Lets Just Call it an Oversold "Trounce". 5-30-06

Good Evening.

Apparently the oversold bounce came and went without delivering the repair job that so many traders and money managers were hoping for. The Bears hit it and hit it hard. To add insult to injury Mr. Market took back almost all of that measly bounce in a flash proving yet again that the market goes down 3 times faster than it goes up. Today's action was so pathetic in the fact that there were virtually no intraday attempts to rally at all. The breadth was negative at 3:1 however the volume was a tad light. Despite the unattractive action we continued our selling that began on Friday and have since raised significant cash. We are still of the mindset that a "superspike" in the NASDAQ is likely to ignite soon but have decided that the lethargic oversold bounce late last week may have slightly delayed its arrival.

More and more it is becoming evident that the Bulls have formed a consensus that they will not buy no matter how low stock prices go. In fact many traders are proud to declare their ability to sit on their hands while other market participants throw away their dollars. Remember, anything that forms a consensus always looks attractive for a fade. For this reason your friendly neighborhood Kcap Team will begin scaling into large cap technology names and ETF's in a three stage process. Stage 1 will be around NASDAQ 2150 - 2155 which represents a good level of support that would excite traders who wish to claim a higher low. ETF's specifically SMH would be our first choice. Stage 2 will be reserved for a potential double bottom of NASDAQ 2135 should the aggressive Bears decide to short against the suckers in stage 1. More ETF's and a slew of large cap technology stocks would spice things up in this stage. Finally stage 3 will be for more aggressive scaling around NASDAQ 2110ish that might abruptly hit people upside the head should the double bottom at 2135 fail. The 2110ish level is where we hope to make our more speculative buys by adding back aggressive exposure in the optical and networking stocks.


If You Held a Taser to Our Head:
Whether or not the cause for the decline can be blamed on the Fed and central banks around the world squeezing liquidity out of the system or any other seemingly logical explanation that can be pondered is immaterial at this point in time. Simply put the market is running on pure emotions and hedge funds all across the land would rather put a sharp stick in their eye before adding any more long side exposure. In other words, a bottom is around these levels plus or minus 3% but Mr. Market will probably deliver one more negative fundamental or macro punch before total capitulation takes place. You must have a shopping list and it is imperative that you scale slower than molasses, preferably into weakness.

Hope you're keeping your wits.

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