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March 30, 2005

Eat My Shorts

Today’s action definitely tested the resolve of those holding short positions in tech. The Nasdaq Composite spent the day solidly positive, closing near the highs. Stocks like Yahoo and XM Satellite are forming patterns that look like breakouts, and Research in Motion tacked on 5.5% on a report that it will begin Blackberry service in Belgium. I ask, “Is Blackberry service in Belgium really worth $700M?” I think not. The breakout today in RIMM is likely technical, and the Belgium news was only a catalyst. I am waiting to see if there is a follow-through move tomorrow before opening a short position.

As for tech in general, today’s bounce came off a new yearly low and on the tail-end of a 5% slide in March. Oil prices are holding solidly above $50, and interest rates are almost sure to keep rising in 2005. All the fundamentals tell me that any rally here is likely to be simply a correcting of an oversold position and will perhaps provide opportunities to open short positions that I missed before.

An encouraging sign for those short homebuilders is the fact that 10-year Treasuries have rallied the passed two days while the homies have been down and out, setting new lows on each day. Earlier in the year, bond rallies helped boost homebuilder stock prices. It seems that not even lower rates are supporting them now. Although the steep slide in homebuilder stocks in March could result in a snap-back rally, I believe it is equally likely that a piece of bad news (who knows what that could be?) could cause them to gap down. Therefore, I am holding the course with my shorts.

Pfizer has consolidated since the announcement a month ago that the FDA recommend its Celebrex drug stay on the market. It has retraced a portion of the Celebrex move, but remains solidly above the start of that rally. It looks technically strong, and I still hold that it will be accumulated by money managers who are feeling safer about the pharmas. Like many technical formations, a bit of news is sometimes needed to help the move manifest, and I believe any bit of solid news from Pfizer will instigate a break to the upside.

Last, but not least, metals rallied today, swooping up miners like Pan American Silver and Newmont with them. Although silver was up 2%, PAAS tacked on over 5% in today’s action. I have noticed that the metal prices tend to lead the stocks down whereas the stocks tend to anticipate further moves up. Who is leading whom right now is up for debate, but I believe the metals may be in for a solid rally.

The next few weeks should be very interesting.

Author’s Disclosure: Short YHOO, Short XMSR, Long PFE, Long PAAS


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