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May 15, 2006

Mutually Muted

The bears attempted a downside push out of the gate this morning, and I was watching intently to see how much strength they could display. The selling lasted all of two minutes before bulls stepped in and started a buying spree. But the bulls were also stopped short (pun intended?) as indices only managed to get marginally above even. The next few hours saw an intense standoff before the bulls finally broke, sending the market to new lows for the day, but we then witnessed another push back toward parity, and ended the day mixed on the major indices. On net, the bulls had more to prove today than the bears, and they failed to make a showing, even with short-term oversold conditions in their favor. My gut tells me this means we are on the brink of more selling. We'll just have to wait and see.

One of the first bits of commentary I read this morning was Bloomberg piece highlighted the sharp drop in commodities prices this morning. The first line of the article read, "Commodity prices plunged, led by copper and silver, on concern rising global interest rates may curb demandÂ…" I wonder where we've heard that line of thinking before.

We're going to hear a lot of talk in coming weeks about how commodities, especially metals, have already peaked and perhaps a bit of banter about bubbles. Don't listen to it. This reprise will be easy to believe as we get sharp pullbacks in commodity prices and related equities such as mining shares, but I believe the retreat will only set up beautiful buying opportunities for the next push higher in this commodities bull market. Instead, I intend to watch carefully for events and price behavior that could signal the beginning of the next run. Then I will get aggressively long commodity-based assets because I believe the price gains in next phase of the bull market will dwarf the gains seen to date.

Scanning down the usual list of suspects, the only mover that raises my eyebrow is Research in Motion. RIMM shares fell 4.9%, though I saw no news to instigate the sell-off. Instead there was a headline about Blackberry service opening in the UAE. In the past, news of the launch of Blackberry service in a news country would add about $500M to RIM's market cap, no matter how small the country in question. Traders are now ignoring such news, telling us that perhaps the energy supporting speculative fervor in these shares has been quashed. I think the time to consider building a short position is upon us, and I will be watching RIMM shares intently over the next few days.

Disclosure: Long RIMM Puts


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