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July 25, 2005

Housing Jolt

The bears has their way with housing stocks today with names like Centex (down 3.4%), Toll Bros. (down 3.8%), and KB Homes (down 4.3%) suffering heavily. There is no apparent news precipitating the slide with the exception of weak technicals. All the homeys are obscenely above their 100-day moving averages and seem to have completed a blow-out phase following a head-and-shoulders top in the spring (read Marc Faber’s commentaries on gloomboomdoom.com for info on this chart pattern). The homeys closed the day near their lows, and if this is indeed the death knell of the home bubble, the charts of the home builders could appear sharply more precipitous in the days to come.

A few tech stocks were in my radar today, as well. Research in Motion slipped nearly 5% with no apparent news in the forefront. We could be seeing some institutions dumping shares, but in any case, the tape for RIMM was already weak and now looks significantly weaker. Perhaps we will test the lower end of the stock’s 6-month trading range (around $60).

Texas Instruments reports this evening. I have no opinion about whether TXN will please or disappoint investors. However, considering the recent run-up in the stock and how antsy traders are after several other recent disappointments, I think that a miss has more potential to drive the stock down than a positive surprise has to drive the price up. I was tempted to add to my put position ahead of the announcement, but decided to sit it out since I don’t have a strong conviction. However, the stock is significantly above its 100-day MA, so I would short into any failed rally.

Google shed over 2% today following its nearly 5% slide on Friday. I have expressed my belief that Google is a bellwether of this after-shock tech stock bubble, and I have been watching it’s chart for signs of deterioration. I didn’t put too much weight into Friday’s slide since it coincided with an earnings release. If the stock continues to languish, however, I would read that as a sign of weakness in the market in general.

On a final note, Intel slipped 1% today. It’s hard to say whether this was general weakness or was due to their announcement of a planned $3B capital investment in a new chip factory in Arizona. I can’t see such an investment contributing to profit margins at a time when they may be squeezed by the aggression of AMD.

Disclosure: Short CTX, RIMM, INTC; Long TOL, TXN, INTC Puts

 

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