Don't Rush These Pullbacks 11-10-05

Good Afternoon.

The market continues to display classic consolidation action with dip buyers refusing to allow a serious decline to materialize. The underinvested Bulls combined with rotation out of Oils and into Tech are providing a steady diet of fresh liquidity for the NASDAQ.

The news out of Intel (INTC) this morning upping their buyback and increasing their dividend is lending support to the Tech sector. Although this invited some short selling early on, those overanxious Bears are also providing some upside short covering fuel as the market once again shows resiliency.

Tops in the market whether they are short-term or long-term are a process that takes time. This is especially true when Money Managers are suffering from performance anxiety (a rare disease that is always fatal). Therefore your friendly neighborhood Kcap Team expects a series of failed rally attempts that will make lower highs before the true rolling over action takes effect. Hopefully, the process will not be dragged out too long. The longer the topping process the deeper the decline that materializes with greater risk of a true baton switch to the Bears.

We would not be surprised to see this declining process continue a little longer, perhaps culminating mid next week. A catalyst such as cold weather which could spike the energy sector might be the nudge that will convert Yogi Bear into a Grizzly Bear. Without the liquidity flow from the energy sector the NASDAQ would indeed lose a friend. When a more fearful pullback finally materializes we will closely scrutinize for positive divergences. This will be one of our indications that our Bullish thesis is still intact which will prompt us to dramatically increase our net-long exposure.

This will be our only post today due to client meetings.

See you tomorrow.

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