Slightly Scaling Back Exposure

Good Morning

Overseas markets were down and Crude Oil and Gold are also trading lower. Consumer Confidence came in much lower than expected at 86.6 versus 94.3 consensus. New home sales for august came in weaker than expected at 1.237 million versus 1.35 estimated. (Remember weakness in housing should ultimately create rotation into the NASDAQ which equals long-term Bullish)

End of quarter markups and bid searching Bulls should keep the stock market from doing any type of freefall this week. In fact, although the sell off yesterday afternoon was a disappointment, the internals were not nearly as bad. The breadth was positive and the new lows continue to contract. Furthermore, the put/call ratio is high, indicating skepticism and fear.

Your friendly neighborhood Kcap Team got fairly aggressively long around NASDAQ 2095 this past Thursday, currently 80% exposed. Regular readers know that we have been talking about the 2090 level on the NASDAQ as where we were expecting the market to make a stand. When the NASDAQ tested that level two times last week, in conjunction with the macroeconomic environment, we felt comfortable to begin our investment positions. We were also secretly hoping for the momentum that ignited this past Thursday to continue for a little while before the NASDAQ were to retest the 2090 level again. Unfortunately, due to the flip-flop media, traders no longer have a fundamental handle on the energy situation due to Rita. Therefore, near-term momentum may have been compromised.

The likelihood of the NASDAQ retesting 2090 before a short-term oversold rally takes place has increased. Accordingly, our position of 80% exposure may now be momentarily too aggressive. We intend on looking for opportunities of intraday strength to be net sellers and bring our position back down to approximately 50% - 60% invested. Make no mistake, when the NASDAQ revisits the 2090 - 2100 level again, we will add back significant exposure.

Good Trading.

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