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November 2, 2006

Calm Before the Storm

Not much happened today, and that is good news for bears. The last thing we wanted to see was more immediate bidding after a solid down day. Equities ventured on either side of even throughout the session and closed more or less flat. The action suggests that the next big market move will be lower, but we could see several more days of stalemated battle before any break occurs. Of course, this read would be bunk if major indexes managed to close above yesterday's highs and did so with the conviction of volume.

Intel slipped nearly 2% after receiving a downgrade from Joe Osha over at Merrill Lynch. Joe's recommendation are more frequently at odds with my positions, particularly in tech, so it was a bit of a surprise to see this downgrade, especially since he cited excess inventory problems and slowing demand. Either Joe experienced a moment of clarity or these problems are becoming so apparent as not to be ignored.

Wal-Mart, for the third time in two weeks or so, issued disappointing sales number to its shareholders, saying that it expects to see flat year-over-year same-store sales in November. The lack of growth was blamed, in part, on the surge of sales after last year's hurricanes. It is a valid argument, but even excluding storm sales, Wal-Mart's numbers are weak.

Timing is everything in this game, and a prime example is the fact that my handful of WMT puts expired worthless in OctoberÂ… just days before the stock began to collapse. Unfortunately, I did not reload the position before the latest series of gap downs, but shorting WMT is still in my playbook.

Finally, here is a tantalizing view of Newmont Mining that struck me while I was viewing intraday charts this morning.

stock chart

We see a very well-formed rounded bottom. Throw in a low-volume consolidation and a high-volume move above $47, and we'll have a textbook William O'Neill cup-and-handle breakout.

Disclosure: Short INTC, Long INTC Puts; Long NEM, NEM Calls; Short NEM Puts


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