Putting Our Plan to Work. 6-8-06

Good Evening.

Today had all of the makings of a key reversal, capitulation panic day, or whatever you want to label it. The NASDAQ broke the recent lows and had extremely ugly downside-to-upside volume ratio of 9:1 when we were at the lows of the day; this all on top of the unexpected fabulous news that the number 2 terrorist in the world was taken out! When we came in this morning and saw the futures tanking, it became clear that a day of capitulation was in the making. Simply put, the emotions have built to such a crescendo recently that any good news in this or any other parallel universe would not have been enough to stop the panicked sellers from departing with their positions at any price.

In a recent post approximately one week ago, your friendly neighborhood Kcap Team laid out a three stage process of how we would rebuild much of our long exposure. In order for us to give our fingers a rest, we will defer to that post which lays out exactly what we did today. In other words, we are now approximately 95% net long and nervous as hell.

After the bell, TXN raised guidance on the top and bottom line. This couldn't have come at a more perfect time with the market staging such an impressive comeback from the pits of hell. Oh...lets not forget the over 3 BILLION shares that were traded on the NASDAQ during this major reversal day. We always like to see HUGE volume on these major events. We are not suggesting that it will be straight up from here, however the market may now have a little more neutrality in its psychological makeup. In other words, there will still be plenty of people who will sell the rally but now there may be almost as many willing to buy the dip.

After a few more weeks of chopping around between today's closing price and NASDAQ 2270, we expect the NASDAQ to have one further scary ride down in the late summer or early fall. That will be the final setup for our long term bullish thesis on large cap technology stocks. In other words that will be the time to mortgage your house and buy Technology! Until then we will need to play the trading game while the market has its way with all of us.

If You Held a Taser to Our Head:
In the next few weeks it will be important that your portfolio is filled with many stocks as opposed to concentrated positions. Furthermore, each one of your holdings need to have just recently reported strong earnings and guidance, i.e. TXN (ANYBODY??!!). We realize how difficult it is to let go of your losers that are spinning down the toilet. However, you will find it quite liberating and most likely much more profitable to swap into the good news names.

P.S. This will be our last post for the next two weeks. Some of our team will be on vacation which always causes some dislocation for the rest of us in our work lives. All in all we prefer to address the readership when firing on all twelve cylinders. However, we may pop our head in if the action seems deserving.

See you on the 26th.

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