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January 24, 2006


Equities have now posted small gains two days in a row, but both days have witnessed very feeble endings. Candlestick charts show failed rallies for both days, and intraday charts show two failed attempts to take the market higher just today. Though the bulls are looking feeble, the bears have no easy task, either. Both the S&P 500 and Nasdaq Composite are testing support at their 55-day moving averages, a cycle which I have found to be more fitting than a 50-day average for both these indices. I believe for the bulls to win the current battle, they must recoup Friday's losses. For the bears to win, the indices must decisively fail their MAs.

Scanning today's board, the most prominent figure is Google's $15 gain. Google shares lost $68... almost 15%... in the last three days of last week. The drop apparently brought out "bargain" hunters who have helped GOOG recoup two-thirds of that loss. Despite Google's resilience, I can't help but believe those people are going to get toasted. On the other hand, perhaps the rebound is simply the scorching of short sellers who jumped on the bandwagon at the end of Friday's debacle. If this is indeed the case, Google should start heading south as soon as all those folks are squeezed dry.

CDW reported earnings this morning, and their report conformed to the recent trend of meeting earnings, but disappointing on revenue. More importantly, the company stated they anticipate margins declines and therefore will struggle with earnings growth this year. The stock was hit for about 5%. I must admit that I have missed the bandwagon so far on this one. I put the company on my short list a couple years ago after opening an account with them to qualify for their preferred pricing. Turns out their preferred pricing was still not competitive, and what I actually qualified for was having an annoying "personal account representative" call me at least once a month asking if he could provide a quote for anything. I figured a strategy of using aggressive salespeople to maintain margins was a dead-end prospect, especially since competitive pricing was a few mouse clicks away sans the annoying salespeople.

The stock has languished, but not collapsed, since it entered my short list. Including today's drop, the shares are down about 20% over the passed two years. I am tempted to follow the gap down with some puts, but given this stock's talent as an escape artist, I will probably pass.

Oil slid a buck, taking a breather from its recent relentless rise. I imagine the black stuff will make a run at its high before experiencing any extended pullback. Gold was flat today. Silver, on the other hand, has popped 3% in two days, but its run has failed to inspire action in mining stocks. Traders may be waiting to see how gold's bearish hammer, put in two days ago, plays out. A moderate pull-back now seems to be the most probable path, though the psychological environment seems to favor aggressive buying on any such pull-back. If it starts to play out this way, I may increase my positions to attempt to capture the price spike I have been anticipating.

Disclosure: None


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