Market Still Needs a "Goodfella" Whack 12-20-06

Good Evening.

The markets are exhibiting Holiday trading. As the trading ranks thin out, expect more random choppy action between now and New Years. The swings in individual stocks can be larger than usual this time of year so traders need to be careful with their position size and entry/exit points.

The Energy and Gold sectors have been particularly volatile over the past few sessions. The inventory numbers have largely favored the Energy Bulls however, the mild weather in the North East has been problematic. We continue to believe that when winter finally emerges, the tight supply and respectable job that OPEC has done recently in bringing down inventories should translate into higher energy prices. That will of course be the time that traders decide to focus on all of the "civil wars" taking place globally, further exasperating the up move in energy stocks.

We are becoming a little concerned with our Gold weightings as there seems to be early indications of technical damage. Therefore, we are likely to swap some of our Gold assets into the Oil complex over the next week or two. Mind you, we are still Bullish on Gold but are choosing to lighten up just a tad.

Should the price of crude break above $65 per barrel, the Stock Market will finally take notice and use that event as a catalyst for a much, much needed pullback. Did we say much…much? Nothing would be healthier for this market than a solid sell off to shake out all of the Bears that are now dressed in Bulls clothing.

The complacency in this market is still at historic highs. In fact, most traders have resigned themselves to the fact that any pullback is not likely to occur until sometime in January. This alone is worrisome and could create a potential swoon to close out 2006, as traders try to get a jump on one another. On the other hand, the performance anxiety Dip Buyers are worthy opponents and have proven their ability to defy logic many times over. Either way, add this to the many reasons of potential sharp volatility between now and New Years.

If You Held a Taser to Our Head:
Your friendly neighborhood Kcap Team is still heavily weighted in the Energy complex. We have various longs in Tech land as well, such as GOOG, ALU, CSCO, MSFT, AAPL, IBM, CTSH, YHOO, T, and ARMHY to name a few. We are aggressively hedging them out with various semiconductor shorts and ETF's.

The upside potential for the NADSAQ in 2007 is very exciting. However, the market still needs to get "WHACKED" from the likes of Joe Pesci before we aggressively commit our capital. Hey - oh, we're talking to you!

This may be our last post for 2006. We wish you all a Happy Holiday season and a prosperous 2007.

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