A Throw Back Rotation? 10/16/06
The bears are in severe pain as the market marches higher, slow and steady without pause. Everyone knows that a pullback is immanent ( aaany day now, aaany day) but too many underinvested Bulls and capitulating Bears pounce on every darn dip. However, have you noticed that the XLE energy complex has been catching a bid lately despite oil still trading under 60? Maybe you noticed how the large caps today were finally pushing on a string while the small caps were starting to reemerge...Hmmm. Perhaps you also allowed yourself to notice the sox bumping into its 200 day moving average. Well, if you have missed these factoids ( is that a word?) then let this post call them to your attention.
Money seems to be rotating back to the small caps and the energy/gold complex in recent days. Perhaps this is due to desperate money managers looking for long side exposure in less extended sectors in order to attempt to play catch up with the major averages. Should that be the case, than the large cap sector will likely resume its leadership role after it experiences a sharp 3-4 week correction... From what level is the magic question, (a level that we have been clearly wrong with in our recent prediction of 2200ish. The market has even surpassed our most wild prediction of 2270).
Be aware that once the upside momentum gets going in beaten down energy stocks external circumstances can send the energy complex back to all time highs over the next few months. This would have a devastating effect on the 2007 outlook for the economy and force the financial markets to dramatically reconsider their view on future Fed policy...The largest driving force in the recent rally. Either way, a market correction from higher energy costs or worse yet a complete dislocation of the large cap bull thesis is likely waiting to bite the reluctant players who have recently joined the party. We repeat our recent warning.... The risks in this market can not be over stated at this juncture.
If You Held a Taser To Our Head:
Your friendly neighborhood Kcap team is contemplating whether or not the sox may experience a false break out rally above the 200 day moving average. This would be despite the throw back rotation into energy and small caps that seems to be gaining some traction. In light of this possibility, we have been busy covering our SMH shorts on dips and scaling back into them on strength. This process has been draining to say the least, but we continue to believe that most tech stocks will take one final visit near the lows before the REAL Bull market blasts off. Admittedly, we have been surprised by the relentless rally and how far it has gone. However, we are remaining patient with our strategy. Our portfolio is heavy in energy, small caps, gold, a smattering of beaten down optical plays, and earth moving equipment stocks. Oh, and don't forget plenty of cash....Sigh. We have sold many of our hard landing slow down stocks for some small profits. Hope you traded well.
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The analysis, opinions and/or forecasts expressed on the Kcap Trading Blog (âKTBâ) are for informational purposes only and should not be relied upon in making investment decisions. By using this site you agree that Kleiner Capital Management, LLC (âKCAPâ) and its principals are not liable for any action you take or any decision you make in reliance on any content. Please be aware that there is no commitment by KCAP to update the KTB. Furthermore, there may be inconsistent timing and follow up (if any) of posts.
None of the information on KTB is considered individualized investment advice and should not be construed as a recommendation or solicitation to purchase any securities. Reliance on information provided on KTB in no way establishes an advisor-client relationship. Investors are encouraged to seek the advice of a qualified investment professional prior to investing funds.
Clients of KCAP, as well as the firmâs principals and other employees, may be invested in securities discussed at KTB. However, any mention of said securities is not intended to influence market conditions for the security to the benefit of KCAP clients and/or principals and employees. KCAP is not affiliated with any advertisers on this site and does not endorse any of their content. For additional information and disclosures, please visit www.kleinercapital.com.
The information on KTB has been furnished from sources we consider to be reliable, but no guarantee is made with respect to accuracy.
___________________________
Money seems to be rotating back to the small caps and the energy/gold complex in recent days. Perhaps this is due to desperate money managers looking for long side exposure in less extended sectors in order to attempt to play catch up with the major averages. Should that be the case, than the large cap sector will likely resume its leadership role after it experiences a sharp 3-4 week correction... From what level is the magic question, (a level that we have been clearly wrong with in our recent prediction of 2200ish. The market has even surpassed our most wild prediction of 2270).
Be aware that once the upside momentum gets going in beaten down energy stocks external circumstances can send the energy complex back to all time highs over the next few months. This would have a devastating effect on the 2007 outlook for the economy and force the financial markets to dramatically reconsider their view on future Fed policy...The largest driving force in the recent rally. Either way, a market correction from higher energy costs or worse yet a complete dislocation of the large cap bull thesis is likely waiting to bite the reluctant players who have recently joined the party. We repeat our recent warning.... The risks in this market can not be over stated at this juncture.
If You Held a Taser To Our Head:
Your friendly neighborhood Kcap team is contemplating whether or not the sox may experience a false break out rally above the 200 day moving average. This would be despite the throw back rotation into energy and small caps that seems to be gaining some traction. In light of this possibility, we have been busy covering our SMH shorts on dips and scaling back into them on strength. This process has been draining to say the least, but we continue to believe that most tech stocks will take one final visit near the lows before the REAL Bull market blasts off. Admittedly, we have been surprised by the relentless rally and how far it has gone. However, we are remaining patient with our strategy. Our portfolio is heavy in energy, small caps, gold, a smattering of beaten down optical plays, and earth moving equipment stocks. Oh, and don't forget plenty of cash....Sigh. We have sold many of our hard landing slow down stocks for some small profits. Hope you traded well.
___________________________________________________
The analysis, opinions and/or forecasts expressed on the Kcap Trading Blog (âKTBâ) are for informational purposes only and should not be relied upon in making investment decisions. By using this site you agree that Kleiner Capital Management, LLC (âKCAPâ) and its principals are not liable for any action you take or any decision you make in reliance on any content. Please be aware that there is no commitment by KCAP to update the KTB. Furthermore, there may be inconsistent timing and follow up (if any) of posts.
None of the information on KTB is considered individualized investment advice and should not be construed as a recommendation or solicitation to purchase any securities. Reliance on information provided on KTB in no way establishes an advisor-client relationship. Investors are encouraged to seek the advice of a qualified investment professional prior to investing funds.
Clients of KCAP, as well as the firmâs principals and other employees, may be invested in securities discussed at KTB. However, any mention of said securities is not intended to influence market conditions for the security to the benefit of KCAP clients and/or principals and employees. KCAP is not affiliated with any advertisers on this site and does not endorse any of their content. For additional information and disclosures, please visit www.kleinercapital.com.
The information on KTB has been furnished from sources we consider to be reliable, but no guarantee is made with respect to accuracy.
___________________________
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posted by Kleiner Capital Management, LLC. | 5:10 PM
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