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August 8, 2005

Go With the Flow

I had to laugh this weekend when I read a headline on Bloomberg which stated bond "experts" expected the 10-year note to yield 4.68% by the end of the year. Only six weeks ago, a time span long enough to erase most traders' memories, these so-called experts were predicting 3.5% by year-end. The forecasting rule seems to be to take the current yield and extend it 30 or 40 basis points in whichever direction yields have been heading for the last couple weeks. Hopefully, the current proclamation will not yield to an inflection point as did the last (pun intended). I would very much like to see the long bond continue to fall so as to further weaken housing stocks, which I am short.

Speaking of which, the homeys followed through on their act from Friday, with most of the stocks off 3-5%. Toll Brothers, whose earnings report helped grease the slide on Friday, lead the pack down again today, falling another 4.2%. I was watching the morning action intently. In recent weeks the home builder stocks would see sharp morning sell-offs reversed by noon. If they failed to reverse this morning's downward action, it would be another sign of weakness, and weakness is indeed what we saw. Best Buy, a beneficiary of the housing-fueled consumption binge, was down in commiseration, falling 2.2%.

A couple of my other favorite shorts showed some strength. Research in Motion finished the day only slightly down after falling nearly 3% by mid-day. F5 Networks rose 3% on an analyst upgrade. I'd like to know where RIMM found its gusto in the face of this down day. Perhaps it was a technical bounce. Perhaps a fleet of brokers picked up the phones on this issue and found some suckers to buy it. It's hard to know, but as far as I can tell, the grim story unfolding for this company hasn't changed plot, so I'm holding my position.

Finally, a couple of my other short targets, Intel and XM Satellite, put in rather flat performances today, but nonetheless triggered sell signals in my technical indicators.

Between the housing meltdown, record oil prices, tech weakness, and an FOMC meeting, this week is shaping up to be quite interesting.

Disclosure: Short BBY, RIMM, FFIV, XMSR; Long TOL, INTC Puts


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