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January 4, 2007


The late-day bounce that closed yesterday's session saw follow-thru today, at least in the tech arena. The NDX sported a 40-point gain at its peak and easily took out yesterday's high. The S&P 500, however, spent little time in positive territory, although a late push higher helped it close a bit above even. The bulls certainly showed fortitude today. You have to give them credit for standing tall in the face of yesterday's damage. Given the recent pickup in volatility, though, I would have to believe that the next round of highs, should the market achieve them, will prove to be a top.

Bank of America posted an upgrade on Intel this morning, revealing higher expectations for 4th quarter earnings. Combined with the NDX rally, the upgrade helped boost INTC shares by about 4%. Of course, nowhere in their insightful press release did BofA ponder what might be the future effect on earnings of the nearly $5 billion of inventory on Intel's balance sheet. Such mindless upgrades are one of the countless pitfalls faced by bears. The pile of Intel puts I purchased yesterday were certainly none the better for this action and had to be jettisoned. As the day progressed, I also closed my Intel short position, leaving me without an Intel short in one form or another for the first time in a long while. As you can see in the chart below, the surge in INTC shares set in place two bullish indicators:

stock chart

A purely technical trader would probably trade Intel long at this point, but given my bearish view of the company's prospects, I wouldn't have the stomach for it. Perhaps knowing too much (or thinking one knows too much) hinders opportunity. In any case, I will simply wait to trade the next bearish setup.

Research in Motion put in a fantastic bounce, jumping an eye-popping $10. Best I could tell, the enthusiasm was spurred by news that RIMM has initiated a partnership with Kodiak Systems to add features to Blackberries, including push-to-talk capability. PTT is no easy task. Several companies have attempted to compete with Sprint Nextel on this front. None but Nextel have been able to overcome latency issues, so I doubt this development will be adding value to RIMM's balance sheet any time soon.

Precious metals were mixed. Silver gained a half percent while gold slipped one percent. These moves are just noise. Mining shares, on the other hand, continued their slippery ways, falling another 2%. I am certainly glad to have unloaded my Newmont shares last week, but I wish I had sent my calls off with them. At this point, all we metals bulls can do is twiddle our thumbs until a better setup beckons.

Patience has certainly been a valuable trait with regard to energy. Oil traded 5% lower, bringing its two-day lashing to nearly $6 per barrel. Energy-related equities followed suit. Shareholders of companies like Conoco Phillips and Penn West Energy have not enjoyed the start of 2007! Perhaps some of those traders will sell their shares to me in a panic down the road.

Disclosure: Short BAC; Long NEM Calls


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