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September 20, 2006

High Five

In anticipation of an accommodative Fed and on the heels of a solid earnings report from Oracle, stocks spurted out of the gate, pushing the S&P 500 to a five-year high. That blind optimism still pervades is illustrated by the fact that Oracle's success, which is certainly company-specific due to the fact that their gains are primarily coming at the expense of SAP, washed away the broader worries about the troubles at Yahoo and in the housing market, which are more likely to be omens of recession.

In the consumer arena, Circuit City reported second quarter earnings, showing an 11% increase in sales and raising their sales forecast for the entire year. They credited the strength on continued strong sales of flat-panel TVs, a staple product of conspicuous consumption. The strength is not terribly surprising considering that the second quarter of 2006 holds the record for cash-out home refinancing. It will take some time for that cash to work its way out of consumers' pockets and is the primary reason I have not become aggressive with shorting consumer shares, yet. The interesting facet of this news is that CC shares gave up an early 4% gain to close flat. I'm not sure if the reversal means anything, but thought it was worth mentioning as a point to ponder.

Research in Motion shares continue to frustrate bears. The stock gained nearly 5% after a UBS analyst said he expects a strong report from RIMM next week. Supposedly, UBS surveyed a number of T-Mobile outlets about Blackberry sales to reach its conclusion. No details were provided about how the survey was conducted, and I find it surprisingly convenient that this opinion was published just when RIMM shares were starting to look technically weak. In any case, my positions on RIMM are small, and I intend to hold them through next Thursday's report.

Overall, the action was rather mundane, so to the disappointment of both camps, the Fed meeting failed to add any life to the market. The next couple of days could be critical. If the bulls manage to push firmly through the 2006 high, another short squeeze could be induced. How high it could go is anyone's guess, but it would certainly be nauseating.

A side note... I have added a news section to The DOCument. I have recently been building a database of links to useful articles that seem important enough to warrant later review. These links are shared on the home page with a longer list on the news page. Enjoy.

Disclosure: Long YHOO, RIMM Puts; Short RIMM

 

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