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October 6, 2005

Bull Roast - Take II

Today's action looked like an instant replay of yesterday, with the exception of a sharp snap-back in the last half hour. This vicious bounce saw the loss in the Nasdaq Composite get cut in half, while the S&P's loss was cut by about two-thirds. It seems a lot of people were stepping in and buying the weakness and/or taking profits in their shorts. We'll find out over the next couple of days whether or not they were right to do so.

Most housing stocks set new lows today with the exception of Centex. Centex put in a sharp recovery yesterday, despite the markets finishing near their lows, so I covered my Centex short mid-morning and rotated in Beazer Homes.

In another replay of yesterday, both Research in Motion and Freddie Mac posted gains on a big down day. Fred was apparently having a follow-through celebration to its bogus stock-buyback plan, announced yesterday, while RIMM gained on news that Blackberry service will now be available in India. While subscription-based services would be a goldmine in a densely populated country like India, breaking into the market in any meaningful way will be very challenging.

A notable green sector today was retail, which enjoyed a report that same-store retail sales were up 4% in September, despite the effects of the hurricanes and high gas prices. Best Buy got an extra boost via un upgrade by Raymond James to "strong buy." The upgrade couldn't have been more timely since I am itching to get short the stock. best Buy popped 3.6% today, but I haven't yet seen what I want to see to pull the trigger.

All told, this week feels eerily like the week preceding the crash in 1987. I noted here several times over the summer that the whole setup feels like that infamous autumn. I don't know that we will see a 20% down day, but a sharp slide may only be one catalyst away.

Disclosure: Short BZH, RIMM


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