Not Willing To Chase Just Yet. 8-28-06

Late last week the NASDAQ did indeed come within our downside target of 2100 – 2125 when it briefly touched 2122. Unfortunately for Kcap we chose not to alter our defensive posture at that juncture other than covering a token amount of our QQQQ short. Although we were correct in our downside market call we were not encouraged by the internal action in the market to adjust our posture in a meaningful way. The action today even seems lackluster and missing the important volume ingredient that demonstrates conviction. Light volume moves are frustrating because they can easily cause underperformance and suck in sideline cash before delivering nasty reversals.

Historically speaking the week before Labor Day usually has a downward bias. There are still plenty of recent profits to protect and any macro-economic news of the unfriendly variety may be all that is needed to cause another rush for the exits. Therefore, despite the slow drift up that the market experienced today (which may even have a little follow through) your friendly neighborhood Kcap Team will be playing defense for the time being. Don’t get us wrong, we will certainly use intraday dips to throw on an occasional long side trade, but we are unlikely to get aggressively long until much later in the week or after Labor Day. There are many economic reports to digest this week which is likely to offer more volatile action than we saw today. Stay tuned for the Fed Minutes tomorrow which is likely to cause some fireworks.

Hope you traded well.

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