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July 24, 2006

Bulls Wake Up

After playing possum late last week, bulls started this new week with renewed vigor and drove major indices up 2%. At face value, it is an impressive show of strength, but one has to wonder how much of the move was fueled by shorts scrambling to get out of the way. I guess we'll find out tomorrow when the bulls try to construct a follow-thru day... something they haven't done in weeks.

A prime example of how dramatically the mood has shifted over the weekend is in the performance of SanDisk shares. Friday saw these shares lower by 6%, reflecting the glum mood last week's earnings reports instilled on traders. SNDK turned and popped 7.5% today! I imagine we'll see more fireworks after we hear from management this afternoon. I don't have a strong feel for which way things will go and therefore have maintained only a small number of puts out of the large short position I held earlier this month. Unless SanDisk gets murdered after its report, I will be hunting for a place to rebuild the bearish play.

Metals and mining shares put in impressive upside reversals in today's session. Given their oversold states, today's performance likely indicates that at least a short-term rally is upon us. Whether the rally (assuming it occurs) turns out to be the beginning of the next big upswing, I don't know. However, there are no bells going off in my head compelling me to bulk up my positions. Besides, I can't shake the feeling that the Fed will hit markets with at least one more dose of despair regarding higher rates before backing off.

Disclosure: Long SNDK Puts

 

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