Wednesday, May 14, 2008

Psychology of Today's Data

Wednesday, May 14th at 8:30 ET brings us the Consumer Price Index (CPI) for April.

POTC believes the core CPI cannot be taken as seriously as in the past. Food and energy prices have done more than simply break out of a cycle. Crude Inventories are released at 10:30 ET for the week ending May 10th. Will the rise continue indefinitely? Of course not, but even if the price of gas stabilizes in the $3.69 range, or crude oil in the $110.00 range, it will have negative consequences on consumer psychology in the short run, therefore the 1,400 S&P level is something every investor should monitor closely this week as the Index is the best forward-looking indicator we have.

If energy and food prices don't pull back sharply soon, mid end/cost clothing retailers will be hit hardest and the lower end/cost stores like Wal-Mart (WMT) will fare best. Regardless of the overall CPI number, the fact it is approaching its 3 year high of 4.7% and talk of 5% around the corner will wake up many bears on Wednesday. The CPI data will not have bullish effects on the market in our opinion. The current CPI year over year (y/y) stands at 4.0% A word of caution… this number does not reflect last month’s run up in energy. Any votes for higher CPI numbers still ahead?

Before market earnings come from Deere & Company (DE) $1.75/share estimate, and Freddie Mac (FRE) -$1.05/share estimate; this is a great example of why we mention the phrase "market of stocks" and not merely use "stock market" like the broad S&P Index, especially during earnings season. DE could see much higher prices ahead as the market for their U.S. dollar denominated machinery is red hot, and FRE's struggle in the low to mid $20's could continue for years in this credit/mortgage debacle. If we had to pick stocks that can avoid the inflation slaughter ahead, besides biotechnology stocks like Genentech (DNA), we would favor FSLR and DE.


Anonymous said...

I find it hard to believe I read this again today:

"investors rallied over better-than-expected losses"

The market is making less sense or shall we say "nonsense". A 1% gain for the Dow in morning precedes a 1% sell off in the afternoon.

The Psychology seems the equivalent of a manic depressive.

StockWatcher said...

Why did you close your positions today?

The Call Team said...

Look at the top of the home page.