One Heavy Position Can Make You or Break You. 7-27-06

Good Evening.

Over the past few days the Bulls have finally managed to gain back a teenie weenie eencie beencie bit of respect as they have rallied the market approximately 4% off of the lows. Today's giveback, while unpleasant, was not enough to completely kill the nascent rally. In fact, the strength in the Semiconductor complex which has been slightly outperforming recently is more evidence that traders are willing to step in to names that carry some risk. Unfortunately the level of trust in this market is still pathetically low and rallies cannot seem to gain any real traction. All in all the market still exhibits a sickly quality that shows a level of strength equal to that of Pee Wee Herman, only Mister Market doesn't even have the strength to stand up in a movie theater like good old Pee Wee.

Further evidence of this markets distressed behavior can be seen from the gigantic reactions in stock prices to individual companies that either beat or miss earnings. The slightest beat or miss in earnings is now being rewarded or punished to the tune of 20% movements in one day. This gross volatility in individual stocks is not considered healthy and needs to abate in order to bring the Bovines firmly back in control. As long as the threat exists to traders (of a stock dropping 20% in a given day due to a minor earnings miss) they will be sure to keep position sizes small in even their favorite stocks.

If You Held a Taser To Our Head:
The end of the month is fast approaching and should provide a catalyst for the usual markups to take place. Therefore the market has a further reason to not give back too many points from the recent snapback rally. We expect stocks that have recently done well and are still holding their gains to continue attracting bids until mid next week. Some names that we are playing are AKAM, C, CMCSA, HDI, MSFT, SWY, T, TXU, and XOM. Ohh, and one other thing, anticipation of a Fed pause on August 8th should also provide an upside catalyst for the market as long as recent gains are not completely wiped out over the next few days.

We are moving to a new office (much nicer digs) so we will not be posting again until early next week.

Hope you are doing well.

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