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October 10, 2005

Holiday Blues

Today was a Federal holiday, but don't tell the bears. Sellers opened the week by pushing major indices down by a half to three-quarters of a percent, and taking the day out on the lows.

Home builders lead the slide with names like Centex, William Lyon, and Beazer down 2.8%, 9.7%, and 5.0%, respectively. The weakness in WLS seems to be a follow-thru sell-off from their downgrade by JPM Securities last week. Brokerage analyst ratings always manage to lag stock price movements, so we will likely start seeing a slew of downgrades as the homeys continue to slide.

Research in Motion stabilized after its roller coaster ride on Friday. Despite RIMM's $14 decline over the passed two weeks, the bulls still have some sway. They are resting their hopes on a favorable settlement with NTP (despite increasing likelihood that NTP will have a noose around RIMM's neck) or on the possibility that the U.S. Patent Office will rescind NTP's patents. The latter hope is quite slim. Is it highly unusual for the U.S. Patent Office to reverse a patent. However, even if it were to happen, bears would be wise to short into the ensuing pop because RIMM is still toast for reasons previously mentioned in this column.

I've gotten the sense in the passed 2-3 weeks that the mood on the street has changed from "" to one of more pessimism. I think there is a higher probability that traders will scrutinize upcoming earnings announcements more than in the passed two quarters. An interesting strategy may be to pick some stocks that disappointed in their last report and short them in front of their next announcement, but at this point, I'm not sure which stocks I would pick.

Disclosure: Short BZH, RIMM


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