Thursday, March 20, 2008

The Philly Fed Report Kick Starts Stocks!

The stock market is celebrating after this morning’s report! And we are happy to see the bulls come out, OLE!! Our readers should take note of the extended three day weekend ahead. U.S. markets will be closed for Good Friday.

Although improved over last month’s reading, the manufacturing activity in the Philadelphia region is continuing to experience weakness. That slight improvement is only a silver lining. What raises a red flag are the price pressures the regional Philadelphia manufacturing sector is experiencing. We feel these price pressures coupled with unemployment rates inching up could make the decision of the Fed Chairmen (see our article on "Will the Real Slim Shady Fed Chairman Please Stand Up) harder than ever come March 18th. This morning’s strength in the market is attributable to the pull back in commodity prices, in addition to hope for another large rate cut. Since markets hate uncertainty more than anything else, we continue to sell into strength, as there will be a flurry of economic data to hit the wires next week. We will be writing up an in depth analysis of the Psychology of the Upcoming Week's Data this Saturday night, so be informed.

Today, we recommend taking advantage of the volatility in the S&P from the 1,300-1,330 level. We believe that range will reward traders, perhaps even into next week. However we continue to stress that the Bear Stearns fallout will not be disseminated for weeks, and with a three day weekend ahead, we don't see much, if any positive spin from the media or Washington. On the contrary, we believe there will be increased pressure on the financial sector with talk of regulations. Regulations are something truly despised by a free market system. Wall Street surely doesn't want any part of it, but the Bear Stearns debacle won't go away quietly. Please heed this warning when buying financials over the next several days and weeks: regulations can cripple valuation multiples.

Finally, there's a saying among financial professionals "Fridays open with a bang and close with a whimper". Considering that today is Thursday and that the markets are closed tomorrow, we won't be using the word whimper, for sure. We invite you back Saturday night for the Psychology of the Upcoming Week's Data, and we promise you our trading analysis on the Chinese search engine BIDU very soon.

From the Psychology of the Call team, here's to an enjoyable weekend!

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