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December 2, 2005

Early Weekend

A whole lot of nothing happened in the equity markets today in dull action that resembled Thanksgiving week. It seems the bears have been tamed for now and are afraid to make a move, while the bulls are simply getting tired. I have no clear indication about which side will be able to power the next big move, so I'm staying mostly on the sidelines. Regardless of who wins December, I have a feeling the bears will be coming out of hibernation early in the new year.

Research in Motion has been in focus on these pages recently, so I thought it would be considerate to note to readers that I covered my short today. I did not do so with the belief that the stock should go up. I firmly believe that RIMM is another Palm in the making, and that by 2007 the shares will be under $20. However, in today's environment everything is being interpreted positively. Therefore, I decided not to be exposed to the stock at a time when a settlement with NTP is imminent. There is too much of a risk that the shares will pop 20% or more once the patent dispute is history. Perhaps they will, perhaps they won't. Either way, I will re-open my short position post-settlement. In the meantime, I added to my 2007 puts.

Metals inched higher, continuing the phenomenal run they started in early November. Mining stocks did not participate, though. Newmont Mining slipped almost 2% while Pan American Silver shed 3%. Miners have under-performed the metals for over a year, but rather than be concerned about it, I believe there is something to be learned. The lack of speculative fervor that usually surrounds mining shares at interim tops in the metals tells me that we've still got a ways to go in this run. At some point, perhaps now or perhaps in several weeks, the miners will provide a superb long trade since they will likely outperform metals into the next interim top. If anyone knows how to time such a move, I'm all ears.

Oil has bounced strongly in the passed three days, finishing the week up 1%, but coming $3.70 off its Wednesday low. Now that oil has shed the spotlight, it may be time for it to make a move. I will be eyeing Chevron and a smaller energy explorer, Encore Acquisition, for a possible trade starting next week.

As a side note, Alan Greenspan gave a pair of speeches today regarding the state of our economy. In one of his more cleverly composed phrases, Sir Alan warned of a "pernicious drift toward fiscal instability" that may occur due to the soaring deficit and current account balance. History may eventually tarnish Greenspan's golden image as a Fed chairman, but one can never doubt his creativity with regard to language.

Disclosure: Long NEM, PAAS Calls; Long RIMM Puts


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