Adjusted our Position not our Views

The stock market Bulls continue to exhibit apprehension while the Bears were sensing opportunity. Breadth was negative throughout the day at 16:13 advancers to decliners on the NASDAQ and 18:13 on the NYSE. Volume was moderate while the NASDAQ underperformed the Dow Jones. Notably the Semiconductors were atrocious after the downgrade from JP Morgan from overweight to neutral. The Small Cap Sector faired better but still closed negative on the day. Many key tell stocks with strong fundamentals seemed to have hit an air pocket. The declines were notable in Intel (INTC), Cisco (CSCO), Hewlett-Packard (HPQ), Motorola (MOT), Marvell (MRVL), Texas Instruments (TXN), Micron Technologies (MU), and F5 Networks (FFIV).

Internally, the market felt heavy throughout the day. Even the decline in Oil of $0.75 to $65.07 was not able to provide comfort to the Bulls. An entertaining philosophical speech from Alan Greenspan created a temporary short squeeze, which was quickly faded near the close. Alan Greenspan spoke quite eloquently about the overall resilience of the U.S. Economy. He mentioned the futility for the Federal Reserve to predict or interfere with market bubbles. Clearly, Mr. Greenspan favors free markets that are flexible and should largely be left to their own devices. In examining Mr. Greenspan's approach during his tenure we would agree that this philosophy was widely deployed by the Fed.

While his speech today was certainly interesting and felt more like a message for the baton handoff to the next Fed chief, market participants were disappointed in the lack of specifics relating to current monetary policy. However, further analysis would indicate that perhaps Mr. Greenspan is not endeavoring to pop the real estate bubble with as much ferocity as some market participants would think.

We used whatever strength we could find throughout the day including Greenspan's speech to lighten our aggressive posture. We initially intended to bring our portfolio weighting down to 50% however, our analysis of the internals and subjective feel for the market led us to scale back even further leaving us only 30% invested.

If You Held a Taser to Our Head:
Our immediate concern is that the NASDAQ may be attempting another test of last week's lows around 2095. However, should this occur with positive diverging internals (i.e. fewer new lows, strength in Semiconductors and Small Caps, and strength in key individual stocks), it would indicate to us that more than an oversold bounce is on the horizon. Perhaps something much more.

See You Tomorrow

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