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February 6, 2006

Hazardous Dumping

Today felt a lot worse than the indices portray. Though the averages finished mostly flat, there was not a sign of strength to be seen in any sector. The most notable areas of weakness were in retail and housing shares, which fell about 1% and 2%, respectively. Along with banking, those sectors will be key indicators of coming weakness in our economy since they have lead the charge over the passed few years.

A couple of retailers managed to buck the trend. Circuit City popped almost 2% on lack of any news. Since it appeared to be a technical rebound, and my current short on CC was purely technical, I decided to jump out of it and take my gains. Though I think CC's currently slump could evolve into an outright crash, I don't have a great read on it at the moment. Fundamentally, this sector looks like it's heading for a brick wall. The impact may have already begun, and I will be looking to short CC again.

Best Buy also managed to finish the day with a gain, but was not as firm as Circuit City. As this weekly chart of BBY shows, the shares have made a couple of failed runs at the summer high, and down volume has far exceed up volume since the high. Nevertheless, the chart is still officially in bull mode. These shares will either need to break to the upside soon or go back and test support at $41. Failed support at $41 would likely send the shares to the low $30s. Unfortunately, no one knows how long these scenarios may take to unfold.

stock chart

Another darling of Wall Street, Intel, is suffering a quiet jilting. Weekly volume has continued to be enormous since its earnings debacle in January, indicating that large money managers have been steadily leaking their shares back out to the public. Intel may encounter some support at its 2004 low of $20, but both technical and fundamental analysis suggest that this stock is heading back into the mid-teens.

stock chart

Our final picture for show and tell today is Apple Computer. After making a failed attempt to regain the top side of its moving average (which is where I shorted it), the shares have slumped heavily, losing support at $71, and doing so on high volume. In fact, you can see that volume has been significantly heavier since the peak last month. The next high-volume level of support looks to be $50! If you're a bear on this one, keep your eyes open! The shares are sure to be volatile and throw a lot of head fakes.

stock chart

It seems smart money is quietly dumping a lot of big names, but their activities have not shown up in the indices, yet. Whether the market will surprise bulls by rolling over here or surprise bears by shooting up again remains to be seen, but there are a lot of signals that the former is occurring.

Disclosure: Short BBY, INTC, AAPL; Long BBY, INTC Puts

 

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