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October 28, 2005


The market's see-saw action continued today as the major indices mostly made up their losses from yesterday. It appears we are experiencing 2005's only consistent action: the month-end ramp job. We have now seen the market rally into the end of the month in nine out of 10 months this year. June's action going into July is the only exception, and I didn't count it only because it was a borderline call. Looking at the Nasdaq Composite, seven of the eight previous month-end ramp jobs have seen the indices end the month lower than where the ramp ended, which was usually a couple days into the next month. Given that September's ramp ended abruptly on the first trading day of October and that most of October's losses occurred in the first five trading days, it will be interesting to see how November greets us. The first few trading days may offer strong clues to the market's temperament.

Financial and housing were some of the biggest beneficiaries of today's rally, though few of the homeys were able to erase yesterday's losses. I continue to believe that the homeys could complete a head-and-shoulders formation over the next few weeks. My model shows most of them as being very oversold, as well. Therefore, I am steering clear of them with the exception of a small short in Beazer for the moment. Centex, one of the few homeys that managed to erase its loss from yesterday, was up 4.8% today. It has been one of my favorite shorts this year, and I am watching it for a possible re-entry point down the road.

Research in Motion managed another gain today, its second solid performance after Wednesday's fireworks. Anyone who studies RIMM's charts over the passed 5 years will notice that it is a volatility-prone issue. The swings can be heart-wrenching. A 4-month period in 2000 saw it pop from the low-20s to over $80, then all the way back down to under $20. Later that year it ran back to $60, only to close the first quarter of 2001 at $11. For this reason, my biggest bet on RIMM's demise is in long-term puts.

Disclosure: Short BZH, RIMM; Long RIMM Puts


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