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October 31, 2005

Déjà vu

If Yogi Berra were a modern-day stock trader, his famous quip, "It's déjà vu all over again," would have been invented on a day like today. In a rare feat of predictability, the markets rallied sharply on the last trading day of the month. Who woulda thunk it? As I noted on Friday, the Nasdaq has ended 9 out of 10 months this year with rallies. The true test for bulls and bears will come over the first week of November. We are at technical testing points in most of the major indices. Whichever camp prevails in early November is likely to turn out to be the intermediate-term winner.

A big winner in today's game of paint-the-tape was Google, which soared yet again to yet another all-time high. It's $14 pop put the shares at over $370 a piece. The company now has a market cap of over $100B, sells for 82 times earnings and nearly 21 times sales. This stock is riding a tidal wide of momentum. The bigger the wave, the bigger the break. If you're brave enough to try to time that break, more power to you. Personally, I prefer to play the weaker competitor, Yahoo, for any downside move.

GM put on a brave face today by declaring the payment of its regular 50c quarterly dividend. That a company with such huge pension and debt problems would continue to pay out a periodic quarter billion dollars in dividends is folly, and the fact that it does so increases its likelihood of an ultimate bankruptcy filing. I have yet to dabble with the short side of this stock, though, because I'm waiting to see if Kerkorian has any tricks up his sleeve.

Home builders were bounced around today, gaining sharply in the morning, but ultimately closing off their highs. Some of these stocks, such as Centex and Beazer, have worked off quite a bit of their oversold readings in my model, while others like Toll Brothers and Hovnanian continue to go straight down. I've been light on my housing shorts in recent weeks because of a suspicion that they may form the tail end of a massive head-and-shoulders formation while burning off their oversold readings. The bounces that have developed have been weaker than I expected, and I may get aggressively short again sometime this month.

Disclosure: Short BZH; Long YHOO Puts


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