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November 15, 2005

High Noon

The Street is a whirl of dust from lack of rain. Sweat drips from two lonely creatures facing each other, 20 paces apart, each trying to pick up a signal of his opponents next move. The one who moves most quickly will win this dual, but neither wants a misstep. Droves of bystanders watch intently, hoping to party with the winner.

That's how the last few days of the market have felt: the bulls and bears in a showdown at an uncertain point. If the bears win this one, they will party in the Street. If the bulls win, they will party hard and then likely get killed when they are drunk. If recent history has anything to say about this market, the bears will take the market down from here. They have already held this level twice in the passed year. However, recent history has not meant much to the markets, nor have technical signals or even common sense. The only thing that appears to matter to equity traders right now is the dollar, and it's still going up. I imagine the only reason the market is pausing is fear on the part of bulls. They know very well this level has been a trigger point for bears twice since January. Once the bears fail to make a substantial move, the bulls will have their drunkfestÂ… but they should watch their backs during the party!

As described, today's action was once again muted, but not quite as boring as yesterday. Sellers managed to knock the market lower during the afternoon, but not substantially.

We saw a pair of downgrades on Target (the analysts must have ready my comments on retailers yesterday), which knocked TGT for about 7.5%. Best Buy and Circuit City were both selling off sharply in commiseration.

IBM squeezed off another $1 gain today, despite a lack of any outstanding news. This stock has trounced higher despite a very overbought reading in my oscillator. Usually such counterforce moves occur when a reality realignment is occurring, meaning the stock is re-balancing a longer term value discrepancy. However, any reality realignment in IBM should be to the downside, so I am dumbfounded by this strength. Perhaps the number spinning by Big Blue has been thoroughly convincing. In any case, I don't trade extreme readings in my oscillator until the stock shows a reversal pattern, so I have yet to delve into an IBM play. I intend to purchase puts on the stock as soon as I see what I want to see as far as signal confirmation.

Disclosure: Long BBY Puts


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