The Day of Reckoning?

The market has had a meltdown today that has reminded folks that this is a two way street. The severe overbought nature of the market combined with lack luster earnings from leading companies finally made the market succumb. The media is fast to blame this terrible action on the sharp Oil Spike, worries about Iran, and options expiration. The real reason is simply that a good whack was needed and was overdue. Unfortunately your friendly neighborhood Kcap Team believes that this is only the beginning of the whack. NASDAQ 2150 has been our downside target and remains so.

Despite our Bearish intermediate term view, we still believe that one last attempt from the Bulls is likely to bring the NASDAQ back to around the 2290 - 2300 level. From that point on, this market would be truly dangerous and you will likely see us carrying heavy short exposure. For the time being, we have been shuffling our exposure between covering shorts and re-shorting leaving us with net long exposure of 50%. When the NASDAQ breached 2260 we were forced to get a little more defensive, but have since added back long exposure around 2246.

Most market participants are having the worst day they can remember in the past few years. Fortunately for out clients, we have managed to contain today's loses to significantly less than 1%. Our large cash hoard and profitable shorts which are now fully covered have been just the ticket. We have a significant lead on all of the averages in 2006 and feel that we are in a strong position to redeploy our cash into these attractive levels early next week.

If You Held a Taser To Our Head:
Indeed there are reasons to be concerned and the market is likely to slap most Hedge Fund Managers upside the head before all is said and done. However, the smart money used last week's strength to lighten up and hedge as opposed to chasing like a dog after a car. The smart folks are now well positioned to exploit the poor slobs who are about to have the worst weekend they can remember!

See you Monday.

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