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May 16, 2006

Redux

Today's action looked a whole lot like yesterday's, though the end result was slightly weaker. Momentum indicators would suggest we're in for a bounce, but when markets are undergoing a longer-term directional change, such indicators tend to give very deceptive signals. Whether or not we witness a bounce, I think we're heading much lower in coming weeks. I was curiously awaiting the action of the last half hour, thinking that any sharp move may provide a clue to which side was playing with a weaker hand, but alas, the action was stale.

The homeys were panned after this morning's weak housing starts data. New home construction initiated in April came in at the lowest level since late 2004. Based on all the news of weakness coming out of the builders, I expect housing starts to continue to decline, perhaps steeply. Shares of Building Materials Holding didn't take the news lightly, seeing losses of about 2% early in the session and ending down 4%. As a group, home builders were down nearly 2%.

The market's two biggest superstars, Google and Apple, were both quite weak. Apple dropped over 4% while Google continued a three-week slide that has clipped about $75 from its wings. If both these stocks fail their March lows, I will read it as validation that Papa Bear has, indeed, awoken.

Intel shares cracked below $19 for the first time in several weeks. I can't shake the feeling we will see INTC gap down in the near future. Should Intel management see fit to give us a mid-quarter update, we may have our catalyst. Nevertheless, I am not brave enough to add to my already huge short position.

In the go-figure department, only a day after I wrote that the time may be upon us to look for an entry point to short Research in Motion, we received an upgrade on the shares from Bear Stearns. I suppose we should thank them for giving the stock a boost so we can get a better price, though I did nothing today.

Since tech has been the heaviest sector of late, the mood for tomorrow may be set by Hewlett-Packard's earnings report tonight. I have no opinion on that one, but I am interested in how traders react to whatever they say. Of course, we also receive the latest fabrication of the CPI in the morning, a number which, despite its uselessness, tends to generate furious (and frivolous) activity, so hopefully the screens will be more informative during tomorrow's session.

Disclosure: Short BMHC, INTC; Long BMHC, GOOG, INTC, RIMM Puts

 

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