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September 21, 2006

Bear-able Action

Today was a much more comfortable day to be a bear. Although the market's drop wasn't huge, the fact that the selling progressed more or less unimpeded throughout the day is a good sign. We also took out yesterday's low / opening price. The action appears promising, but I would like to see a nice follow-thru day tomorrow or Monday to convince me that this isn't just another bull consolidation.

In the news, we completed a hat trick of warnings from chip makers as Silicon Labs complained of weak demand and inventory problems. After shedding 6% in after-hours trading yesterday, SLAB shares managed to recover and close today with a less than 1% drop. One would think that after three warnings, people would begin realizing there is industry-wide trouble brewing, but instead, the offending company itself is not even being punished!

Along those lines, I've been reading a lot of frustrated message board posts from traders who are throwing in the towel on their shorts, not believing the perseverance of share prices in the face of numerous adverse developments. Perhaps these frustrations are a sign of a capitulation among bears that will finally allow the market to move lower. Traders should remember that news does not move markets, but rather psychology. News can obviously affect psychology, but the reflex does not have to be immediate because other traders will consider different factors with different weight. All we are doing as traders is using news and charts to attempt to guess how and when psychology will shift. The 'when' is the money-maker.

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