We Need To Shake It, To Break It…To The Upside! 4-21-06

Good Evening

The market delivered another scary shakeout despite the solid news from GOOG last night. Apparently Bearish traders found religion when the price of Crude topped $75/barrel. Market participants need to be cognizant of the fact that $75 Oil, as unpleasant as it seems, is not terribly dangerous for the market and the economy as long as further increases are not of the spike variety. In other words levels are less important than the rate of acceleration to the upside. Indeed, there is a level that would ultimately hinder the economy which would have a noticeable effect on GDP. However there are many positive forces in this economy that are capable of overcoming a fairly high stagnant price of Oil. $75/barrel is close but no cigar when it comes to significantly slowing the economy…in our humble opinion. In fact, a little slowing of the economy is exactly what the Fed is hoping for as traders who are "Jellen with Janet Yellen" will tell you.

Despite the markets little "dance of fear" today, breadth was actually somewhat flat. The volume was heavy but can be excused by options expiration. In fact the ratio of new highs to new lows was also attractive which bodes well for continued upside once the shakeout has run its course.

Your friendly neighborhood Kcap Team does harbor some concerns about the poor action in various networking stocks recently. FFIV was taken apart on somewhat disappointing earnings as well as FDRY on the same. Both companies complained that government contracts were disappointing which causes us a little concern for CSCO's prospect in a few weeks…NAH…we take that back! CSCO is too diversified to have meaningful impact from a little deferred Government Revenue.

BRCM, which had excellent earnings last night and looked "simply marvelous" (as Billy Crystal would say from SNL) after hours but decided to give up the ghost with a little sell the news puking action throughout the day. This clearly nauseated traders' as the entire Semiconductor index started to do a little throwing up of its own. This post is getting a little gross…no?

If You Held a Taser to Our Head:
INTC continued to frustrate by barely clinging to the 19 handle. Until the Big Blue "Chip" company, with its large cap cousin CSCO finds a little support, the NDX will continue to struggle. We believe that the NASDAQ will hold support (around 2325) in the coming days. A successful retest of that level followed by an upside assault at the recent highs will set the stage for the final breakout to new highs. This current shakeout that the market is experiencing is exactly what is needed to fuel the market to exciting new highs perhaps culminating between NASDAQ 2450 - 2500 in the next several weeks. Did we just say NASDAQ 2500??!! Yes we did and just like you we also had to read it twice. We bought some CSCO, BRCM, MRVL, and GOOG, today.

Have a good weekend.

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