Position, Position, Position!

The stock market dragged its knuckles on the floor all the way into the close. Semiconductors and Oils weighed heavy and foreshadowed that more selling pressure may still lie ahead in the near-term. On the other hand, breadth was negative at both 2:1 on the NYSE and NASDAQ, although bad not terribly so. Volume was light which is what you would want to see on a down day. The NASDAQ also managed to outperform the S&P 500 which is another positive.

The decline in energy shares continued to pressure the S&P, which is not the worst way for the S&P to fall. In other words, there is under the surface strength in other sectors except for the Semiconductors and Oils that is continuing to provide an underlying bid in the market. Furthermore, both the Semi and Oil sectors are now fairly oversold.

After the bell Alcoa (AA) and Genentech (DNA) had positive news. The Bears (feeling all warm and fuzzy like a big fat teddy) are most likely planning to use strength spawned from these two names to further maul the market. Therefore, the probability of a retest of last week's lows continues to be high.

This is a very important time of the year with only two and a half months left; performance anxiety from fund managers is inevitable. Fund managers who have good relative performance versus the S&P 500 will be well positioned to exploit the not so fortunate managers who are lagging. The stronger managers will start to bid up high beta stocks into the year's end knowing that weaker managers need exposure to those names in order to play catch-up. This cycle is vicious and self fulfilling. Only strong money managers that can afford to give up some relative performance will be willing to commence the high beta games and thereby get the most attractive prices. For this reason it is critical to worry more about good relative performance at this juncture in the year.

The bigger opportunity to make money lies ahead for those who are well positioned. Tactical trading at this point in time is penny wise and dollar foolish for managers who are already beating their benchmark. After analyzing the makeup of our current portfolio we believe we have achieved inline performance when the market declines and superior performance when the market ascends.

The market is a dog-eat-dog world. The strong will always feast on the weak. Your friendly neighborhood Kcap Team is currently in a strong relative position to the market. Our current portfolio design shows us that our relative performance will most likely not slip. Our year to date performance has our accounts near their 52 week highs. Therefore, we intend on obtaining "first mover advantage" on the high beta names when they demonstrate signs of bottoming. In other words, we are taking steps now to increase our bravery for the bigger opportunity later on. Like in the game of chess, it is often wise to sacrifice minor pieces in order to set up the bigger move later. Therefore, we are willing to tolerate a little absolute slippage by staying mostly invested.

If You Held a Taser to Our Head:
We were disappointed with today's action and surprised that the market was not able to get more of an upward spike. However, due to the above mentioned views we will be maintaining our roughly 68% net long position. We currently believe that unless the internals deteriorate further, the NASDAQ has good support between 2060 and 2069. The market is trying to form a bottom and we are giving it a little breathing room.

Check!

See You Tomorrow.

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