Tuesday, April 1, 2008

Trend Setting Tuesday On 1st April

Wall Street has fooled many investors in 2008, but the $64,000 question is: will it continue to do so this week? The recent demise of Bear Stearns (BSC) revealed the unforgiving side of bad risk management and the carnivorous side of its peers, particularly JP Morgan (JPM). A slew of Ivy League degrees and mathematical modeling software added up to $2.00/share on a late Sunday night 2 weeks ago. And now that offer has increased by 400%? But could today's April 1st rally finally be different...

Market breadth this morning is incredibly bullish. Meanwhile crude oil continues to retreat from $110.00 (http://www.wtrg.com/daily/crudeoilprice.html)

The March ISM came in at 48.6, which is slightly better than the 47.5 expected. The "prices paid component" (PPM) came in at 83.5 versus 75.5 in February, signaling a greater than 10% rise in inflation month over month. This is Chinese type data! One huge positive was that "inventories" shrank from 45.4 in February to 44.9 in March. This may seem like only a small amount, but when coupled with the recent pull back in crude prices, it’s the sort of data that will put a smile on the face of forward-thinking bulls.

The Fed has tweaked the Fed funds rate and signaled that it will try everything possible to stave off financial panic. The equity risk premium today favors equities more than at any other time in U.S. market history and as a result, the strong Euro will eventually be used to buy U.S. blue chips at huge discounts.

So should you be jumping in head first with a ‘Buy, Buy, Buy’ mentality? Well, no; the wounds are too fresh to be jumping in just yet. But bear in mind that there are a few stocks that still maintain a sold position above their 200dma and we would consider trading them now. Perhaps Intuitive Surgical (ISRG) is a stock to consider? (Let us know what you think by adding a ‘Comment’ below.)

All in all, we suspect it would be wise to fade/ignore the well "dressed" bulls today and remember that it’s still very early in the formation of a market bottom. You can always buy a multitude of "theme stocks" if we have in fact touched bottom But you can a short a multitude of "false" stocks if the fledgling trend begins to lose volume and break (there are always two sides to the market, as we state in Commandment #8 in the left margin). We usually look back at Index bottoms and recall how "boring" the sentiment became before a new bullish trend set in, we assume boring is not being tossed around Institutional trading desks today.


That having been said, please trade wisely, realizing the S&P at 1,364 is still 36 points, or 2.6% away from a "failure target" level for many seasoned bears. Setting forward-looking technical resistance points during break away days becomes critical to making money. 1,400 on the S&P may turn out to be an irresistible trading level for new and old shorts; if it even prints in the face of Friday's oft bloody unemployment hammer.

Many Institutions opted to wait for Trend Setting Tuesday to vote "stocks over bonds", delaying the "window dressing" effect by one day and faking out the herd. The herd has been head faked at many a turn in 2008 and this won't be the last time, that’s for sure.

Today's bulls may well twist off their horns and act like bears before the summer heat sets in. But we have to reiterate our feelings on the ramifications of extremely strong foreign currencies, specifically the Euro as a potential fire starter going forward. That's the Psychology of the bull and bear argument as we see it.

Thanks for understanding the Psychology of this April fool’s Call.


Anonymous said...

Why ISRG? Just because its above its 200 day?

Anonymous said...

Intuitive Surgical has great competitive advantages and management. Market share and demographic-related issues are very positive as well, in our opnion.