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October 11, 2005

High-Tech Bash

With the exception of IBM and F5 Networks, high-tech stocks were jammed today, with the Nasdaq Composite shedding nearly 1% of its value. Big Blue benefited from several upgrades over the passed tow days. It's stock rose 75c yesterday and another $1.80 today. With an earnings announcement coming Monday, I took advantage of the strength to open a put position. If what I read about IBM's new orders in Q3 is even half true, they are set to disappoint in a fashion similar to their April release. Overall, I think the risk/reward for a put play here is favorable. It would take quite a stretch of accounting imagination to pull off a positive surprise, especially in light of the increasing psychological negativity brewing in today market.

F5 Networks rose for no discernable reason. Today's 2% bounce was likely a snapback from its 10% decline over the passed two weeks. As I noted several months ago, FFIV will soon face stiff competition from Cisco over its flagship Big IP™ product. Margin and sales pressures will ensue, and that cannot be good for a stock that is considered to be a growth stock and sells for 9-times sales.

The metals were tame today. I have no solid feel from where we go short-term from here. However, if we do get a near-term correction, I intend to build on my positions. Given gold's recent new highs and a sharp silver rally, both occurring while the dollar is sitting at highs for the year, my conviction that the metals will soar once the dollar losses bids and starts sliding again has been reaffirmed. When this happens, I don't know, but it could be as soon as later this month if the dollar-repatriation tax break has anything to do with the dollar's recent strength.

Disclosure: Short FFIV; Long IBM Puts


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