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July 29, 2005

Bear-ell of Fun

A day after the Nasdaq Composite posted its first positive gain for 2005 as a whole, we saw some solid selling with all the major indices off more than half a percent. The home builders took the brunt of the selling today, dropping 2.5% across the board. Several consumer-related stocks were down, perhaps in sympathy with the homeys, with Best Buy leading the way down, off 2.3%. I say “in sympathy with the homeys” because much of our country’s latest consumer binge has been driven by rising home prices.

Although the timing of bubbles tops can only be known post-mortem, the current chart pattern of the homeys looks encouraging for us housing bears. I’ve noted on several occasions how similar the housing charts look to Nasdaq 2000… the initial fake down (a la summer 1999) followed by an obscene rally and then an amazingly sharp decline. Marc Faber has mentioned such head-and-shoulders moves followed by a blow-off top, and he noted that they usually end with extreme falls.

A few other techs in my radar were spanked today, including F5 Networks (down 1.7%), Research in Motion (down 1.1%), Yahoo (down 1.2%), and XM Satellite (down 3.6%). XM reported earnings yesterday and was initially down sharply before fully recovering. Today, traders sold back yesterday’s open and then some.

A couple days ago, I highlighted Borland Software and promised to make a note to readers once I hit a buy signal. Today I purchased a small position in the company. Fundamentally, the company is strong: no debt, solid product line up, ongoing share repurchasing, a management team focused on cost control, and all for about 1.7X sales. This company could be a buyout target, in my opinion. Additionally, my technical indicators turned strong today.

Have a good weekend!

Disclosure: Short BBY, FFIV, RIMM, XMSR; Long YHOO Puts, BORL


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