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February 13, 2006

What Buyers?

Equities put in a pretty weak showing today, considering the size of the upside reversal we saw Friday. Tech stocks once again proved to be the weakest sector, with the NDX and Nasdaq Composite both off a little more than one percent versus quarter-percent drops in the S&P 500 and Dow. The mood on the street appeared to be initially soured by an article in this weekend's Barron's panning Google. Google dropped almost 5%, and Yahoo fell about 2% in commiseration.

I don't have a good feel for which way we go immediately, though my outlook for the intermediate term remains the same: sharply lower. Has Papa Bear awoken? Possibly, but until I get a better sense of direction, I'll be staying mostly on the sidelines. I continue to keep a close eye on bonds, as well as housing and retail stocks, for clues to directional changes.

Speaking of souring, real currencies got hammered once again, with gold off 2% and silver off another 3%. Silver has now slipped 8% since the beginning of February. Back in December, I began writing of a scenario in which the metals put in a spectacular run to draw in people who have been watching from the sidelines. The draw would be followed by a sudden and sharp drop to burn these latecomers. It now appears that the burn process is well underway. Although a 20% move over 2 months may be shy of spectacular, it still qualifies as a pretty good draw. How deep the burn process runs is anybody's guess. A return to the near-term trend line would be reasonable, in which case we'd be in store for another 3% or so to the downside, but bigger resistance lies 8% lower. I suspect the dollar may turn lower again about the same time as metals turn higher, so its action may give us some clues.

Here Comes the Competition
Sometimes reminding traders of news they already know... or at least should know... instigates movement in a stock. Microsoft issued a press release today stating they will be supplying their mobile e-mail software to cell phone manufacturers. Microsoft's software takes direct aim at Research in Motion's Blackberry service. As the illustrious Fred Hickey pointed out in last month's Barron's Roundtable, competition is a much bigger threat to RIMM than the NTP lawsuit. Personally, the only reason I am not more heavily short RIMM at the moment is the threat of a run-up in their shares once any kind of settlement is announced. RIMM shares fell about 2.5% today thanks to Microsoft's friendly reminder.

I anticipate more drama this week as Ben Bernanke (future Sir Ben? Probably not.) testifies to Congress for the first time in his tenure as Fed Chief. How the market reacts to whatever nonsense he is sure to spew will tell us more about the current demeanor of traders.

Disclosure: Long YHOO, RIMM Puts


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