Market is Down But Not Out. 7-20-06

Good Evening.

Giving back all of yesterday's wonderful gains are certainly not a healthy "thang". Unfortunately traders are creatures of habit and they continue to press the same strategy that has recently made them money until it blows up in their face. Apparently, the recent success of short sellers by hitting anything that dares to move up continues to be too tempting to be abandoned at this time. Therefore, the sickening game goes on and on adding more angst and stress to any Bovines that are still alive. The good news is that the lows from July have not yet been pierced (approximately 1.5% away) and may offer support as well as the ability for Bovines to claim a retest. We'll just have to see if they hold over the next few days.

After the bell MSFT, GOOG and AMGN offered solid reports which may give the Bulls ammunition to retry to the upside. Hopefully the Bears will soon be punished for their blatant arrogance and unoriginal trading scheme that seems rather old and played out at this time. The pattern of hitting any strength is truly becoming mindless which usually leads to punishment for the perpetrators.

Overall the earnings picture has developed into something far less ugly than the market was bracing for. In fact after the bell, MSFT not only raised guidance for FY 2007 but they also offered a $40 billion dollar buyback over the next few years. Approximately half of that buyback will take place up to the price of $24.50. In essence, MSFT has provided a free put at current levels which should offer the opportunity for traders to take the stock even higher depending on each individuals risk tolerance back to $24.50. Our experience tells us that most traders can handle 10% - 15% downside on a large cap technology stock which means MSFT should have no problem lifting to the $27-ish level in a better tape. A move in MSFT to those levels would surely spill over into the NADSAQ and DOW catching most traders off guard with the magnitude of the rally.

Naturally, once Vista is finally released we are expecting MSFT to do much better perhaps returning to the mid $35 level over the next 12 months. In fact raising guidance for the full year in conjunction with the $40 billion share buyback exemplifies MSFT's own confidence in the long term outlook of their share price. We know they are very excited about the prospects for Vista and frankly so are we as it relates to the entire Tech sector.

GOOG after the bell provided enough to keep their stock steady for the time being. We would have liked to have seen the revenues better than inline but it is still quite possible that the shares can take off once the tape improves. Traders will justify buying GOOG due to its clear and continuous market share gains against YHOO.

AMD delivered a crummy report which should not be a surprise to anyone based on the war between them and INTC. In fact, the only war that seems more ferocious at this time is in the Middle East.

If You Held a Taser to Our Head:
We are disappointed with the complete giveback in today's action. However, all is not lost and there still is a good chance for delayed follow through in the NASDAQ as more catalysts come to fruition. Perhaps a digestion period is necessary for traders to fully embrace the 'not nearly as bad' fundamentals in earnings that are materializing. Other resolutions to recent ailments are looming and will likely add to the rally once it gains stickiness! We continue to believe that a good upside rally is due over the next couple of weeks but admittedly, our patience is starting to wear thin.

Our next post will be on Monday. Have a good weekend.

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