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August 10, 2006

Squeeze Me?

The shellacking I expected markets to suffer today did not occur. Not long before the market opened, index futures were indicating that the game may be on, but equities managed to stabilize about a half hour into the session. I'm not sure if the thwarted airplane bombings had anything to do with either action, but I have noticed that traders somehow find the resolve to buy every time a terrorist action against the West is either executed or foiled. In any case, I got the distinct impression that stocks were working off an oversold position in order to wind up for the next move down.

I must say that my worst trading move of the last several weeks has been building up my put position around Research in Motion. Just when RIMM was looking to suffer a breakdown, a slew if bids came in under it, proving that the $60 level provides stronger support than I imagined. Buying begat buying, and the week-plus surge culminated today in an 8% short squeeze. My primary reason for using puts on this issue, rather than an outright short, was fear over days like this in a stock with a tendency to have them. With puts, I can lose no more than the dollar amount purchased, as opposed to potentially unlimited losses on a short. At least one aspect of my decision paid off!

A few retailers reported sales and earnings this morning. The results were mixed, as were traders minds over what to do about them. J.C. Penney, which reported same-store sales comps at 6.6%, initially slumped 2%, but the shares recovered to finish up 2.5%. Target also released a slew of figures... too numerous to adequately discuss here... and saw its shares higher by 5%.

One notable weak spot came from CDW Corp., which reported average daily sales growth for July at 4.6%. The lower-than-expected number was blamed on weak corporate sales... hardly a good sign for those expecting a second-half spending boom. (Maybe CDWC just needs to carry more Cisco products.) Of course, this is just one data point, but it should raise red flags. CDWC continues to handily beat earnings estimates, but get hit by weak sales comps. Something doesn't mesh here, and I suspect write-offs may be in the cards for this one.

Just in case you were too distracted by the tedious action in equities to notice, precious metals got hammered. Gold was thumped for about $15 and silver, 40 cents. Apart from the fact that metals were a bit overbought, the mini flight-to-quality reaction we got in the dollar on the heels of the terror plot probably weighed on them. These developments are good news for those of us who have not begun building up positions. Now we just need the technicians to step in and get these assets down to nice, cheap prices before the next wave up.

Disclosure: Long RIMM, CDWC Puts


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