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May 19, 2006

Dell's Mistress

The marriage of Dell and Intel came to an end last night as rumors of Dell's affair with AMD were confirmed by the company during their earnings conference call. Dell said it will begin offering servers equipped with AMD chips by year-end, and the news was auspicious enough to overshadow a dismal earnings report. Dell shares popped about 3%. The true winner, though, was AMD, which saw its shares leap more than 11% while those of Intel lost 4% in the early going before rebounding to less than a 2% loss on the day.

As a holder of a heavy short position in INTC, the news was quite pleasing, although it was frustrating to see it coincide with a rebound day for the NDX. I think if the mood on the street were as somber as it had been the first four days of this week, Intel shares would have suffered greater damage. Nevertheless, I saw today's early drop as an opportunity to dump a boatload of my puts for a nice profit. Given that this shift in Dell's policy was widely anticipated, I sensed a sell-the-news moment at hand and thought it prudent to trim the position.

Gold was pounded for $24 for no other reason than loss of momentum. It's entertaining to see how many people predict a 10% pullback in metals, simply because "10" is a nice, round number. I think even gold bugs may end up surprised at the scale of the correction we witness this summer. I, for one, am biding my time before re-entering the fray. The latecomers to the metals bull market are still in the process of being singed. Once they feel a considerable amount of discomfort and are ready to sell, I'll buy their metal from them.

Miners were down heftily early in the session, but managed huge reversals to close slightly green. This action may signal an oversold bounce in the next few days, but the environment is still a little too dicey for my taste.

Though equities were green today, their strength was not overwhelming... just enough to work off a good chunk of their oversold status. Given that today was options expiration, I'm not going to attempt to read much more into the action. Monday and Tuesday will be loaded with much more valuable information.

Disclosure: Short INTC; Long INTC Puts


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