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March 17, 2006

Voluminous

Major stock indices managed diminutive gains on this options-expiration Friday while bonds and the dollar were quietly slipping. Despite near record volume for the first hour of trading, it was a dull day to be staring at the screen, and I am typically not as attentive to action on options-expiration days. However, there were a few interesting news bytes crossing the wires today.

General Motors managed to grab the spotlight with its announcement that its 2005 loss was $2 billion more than anticipated. The shares shed nearly 5%, and I believe this company will witness more pain down the road. GM's troubles cannot be cleaned up simply by selling off a couple divisions and changing terms with its unions. GM's purpose is to sell automobiles, and unless the company finds ways to compete through innovation and efficiency, the shares will continue to suffer. For the time being, I am refraining from going short due to strengthening technical indicators and the fact that Mr. Kerkorian could pull an ace out of his sleeve at any moment.

Home builder shares caught some bids thanks to a huge vote of confidence from an industry CEO. William Lyon issued a tender offer, at about a 23% premium to yesterday's close, for shares of the company that bears his name. Despite his cash offer priced at $93 per share, WLS traded above $100, likely in anticipation that Mr. Lyon will have to raise his offer to get the shares he wants. Pity the poor souls who were short WLS.

As a group, the homeys popped about 2% on the news. Building Materials Holding participated in the optimism, as well, gaining about 2%. While a management takeover of one of the home builders adds no intrinsic value to BMHC's business, the vote of confidence provides a psychological boost for the whole sector. The potential for more buyouts or mergers certainly exists, but the outlook for BMHC does not change. Home construction will continue to slow, and today's news will not drive me out of my short.

Intel witnessed another round of high-volume dumping, with the exception of the last 10 minutes of action when the shares cut the day's losses in half on very high volume. Given the nature of options-expiration Fridays, there is no way to tell whether Intel's performance in the final minutes carries any significance. We are now a month away from Intel's first quarter earnings report, and I'm curious to see if half-baked analysts start trying to pump the shares ahead of the release. Should we see a vacuum of street support for Intel, it may be an indication that the shares will be more vulnerable come earnings day.

Disclosure: Short BMHC, INTC; Long INTC Puts

 

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