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August 2, 2005

Google Eyes

Nasdaq Composite tacked on a full percent today and Google lead the charge, rising about 2.5%. Internet, in general, did very well. Yahoo gained 1.7%, Amazon gained 3.5%, and eBay rose 1.2%. The homeys finished the day slightly positive, and I still sit cautiously awaiting the next definitive move by this group. Earlier this year I successfully used the GSEs as a leading indicator for a slide in housing stock prices. The spring slide, as it turned out, was not the end game. In the passed week, the GSEs have turned technically weak again, so I watch with great curiosity these days.

In the face of the enormous tech rally we've seen since April, I've been asked if I will ever "admit" that we're in a bull market, not a bear market rally. What you call the state of the market is little more than semantic, and one cannot really define time periods until long after they end. What I see is a very over-valued market, and as such, I look for developments that may bring prices back into line with my expectations.

However, I have great respect for the market forces. Misallocations can continue for much longer than anticipated. As John Maynard Keynes so famously put it, "The market can stay irrational longer than you can stay solvent." For this reason, I use technical indicators to help protect my capital by getting out of positions when it looks like they are likely to move against me.

In the near future I will post signals generated by my proprietary technical studies to the Web site.

Disclosure: Long YHOO Puts


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