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July 19, 2005

Shot in the Arm

Tech stocks got a shot in the arm this morning as both IBM and CDW gave earnings reports that delighted the bulls. IBM’s stock tacked on about 1.5%, while CDW leaped a whopping 8.6%. Overall, the Nasdaq Composite rose about 1.2% to a new closing high for the year.

CDW is one of the big beneficiaries of the U.S. consumption boom. I expect that once housing prices stop rising, consumer goods companies will suffer, especially in the tech arena. Tech gadgets are more or less unnecessary toys, and will be one of the first groups to suffer from household budget cutbacks. I was very happy to see CDW stock rise sharply since I do not yet have a short position in the stock. I will be looking for an entry point in the coming days or weeks.

One of the beneficiaries of CDW’s report was Intel. CDW gave credit to increased computer sales for its results, and traders hoped the punch bowl would spill over into Intel’s cup. Intel rose nearly 2% during regular trading. Given the size of the move in regular hours, I decided not to cover my Intel short before their report. It seemed the potential good news was already baked in, and a slip was more likely than another leap. I have not read Intel’s report this evening, but traders seem to be a little disillusioned. Intel stock is down in after-hours trading almost 4% from its close.

The homeys managed to tack on another 1%+ across the board, possibly following the long bond rally, momentum, or both. I have read reports of stalling home sales in various cities and am wondering if the spike in home builder stock prices this month is a blow-off top. The home builder group looks spookily like the Nasdaq chart of 1999-2000. They formed a head-and-shoulders top, seemed to break downward, and then surprised everyone with a massive rally (homebuilders are up over 50% from their April lows). I don’t know where this spike ends, but when it ends, I think it will end traumatically.

Disclosure: Short INTC. Long INTC Puts


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