Are stocks stuck in a trading range?

That is how it looks right now. I spent the whole day hoping that the S&P 500 would close above 1165, but it didn’t. That is the level at which the current bearish sentiment would shift to bullishness. Unfortunately the market closed at 1161. So it is easy to assume that we are still stuck in the current range.

Here is a picture of what I am talking about. See the 1163 number on the left. That number currently represents “resistance”. The S&P really needs to close well above that number to be considered back in a “bullish” phase. Unless the market can muster the strength to close above 1163, the most likely case is that it will eventually test the 1097 area again.

The NASDAQ composite is in a clear down trend as illustrated in this graph.

Right now 1970 and 2010 are the resistance points above the market (It closed at 1933 today.) The bottom of the current declining channel is at about 1850, so it would be reasonable to assume that we may be headed there. The August 2004 low at about 1750 would be the next big line of defense if the NASDAQ keeps declining.

We frankly don’t know if it will or not. Charts are always best read in hindsight. We do like the “values” that are starting to appear in the world of “tech” and “tech” stocks make up a large share of the NASDAQ composite. We think that “old tech” like Micrsoft, Cisco, Texas Instruments, and Dell look somewhat compelling. We also like Time Warner and Yahoo in here. But just because we like them doesn’t mean they will go up, and it doesn’t mean we are allocating a lot of capital to them. We have taken a small “nibble” for some suitable accounts. Something tells us that we will have a chance to buy them all for less.

Those of you who are suitable, and you would know who you are, might have noticed that we are “short” the S&P 600 Small Cap Index.

It looks to us like the long bull market run in small cap stocks may be ending. You see in the chart above that the average has broken below key support at 308.55. The path of least resistance is downward for now.

Opinion on the longer term perspective for the stock market remains decidedly mixed. That is why we currently like stocks and mutual funds that pay fat dividends. They pay us while we wait.

We are acquiring shares of 6 stocks that we think represent good value in the market and that are paying dividend yields from 4 to 9 percent.

Well keep you posted.

All the best,

Paul Krsek
For K&A Asset Management, LLC

Disclosure and Disclaimer (updated 11/28/05):

E-lluminations and Illumination are proprietary newsletters written for clients, friends, and affiliates of K&A Asset Management, LLC (K&A).

Paul Krsek is the sole author of E-lluminations. While the views and representations found in the newsletter generally reflect the attitudes and opinions of the K&A Asset Management “team”, Krsek writes without editing and therefore is solely responsible for the content and opinions contained in E-lluminations.

Illumination is normally published as a joint effort by Robert Andreae and Paul Krsek.

Neither E-lluminations nor Illumination represents the opinions of Fidelity, Fidelity Institutional Brokerage Group, NFS or any Fidelity affiliates. Neither Fidelity, Fidelity Institutional Brokerage Group, nor NFS has participated in the creation of E-lluminations or Illumination and they are not responsible for their contents or distribution.

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Trades or adjustments to accounts mentioned in E-lluminations or Illumination may or may not happen in every account managed by advisor representatives at K&A. Advisor representatives are not responsible to manage every account similarly. Advisor representatives are responsible to manage accounts according to their understanding of the investment objectives, suitability and time frames of the owner of the account.

If you are not satisfied with the investment results in your account it is your responsibility to inform your advisor representative and to discuss possible changes that can be made to the account to accommodate and satisfy your needs.

The assets held in managed accounts at K&A Asset Management, LLC may include stocks, bonds, cash, commodities, foreign exchange or mutual funds, money market accounts or limited partnerships that represent the same. They are subject to market fluctuation and the potential for losses. The assets are not insured. The value and income produced by these investment products may fluctuate, so that an investor may get back less than they initially invested.

The advisor representatives at K&A Asset Management, LLC do not guarantee results.

Past performance should not be considered an indicator of potential future performance. If you do not consider yourself suitable, either emotionally or financially, to experience volatility and/or losses in financial markets, you should not invest.

This document is for information purposes only and it should not be regarded as an offer to sell or as a solicitation of an offer to buy any securities or other instruments mentioned in it.

Sincerely,

Paul Krsek
Updated: November 28, 2005

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