was looking a little scary intraday as it probed below. The Russell 2000 acts relatively well compared to the major averages which helped explain the almost flat breadth. In fact the up vs. down volume on the NASDAQ was positive. Even the SOX showed signs of life with positive performance at the close thanks largely to some stability in that Big Blue "Chip" otherwise known as INTC.

The energy complex continues to weight heavy on the NAZ. However, when President Bush addressed alternative energy ideas in a speech this afternoon, a little air was released from the commodities complex. It's not that Bush said anything new or monumental, rather he has developed a skill at articulating his message filled with buzzwords and promises that are enough to do the trick in a market that is starved for anything energy-relief-related. All in all it was another day of consolidation during what can only be classified as another shakeout before the big dance. Don't get us wrong, these pullbacks hurt! However, the market is doing an extraordinary job of dishing out disgust and despair as it cleanses itself before the next upside ramp.

Traders are using any bit of strong macroeconomic news as an excuse to keep the wallet on the hip. Remember the Fed is looking for a slowing in economic growth and inflation before they can give the all clear signal. Until we see a series of data points to support this scenario, the shakeout will not have completely run its course. Fortunately there are a slew of economic reports that are expected to be released over the coming days which might provide such welcome news. In addition the earnings parade continues to be very attractive as more good news stories were reported today: IM, TQNT, CKFR, DD, LXK, TSCM, AGR, and AMZN…to name a few.

We are a little P.O.'d over GLW's release due to the fact that they have chosen to restate a 2003 Pittsburgh Corning corporate litigation settlement. This action in conjunction with a relatively inline operating result and forecast seems to be weighing on the stock after hours. We had a sizeable position in this name but sold off a chunk before the Bell based largely on its poor trading pre earnings.

If You Held a Taser to Our Head:
Your friendly neighborhood Kcap Team remains very net long despite some of the nicks and cuts we have been experiencing over the past few days. Frankly, some of those nicks and cuts are getting infected and we are anxiously awaiting a little Neosporin in the form of market friendly economic reports later this week. It is usually unwise to rely on economic reports to bail you out of a difficult situation. However, all of the solid fundamentals that we have been hoping for seemed to have fallen into place except for that one key ingredient.

Hope you traded well.

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