Ben and Vista may hit Bulls in "Kissa" 1-26-07

Good Evening.

Despite the sell the news reaction in the market lately to earnings reports, the Bears cannot seem to muster any traction. In fact, the earnings reports so far have been lackluster which further emphasizes the weakness of the Bears.

All rallies eventually come to an end, although this one feels like an eternity. The ending of the low volatile, relentless climb higher like we have seen over the past 5 - 6 months will probably culminate with simultaneous good news events. Therefore, MSFT's great earnings in conjunction with the launch of Vista next week may provide the final catalyst for the Bears to gain the much needed traction. Oh, and don't forget that we have Big Ben on Wednesday's FOMC meeting, who is likely to sound a "wee bit hawkish" due to the economic data trends as of late.

Regarding MSFT, we were very impressed with the HUGE differed revenue that the company was able to achieve. A year ago, your friendly neighborhood Kcap Team predicted that MSFT would offer coupons in order to compensate for the delayed Vista launch. We correctly projected that this would quell the concerns that MSFT and PC investors were feeling at the time. Well at least Kcap got that right, more than we can say about our recent cautious posture.

The market did a lot of technical damage yesterday after it reversed so dramatically to the downside. The Bovines will soon be schvitzing if the averages only achieve a lower high next week. This will be especially ominous as we enter into a "news vacuum" post Fed. The MSFT hoopla will temporarily die down as will the underlying bid from anticipation of corporate earnings. The recent sell the news reaction that has gripped the financial market may start to accelerate as we fall deeper into the news vacuum. Yeah, we know, we have said this kind of stuff before only to have the Bulls save the day. However, only fools believe that trees grow to the sky especially while complacency remains at historic highs as measured by the low volatility index. Yeah, yeah, we know, the volatility index has been at historic lows for quite a while already. Although this index is not the best short term timing device, it definitely needs to be respected for intermediate and longer term directional change.

If You Held a Taser to Our Head:
Your friendly neighborhood Kcap Team continues to maintain a diversified balanced portfolio. We are overweighed in energy and gold, although have been trading around our energy positions lately. We are light on technology and even short some semiconductor names as well as the IWM small cap index. We believe that the Semi's are likely to lead the NASDAQ lower when this party finally decides to wind down. The Small Caps are also exhibiting poor relative performance and represent juicy short opportunities in the high beta names.

As for Large Cap Tech, has anyone noticed how much time CSCO has given "dip buyers" to add to their positions lately? When CSCO offers days of attractive entry of about 10% off its recent high, alarms should be sounding that the bottom for that stock is not yet in. Should CSCO see more serious downside in conjunction with the weak Semi's and a resurgence in energy stocks, the NASDAQ may indeed finally correct and noticeably so.

We apologize for the very infrequent posts as of late; our attention has been on the market and our clients. For readers who are interested in starting a direct relationship with Kcap, please visit our website kleinercapital.com to request more information.

Hope you're doing well.

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