Monday, April 14, 2008

The Psychology of this Week's Data

We offer you the most market moving earnings and economic data for the remainder of the week; please position yourself accordingly. We anticipate TREMENDOUS VOLATILITY during the week of April 14 - 18, with the overall bias being lower. Be especially prepared for Wednesday.

The markets are deep and dynamic, so avoid getting brain washed by any one camp fire, bear or bull. Although if you do chose to be bear or bull forever, you will learn to exhibit great patience and make money, circling more and trading less. Position trading is what these camps rely on. George Soros is a great example with his British Pound short windfall of one billion dollars in one day in 1992. Bubbles and climactic sell offs are wonderful events for these two camps. The perma-bears, like Mr. Stephen Roach, a man I met while at Morgan Stanley in one of the late, great World Trade Center Towers, seem so wrong when the market rises, but everyone flocks to them when the market collapses. But you must realize that the "perma-camps" will always eventually be right, as long as they stay their course. We respect the perma-bears (Roach,Soros) and perma-bulls (Kudlow) alike at the Psychology of the Call, and because the free market system has two sides, men like Roach, Kudlow, and Soros deserve some attention.

We look to Wednesday, April 16th with GREAT ANTICIPATION. This is the day after the INTC report and it will see a slew of economic and earnings releases. Are the markets efficient and have they discounted all this data already? They'll sure be tested today. Consumer Price Inflation CPI comes at 8:30 ET.

Housing Starts, Building Permits will be posted at 8:30 ET as well. These data sets have been depressed and we don't see that changing just yet. We look for the housing crisis to recover in bits and pieces. Just like the market of stocks, not the stock market as many would have you believe. We see strong foreign currencies stepping in to buy prime high-end real estate at HUGE discounts, both on a principle basis and currency translation impact. The Euro dollar will step in and bail out a lot of real estate investors come Autumn/Fall. Please remember our prediction. Here's a chart of the Euro/US: dollar:

We reiterate our belief the Euro will be a FIRE STARTER for US real estate as well as blue chip stocks like Goldman Sachs (GS) perhaps.

9:15 ET brings Industrial Production and Capacity Utilization:

This data has been trending down lately as well, but we predict improvement in manufacturing before the Europeans step in to buy our coastal and prime city (Manhattan & Chicago) real estate.

10:30 ET brings Crude Oil Inventories.

With crude hitting $112.00 last week, this data will just remind and reinforce traders that the hurricane season is approaching. Perhaps an opportunity to make money on the short side? 2005, the year of Katrina and other major hurricanes was a horrific season and a freak occurrence. Since it's all still fresh in people’s minds, and crude oil did spike to $76.00 soon thereafter, we feel the contrarian trade is to short crude. If crude were to climb to the $120.00-$130.00 range going into the Olympics, we would strongly recommend shorting crude oil in the futures market.

We whole heartedly wish the Chinese people a successful Olympic Games, but we have to call it as we see it today; a geo-political disaster. We believe once the 2008 Olympics begin, crude could begin its fall to the $80.00 level
. At least a 25% premium is built into the Chinese economy chugging along at the same pace, and we predict the Chinese economy will falter before or after the Olympic games due to political unrest, rampant inflation, and cries for human rights from within China, Tibet, and European countries like France, Italy, and Germany. This is the type of Psychological Financial Fusion we addressed in the beginning. The ‘cheap’ Chinese Yuan is causing great problems for European manufacturing, but especially the steel industry. Europeans may not boycott the Olympics, but they could penalize Chinese imports through tariffs and other political legislation measures available, so exhibit caution.

Market moving earnings after market close come from Wells Fargo (WFC), International Business Machines (IBM), and eBay (EBAY).

We look to Thursday, April 17th with tremendous volatility continuing. 8:30 ET brings us the Initial Claims for Unemployment and the Philly Fed Index:

We will make a quick prediction here: employment could improve because of Spring Break, so a head fake of sorts, and since the "Philly Fed Kick Started Stocks" last time in a piece we wrote, we hope for the bulls sake, that happens again!

Thursday is more about earnings: after market close brings us United Technologies (UTX), American Express (AXP), and Google (GOOG).

We look to Friday, April 18th as a "naked" economic day in terms of data. So the open will be dictated by earnings from UTX, AXP, and GOOG. We suspect a very volatile day with a downward bias. The earnings after market close come from Caterpillar (CAT), and Citigroup (C).

Thanks for reading the Psychology of the Call. We wish you a comfortable, healthy, and profitable week.


Anonymous said...

Do you really think oil will go to $120-$130?

The Call Team said...
This comment has been removed by the author.
The Call Team said...

We do believe another 6% or more is highly likely, putting crude north of $120 a barrel. Remember on one day in Sept of 2005, just the coverage of hurricane Rita's approach caused a 6.9% spike. Therefore, we do feel the hurricane season will build a premium of at least 6% in the next several weeks. If we don't get any major refinery disruptions from Gulf hurricanes, coupled with the unwinding of the Chinese Olympic premium, than crude going from the $120-$130 range back to the $80 range would bring a windfall profit. Rationalizing the trade with the "fusion of financial psychology" makes the trade more enjoyable in our opinion.
Here's the hurricane Rita link:

Amar Harolikar said...

Interesting line of thought on China.

On Crude, $120 levels do look unsustainable. But I am trying to figure out is if these levels would be maintained for some time or is it a bubble which would burst soon