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July 20, 2005

Inexorable Bulls

When the bulls are in party mode, there’s not much that can stop them. Even today’s weak opening based on disappointing earnings could not deter the feeding frenzy. After all, lower prices just present bargains, right? This whole build-up has an eerie feeling to it. Maybe once we get a bit of a slide off a top, traders capitulate and we get a crash. Just a thought.

The homeys were at the head of the pack today, setting new all-time highs with gains of over 1% across the board. CDW followed its 8% performance yesterday with another 3% gain today, though its partner-in-crime, Best Buy, took a breather. As mentioned yesterday, I am looking for a point to either short or purchase long-term puts on these stocks.

Despite saying two days ago that I was going to be an observer in the GM situation, I decided to pull the trigger and open a small short position near the close yesterday. My play was purely a technical one based on the inverted hammer formation. I figured that GM’s earnings report had to be especially good to overcome technical weakness in the chart, and that any slip would be punished. With the odds seemingly in my favor, it was too tempting. I was initially rewarded very well, with the stock down $1.50 in the early going. But the bargain hunters stepped in and drove the stock back up to near parity before it settled with a 1% loss. I closed out with a diminutive return, but any gain is better than a slap in the face.

The bulls, surprisingly, were not able to rebuild Intel today. It held its 5% loss through most of the day and finished off about 4.5%. Yesterday INTC had been up nearly 2% in regular trading, and my thoughts were that the numbers really had to be blowout results to keep the stock moving on the upside. Today we may have the opposite situation with F5 Networks. F5 stock sunk 3% in regular hours with traders pricing in some risk of disappointment following the Intel numbers. We may see an “Oh, that’s not so bad” rally after their report. This one doesn’t feel as clear to me as the INTC situation, so I decided to sit tight with my small short position through the report.

Metals edged higher today. I recently closed out my Pan American Silver position in favor of owning the metal directly. As stated before, I don’t think the metals will accelerate to the upside until the Fed indicates the rate hikes are done. Nevertheless, it is prudent to have a position. I think the major inflationary effort will come next year and be done by a new Fed chief eager to please his appointer. After all, mid-term elections are next November, and Bush can’t have the economy looking in shambles, can he?

Disclosure: Short INTC, FFIV. Long INTC Puts

 

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