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April 19, 2006

Intel's Big Day

This evening we close the books on another quarter at Intel and learn what the playwrights have scripted for the next. Optimism abounds. After traders delighted in yesterday's monster rally, they were treated to positive outlooks from Yahoo, eBay, Texas Instruments, as well as a host of other companies. The bulls have donned their superman capes and declared themselves bulletproof, as evidenced by the high-volume, 3% rally in Intel shares leading up to the company's release.

Yahoo's success in last night's release hinged on proving to the public that it was not losing market share to Google. The company also reassured investors about guidance, saying they are upgrading ad generation algorithms to improve click-thru rates, thereby supporting revenue forecasts. Traders soaked it up and sent Yahoo shares up 7%.

Intel, however, is in a different situation. The company has been losing market share in gobs to AMD. INTC has also been building capacity, and hence inventory, during a time of weakening demand. The ultimate affect of this build will be equivalent to dropping prices (and profit) into quicksand. To what extent these problems will be reflected in this evening's release, I don't know. Perhaps Intel, like Yahoo, was able to build enough bad news into January's report to give themselves the flexibility to make their number today. Unlike Yahoo, though, Intel does not have strong revenue growth, so they would have to finagle the numbers a bit more to hit the mark.

Intel's release could also be a bit more influential on overall market psychology than that of Yahoo. INTC shares are widely held and are a darling of Wall Street. Therefore, the market's reaction could have a lot to say about whether we have indeed seen a turning point in equities or are likely to leap to new highs.

Speaking of leaping to new highs, silver has gone vertical. This morning's 40c gain was only surpassed by this afternoon's 50c gain for a total 6% move. They are times like these that one wonders why his position sizes are so small. Where silver goes next, one can guess about as accurately as a coin flip. When commodities go wild, the moves eventually bust with a rather gut-wrenching reversal. The question is when, and the answers is nobody knows. Over the next few weeks, silver could go to $20 or reverse to $10, but what it will almost assuredly not do is go sideways.

Interestingly, Pan American Silver has still failed to participate in this month's silver spike. The shares gained a meek half percent today and are about even during a month in which the metal has tacked on 30%. Perhaps equity traders are too busy flipping tech stocks. One has to wonder if smart money knows something about the company that the rest of us do not. Is the risk in Peru larger than perceived? Is there internal trouble brewing? At some point I would like to add PAAS shares back into my portfolio mix, but for now I am waiting for resolution of their underperformance.

Disclosure: Short INTC; Long INTC, YHOO, GOOG Puts


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