12-1-06 Energize!

Good Evening.

Under the surface there is trouble brewing. The market is showing clear signs of sector rotation out of technology and into the energy complex. Our large Oil and Gold exposure has been a Godsend for this warn out Kcap Team. Ultimately we still expect that higher energy prices will take the NASDAQ down into a nasty correction. Whether this happens in December, remains to be seen as a battle is forming between Money Managers looking to buy the technology dips versus those that want to chase the not yet extended energy sector stocks. We will have to watch closely to see which group of performance anxiety Money Managers prevail. Should the energy Bulls trump the technology Dip buyers, the profit protectors will likely cause severe downward dislocations in the NASDAQ.

If You Held a Taser to Our Head:
Keep in mind that there is still a high probability that the NASDAQ will be choppy and range bound for the next few weeks. A series of lower highs and higher lows would not surprise us which could lead to a very interesting January '07. Should that pattern emerge in December '06 the market would be poised for REAL fireworks in one direction or the other. Our working thesis continues to be that the energy Bulls will prevail, creating the nasty correction that we have been waiting for over the past few months. A little Mideast tension over the coming weeks might prove colder for the technology Dip buyers than the cold front moving into the Northeast.

We are unlikely to be posting next week. Have a good weekend.

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