Still Leaning Toward the Bullish Camp
11/11/04 8:34 AM ET

So what issues, what data, what newsflow do we have to parse through today? Oil's continuing its slide from the bubblicious levels it had reached this autumn. You have to guess that it's not heading straight down back to the $30s -- even as I figure that is where it's eventually headed.

Advanced Micro Devices (AMD:NYSE) catches another upgrade -- Intel's (INTC:Nasdaq) competition is coming hard. Microsoft (MSFT:Nasdaq) is supposedly going to kill Google (GOOG:Nasdaq) now with a new Internet search engine -- that's news? (I'll have much more on this later today.) The Fed raised rates to 2% yesterday. (That's news too, I guess.)

The dollar has been probing new lows against the euro and other currencies. Lots of buzz in the bear camps about how oil might be priced in euros rather than dollars from now on. You mean, it's possible that at some point in the future some countries in Europe might actually prefer to be more closely associated with the euro than the dollar? And some purchases around the world might also be done in currencies other than the U.S. dollar? Further, if that were to happen, it's possible that there might be some implications for the dollar's value vs. those currencies, and if those implications were to unravel in a worst-case scenario, stocks might crash? All this is true. But I'm not sure it's an investment thesis.

Meanwhile, it's been little covered outside of the insightful analysis from MS Howells, but corporate and junk bond spreads have been collapsing, meaning that the people who hold the billions and billions of corporate debt are showing increasing confidence in the earnings power of corporate America.

That dynamic can work to fuel a virtuous cycle of more spending, more stock buybacks and more money being put into the economy, and therefore more growth and more earnings and so on and so forth. Something to keep an eye on, as strong action in corporate bonds has presaged this latest rally and the other strong rallies we've had in the past couple of years.

Overall earnings in the tech sector for the just reported third quarter were, overall, pretty fair. Some reports, guidance and calls -- like at Juniper (JNPR:Nasdaq) and Apple (AAPL:Nasdaq) -- were very strong. Others, like JDS Uniphase (JDSU:Nasdaq) and Motorola (MOT:NYSE), were OK. And yet others like National Semiconductor (NSM:NYSE) and Cisco (CSCO:Nasdaq) were poor. It's why I keep writing about how you have to do your homework and then double down and do more homework because there's good money to be made, despite the overall flattish action in the broader markets this year.

Readers know that I was steadily scaling into long-dated calls in tech names throughout mid- and late summer. I've got April 10 calls and January 15 calls in AMD, for example. When I bought them, AMD was around $12-$13, so the 10s were in the money and the 15s were out of the money. They're both now in the money as the stock is at $17 and change, above both strike prices.

I've now shorted some common stock on about a 1-to-8 ratio to those calls, so I'm still quite net long AMD. But if the stock drops below $15 again, those calls will stop falling in value; however, the short will continue to make me money. That's sort of a snapshot of why I keep saying I'm allowing the calls to work to make me longer as they go up. I'm still bullish, just not quite as bullish as I was in August or September when prices were lower.

Net long AMD, INTC, JNPR, AAPL, JDSU, MOT, GOOG, MSFT

Looking at a Green Open
11/11/04 9:29 AM ET

We're facing a slightly green opening to start the day. Some premarket short-covering in the high-beta hater players has GOOG and RIMM juicing higher a little bit. Like most folks, I am ready and looking for a pullback after this big recent rally. (Of course, the contrarian interpretation of that would say that means we won't be getting the pullback.)

I've been building a QQQ short of late to further hedge my long stance, which gets longer via the positive gamma I outlined in my opening post with my AMD scenario. (Speaking of the QQQ, with it moving to the Nasdaq and adding another Q to its symbol -- do more Qs in the name make it an even better trading vehicle? Sort of like that Schick Quatro adding another blade makes it a better shaving vehicle? Alas, I digress once again.)

Net long GOOG, RIMM, AMD, net short QQQ

Nortel Restates -- Again
11/11/04 9:36 AM ET

Oh Nortel, gimme a break, already: "In the course of the Company's reviews over the last two weeks, we have found a level of revenue restatement which warrants that we undertake a deliberate, focused but bounded double-checking of several revenue areas."

Are they kidding? What exactly is "focused but bounded double-checking"?

As my first boss on Wall Street taught me, there should never be such a thing as a "double-check." Get it right the first time. Or in Nortel's case, get it right the fourth or the fifth time. The restatement of the restatement of the restatements continues. What a crock

I'll continue to hold my smallish position steady, because the company is doing good business now, but the ghosts of the past are wearing our patience thin indeed.

Long NT

Google Targets Microsoft With Desktop Search
11/11/04 10:35 AM ET

Big, bad behemoth Microsoft (MSFT:Nasdaq) is launching a new Internet search engine to take on Google (GOOG:Nasdaq). I think they've been discussing this for what, six months now? And the beta has been out there for a while, too. That's why I don't exactly call it "news" today.

Like Mossberg in The Wall Street Journal, I think Softee's new engine is pretty good, but not quite as good as Google's. But while the media (including the three -- yes, three -- articles in the WSJ about the new search engine today) and analysts all work themselves up into a frenzy over Softee targeting Googie, I think there's a more important potential disruption that they're all missing.

The real story is how Googie is targeting Softee. Microsoft's dominance -- and let's face it, nobody has ever dominated a mammoth growth industry the way Microsoft has over the last couple of decades in PCs -- is all about owning the desktop. So while Microsoft obviously wants to go after the hugely profitable Google and its 36% market share in the U.S. search queries business (source: WSJ and comScore Networks), the fact is that both of these companies are likely to see market share gains against the other competitors out there as well as huge secular growth in that sector of their businesses.

We can argue whether or not end users are even going to notice whether Microsoft's new search engine is better than the one they used to use. What's more relevant to investors is how Google is targeting the search of the desktop, where Microsoft has 98% market share and little secular growth.

I'm testing Google's new desktop search engine on one of my work PCs (it's not available on my iMac yet) and it's great. In fact, much like Google changed the whole way we interact with the Internet, I think the new desktop search engine has the potential to change the way we interact with our PCs.

For example, I have more than 100,000 emails from readers (yes, you read that right) in my Outlook program. Last month, I couldn't even use the search function that Microsoft provides because it would simply bog itself down. Now when I remember that I sent Mark Cuban an email back in 2002, I simply type his name into my Google desktop search engine and -- wham -- two seconds later I see those emails.

I'm not sure how Google is going to make money on the desktop search, and I'm not sure how well Microsoft will be able to counter this new functionality. But I am certain that this is the tip of the iceberg of Google heading into the desktop business. And that, my friends, is an important and new development that will have ramifications on both companies' business models for years to come.

The high-tech wars are gearing up -- and there are going to be billions of dollars of earnings to be won. May the games begin.

Long MSFT, GOOG

It's Not as Sleepy Out There as One May Think
11/11/04 11:57 AM ET

Pretty remarkable how tight a range the market has been in this week. If you pull it up and check, all three of the big indices -- DJIA, Nasdaq, S&P 500 -- all have stayed within a 1% range this week.

That may lead you to conclude that things have been boring around Wall Street -- au contraire mon frere.

Certainly the big events like the Fed meeting and Cisco (CSCO:Nasdaq) have been snooze fests, but Research In Motion (RIMM:Nasdaq) has had a reversal of a reversal of a reversal (not joking!) with 20% plus moves down, up, down and up again. One of my favorite FTTP plays, Emcore (EMKR:Nasdaq) (be careful with this one, it's a penny stock with a small float) has been incredibly volatile, too.

Anyway, the point is that you gotta stay on your toes because there's money to be made -- sorry, no Doc Willard noontime naps allowed.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider EMKR to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

Long EMKR, long RIMM calls

More About Technology and Market Share
11/11/04 12:52 PM ET

I want to drive this market-share point home again regarding Google's (GOOG:Nasdaq) 36% share of Internet searches vs. Microsoft's (MSFT:Nasdaq) 98% share of the desktop. I'm always hit from readers and investors and strategists with questions like, "Isn't Comcast (CMCSA:Nasdaq) going to kill Vonage in VoIP?" Or "Aren't XM Satellite Radio (XMSR:Nasdaq) handhelds going to kill the Apple (AAPL:Nasdaq) iPod?" Or "Isn't the palmOne (PLMO:Nasdaq) Treo going to kill Research In Motion (RIMM:Nasdaq)?"

That's not how it works, in my mind anyway. Comcast and Vonage are going to kill the 98% market share that the local telecom incumbents such as Verizon (VZ:NYSE) and SBC (SBC:NYSE) have. XMSR and the iPod are going to kill Walkman, portable CD players and radio that have 98% market share. And Treo and RIMM are going to become a larger part of the 600 million-700 million handset per year business than the 1% or whatever they make up of it right now.

That's not to say that these new technologies don't compete against each other. But they are secular growth areas, even within areas that are in a secular decline, such as local telephony, which is declining thanks to other areas of secular growth such as wireless telephony.

I have yet to do a trade today, but will be looking to short a little more AMD and maybe another stock or two against my calls before the day is over.

By the way, I've been tagged to go on Kudlow & Cramer tonight, so I'll be heading out a little before the close to get to the studio.

Net long RIMM, AAPL, MSFT, GOOG, AMD

A Pullback Would Be Welcome in This Market
11/11/04 2:14 PM ET

What a strong underlying bid there is to this market. I mean, there has been hardly a downtick in the last five or six weeks. The charts, I guess, show that we've been doing some consolidation lately, which isn't the worst thing in the world. Frankly, though, I'd really like to see a nice, sharp, scary pullback that would work to panic the newfound longs and bring back the squeezed shorts.

As it is, the bids remain probably because the shorts want to alleviate the pain and cover more and more. And the underexposed (I've had dates during the summer I considered underexposed!) longs want to build positions.

Another Telco Boosts Capex
11/11/04 2:59 PM ET

Well, the very topic I'm going on "Kudlow & Cramer" to discuss tonight is carrier capex, and here comes SBC (SBC:NYSE) across the wires guiding its capex budget to the high end for next year. I think we can expect SBC to bump it up a little bit more before all is said and done.

The headlines also read that SBC is expecting to spend "only" $4 billion on its fiber-network buildout over the next few years. That money entails a nice shift from old world telecom technologies to fiber -- $4 billion worth, for crying out loud!

Also, please note SBC is still lab-testing and then will be field-testing these technologies. In other words, the company doesn't have any idea exactly how much it'll spend next year on fiber, much less how much it'll be spending over the next few years. The only real "news" in this wire crossing is that its guided capex to the high end next year.

No positions in stock mentioned

Another Remarkable Rally
11/11/04 3:47 PM ET

Pretty impressive rally ... again. And, yes, again, so many stocks underneath the action are just going nuts. Advanced Micro Devices (AMD:NYSE) is trying to find a new 52-week high on the back of the dual upgrades (as opposed to dual processors) this week.

We've got Dell's (DELL:Nasdaq) earnings report tonight, and, given that these guys are execution and market share taking machines, you gotta figure there won't be any bombs dropped on that one. I'm going to short a little more QQQ (QQQ:Amex) to hedge a little further before I head out.

Have a great night, and I'll see y'all back in these shark-infested waters in the morning.

Net long AMD; net short QQQ