Riding "Bear Back" Will Hurt Too Much…So We're Back in the Saddle. 6-26-06

Good Evening.

Did we miss much?? Just kidding, we've been here all along but said that we would only pop our heads in if the action seemed worthy. Despite a couple of lurches back and forth, the markets seem to be on hold until more clarification is given from the Fed. We are still fairly long around these levels and have only traded periodically.

Today's action may have been the lightest volume for the NASDAQ in 2006. Breadth was solid and there definitely seems to be a calm developing. Perhaps the Bears are simply catching their breath and allowing the few bids to slightly drift the market higher. Regardless this market is oversold on most technical levels and a relief bounce, better than we have previously seen is due. Hopefully it will not come in the one day type variety, rather slowly creep up on most traders forcing underinvested Bulls to jump on board in the later stages.

We believe that regardless of the Fed decision on Thursday, the NASDAQ has a window of opportunity to rally 5% - 7% from these levels. Please be aware that there are plenty of grizzlies of the more patient variety waiting to hit the late coming, underinvested Bulls upside the head between NASDAQ 2230 and 2270. Can we even get that high? Most traders think not however, solid earnings and a hopefully soft employment report (post the Fed) would provide the necessary catalyst. Therefore your friendly neighborhood Kcap Team will be targeting the culmination of said rally by the end of July.

If You Held a Taser to Our Head:
The Fed will not be out of our hair after Thursday's Fed meeting regardless of how the market reacts. The same hawkish Fed jawboning is likely and may even increase as Bernanke gets closer to the actual end of this tortuous campaign. Therefore, should the above mentioned rally materialize, we would fully expect for it to completely reverse by the end of the summer going into the next Fed meeting. In fact the ideal setup for our longer term Bullish thesis on the NASDAQ would be a "pop and drop" during the summer taking the NASDAQ to token new lows in the early fall.

Many dip buyers will continue to part with their money in the Emerging markets and Commodities sectors over the coming months due to the fact that they are in denial over the popped bubbles in those arenas. Rotation into Technology land is looking more promising than ever, but a little more patience will still be required.

Have a good night.

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