Monday Intraday Market Update

"Here is our brief take on today's action and a reiteration of our expectations for the rest of the week. We repeat this information for the benefit of new subscribers. The Indexes are in slight bear rally mode today; with the... "

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Psychology in the Upcoming Week's Data (Crude, ECB, PPC, and Jobs)

"POTC hopes you enjoyed our "Saturday Night Market Psychology" piece. We remind you the markets are deep and dynamic; many dislocations will continue to cause volatility; but we continue to feel momentum is building toward a climactic sell off and an eventual bottom."

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Saturday Night Market Psychology, Just Stayin' Alive

John Maynard Keynes: "When the facts change, I change my mind".

When POTC witnesses a change in sentiment and reversal of trend - the market climactically bottoms out and/or becomes boring - we will be happy to adorn our bull horns. But not yet: let us first address the psychological riddle of the bear market in stocks, and bull market in oil.

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Saturday Evening Article

We will send a new article to our e-mail subscribers on Saturday. If you would like to receive our weekend articles, intraday updates and real-time intraday trading suggestions please send an e-mail to Psychologyofthecall@gmail.com

In the meantime, what do you do if you were long the last two days, and you're still long going in to Monday's potential bloodbath? http://www.youtube.com/watch?v=uepFO4psgKE&feature=related

Friday's Fixation on Oil Grows, Market is in Trouble

"Hello to all. The fact crude is continuing its climb does not bode well for the closing bell. Please be aware next week brings a 3 day weekend, so Monday could bring massive liquidation, as oil is changing the psychology of valuation."

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Four Whom the Bell Tolls", POTC's Four Scenarios

Loyal Readers... this will be our last full post on this blog. In future we will restrict our postings to our e-mail subscribers. Please sign up by simply sending your e-mail to Psychologyofthecall@Gmail.com.

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We see four scenarios related to crude oil and the unfolding economic data. It's not too late to sell your holdings before the massive sell off, as we see the S&P at 1,190 and Nasdaq at 2,150 before the indexes settle some time next week. Even good earnings this quarter won't matter as most businesses' variable costs have risen substantially. So how the market wants to discount $140/barrel oil is anyone's guess. Do not let the next few closing bells blow up your portfolio. Barring a $10 drop in oil Friday, we are very pessimistic after Thursday's parabolic move. Forecasting crude oil has become an unwelcome financial conundrum and this will exacerbate the sell off. The analyst/firm that says crude is going higher continues to make money as the majority of consumers/investors suffer. Meanwhile the analyst/firm that says crude is going lower continues to lose money and the majority still suffers. Valuations will be questioned in every sector as crude fails to back off. We witnessed every sector in the S&P down Thursday, an extremely rare event. Fasten your seat belts, as we present the four scenarios sprinkled with some psychology.

Our readers should imagine "bad economic data" as a rise in unemployment or fall in retail sales, and "good economic data" as a fall in unemployment or rise in retail sales. Be aware the unemployment data is scheduled for release next Thursday, July 3rd, as the markets are closed for the 4th of July Independence Day celebration… another conundrum.

1) Crude oil does not break down with bad economic data: Very negative for stocks. A deep recession imminent barring more government stimulation/intervention. Even IF the government acts again, isn't investor psychology near the tipping point? We certainly think so. POTC believes in "laissez faire", but after the Bear Stearns collapse, we understand if you differ. http://www.bartleby.com/65/la/laissezf.html

2) Crude oil does not break down with good economic data:Question mark for stocks. FOMC rate hike imminent as the past rate cuts have kicked in and miraculously jump-started the economy. The $64,000 question is whether the rate hike causes the greenback to strengthen and crude to fall. The strengthening of the greenback must develop into a trend, and the same goes for the sell off in crude, otherwise, we're back to where we started. IF trends take hold, stocks rise, IF not, stocks continue to fall. Therefore, we rated this as neutral/question mark.

3) Crude oil breaks down below $130/barrel with bad economic data: Somewhat positive for stocks, as FOMC remains on hold and the biggest thorn/cost in the consumer and corporate sector is slowly removed. Paradoxically, bad economic data has been historically positive for stocks since the FOMC stayed on hold, but with bad economic data like rising unemployment, the question remains as to whether the rate cuts were enough to eventually kick in and turn the tide of unemployment to more employment? A conundrum again, but we rate it as somewhat positive nonetheless.

4) Crude oil breaks down below $130/barrel with good economic data: Very positive for stocks, as the cost of energy diminishes. The focus though again turns to the credibility of the FOMC to hike rates. Uncertainty is what Wall Street hates most. By how much will they raise rates, and for what duration of time? Yet the hike will be warranted on the back of good economic data, so the benefit of the greenback strengthening and oil breaking down further is a huge benefit IF this scenario unfolds.

We hope you enjoyed our four scenarios. Please print out this page and make marks next to the four scenarios, monitoring oil and all economic data. Quick Financial Psychological Fusion: Today's GDP was "good economic data", but weekly unemployment claims came in as "bad", but crude rose, so it fell between scenarios #1 and # 2, yes? Remember scenario #1 is very negative for stocks, and scenario #2 is only a question mark after the FOMC raises rates. We hope we didn't lose too many, but these markets are very complicated. Could the sole dissenter, Fisher, strong arm Chairman Bernanke to raise rates Monday morning IF crude continues to rise or even stabilizes in the $135-$140 range? The argument for hiking could be made for a stronger greenback. Would you and the rest of the world buy it… the greenback, that is? That's where the $64,000 enigma in scenario #2 lies.

With no economic data scheduled for tomorrow, we will unfortunately be trading on hot oil. We urge our readers to avoid ALL stocks until the shake out is complete and/or oil breaks down below $130/barrel. We did blog that there would be better opportunities after the 4th of July fireworks.

We stand by that prediction and we hope you realise that the Psychology of the Call team will continue to stand by you.

Thursday Update

"Let's all take a deep breath and calm down together. Market crashes do not occur because of things we know. They usually occur from left field, and today we know inflation is the problem, especially everything tied to crude oil."

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Crude Holding the Market Hostage

"The surge in oil prices is holding the market hostage. And pleas to the Saudis to increase production have met with... ".

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Thursday Market Psychology

"GDP came in as expected and jobless claims higher at 384K for week ending 6/21. Existing Home sales could lift the market at 10:00 ET..."

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Wednesday After-Fed Psychology

"The FOMC is slowly changing their psychology from growth to inflation, but their hands are tied with rising unemployment."

Our latest piece is available. As part of our transition to a different blog format and a stand-alone website, we will be reducing our postings on intraday psychology and the Psychology of the Upcoming Week in this forum.
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Wednesday Intraday Psychology

Durable Goods orders for the month of May will be released at 8:30 ET. http://www.briefing.com/Investor/Public/Calendars/EconomicReleases/durord.htm
We feel the manufacturing sector will continue to show strength, and the forecast of 0% will be bested. Our readers should position themselves for a bear market rally. Please monitor the price of crude from open to close, but especially after the Crude Oil Inventory release comes at 10:30 ET for week ending 6/21. POTC is confident crude oil will begin to ease, and any drop in exess of $3.00/barrel should further ignite the bears. A United Arab Emirates oil minister had more bearish words for crude late Tuesday night at an Oil and Gas conference in Seoul, Korea. Here's the story courtesy of the Dow Jones news wires:

DJ UAE Oil Min: Willing To Supply More Oil If Market Needs

SEOUL (Dow Jones)--The global oil market is still well supplied, but the United Arab Emirates is willing to provide more oil if needs arise, the country's minister of energy said Wednesday.

"We are willing to supply more because we have spare capacity. We are willing to supply if the market needs oil," Mohamed Al Hamli said on the sidelines of the Asian Oil & Gas Show being held in Seoul, South Korea, June 25-27.

"The market is adequately supplied at the moment," Al Hamli added.

The comments follow a one-day summit between oil producers and consumers held June 22 in the Red Sea port city of Jeddah. During the summit, Saudi Arabia confirmed it would boost output from July by 200,000 barrels a day to 9.7 million barrels a day, on top of the output boost of 300,000 barrels a day it announced in May. It also pledged to increase investment in its oil industry.

But Saudi's commitment has failed to ease supply concerns, with traders focusing on shut-in production in Nigeria.

At 0257 GMT, light, sweet crude oil for August delivery on the New York Mercantile Exchange was trading at $136.84 a barrel, down 16 cents and below the record high of $139.89 a barrel set June 16.

-By Sherry Su and Shin Jung-Won; Dow Jones Newswires; 65-64154065; sherry.su@dowjones.com

(END) Dow Jones Newswires
June 24, 2008 22:59 ET (02:59 GMT)
Copyright (c) 2008 Dow Jones & Company, Inc.- - 10 59 PM EDT 06-24-08

At 2:15pm ET, the FOMC will release their policy statement. The bullish market reaction will continue to build on the better than expected Durable Goods orders before market open. The KEY to a very bullish reaction surrounds the two dissenters at the last policy meeting. POTC believes the last interest rate move was unnecessary and the two dissenters now have more power. No talking head on CNBC addressed that point. We see very hawkish rhetoric out of the FOMC, mainly due to the two dissenters who now have more credibility and more influence. Our readers must understand this is a mere bear market rally on Wednesday, so please tread cautiously, as the bias is still down. The 1,256 S&P previous St Patrick's low could be tested IF crude breaks through $140/barrel, but POTC doesn't see that happening this week. The perma-bears will be full of excuses, but our readers should not let their words fall on deaf ears.

Research in Motion (RIMM) reports after the close. We don't recommend buying shares before the report, as inflation has spread outside the U.S. RIMM's quarter will probably beat estimates, but their conference call (CC) tone and guidance should send shares lower Thursday morning. POTC feels the competition in the cell phone space is getting deeper than anyone envisioned just 6 months ago, especially with Apple, Nokia, Samsung, and even Google's android supposed 4th quarter launch. Isn't Garmin (GRMN) trying to get their GPS concentrated phone to the market by Christmas as well? Rumors are GRMN's phone will be delayed. The competitive factors from Apple, Nokia, Samsung, and now Google are not "game over" for RIMM, as they still have the most sought after high profile phone, and what we feel is the best marketing team in the land of technology today.
The Psychology of the Call team predicts a bull stampede all day Wednesday, so enjoy it.

Tuesday Intraday Psychology

The markets have strengthened today, with financials providing the charge for the S&P. The failure of crude oil to break down continues to be the headline, but we feel it will break. The FOMC has an open net chance to strengthen the greenback and bring down the price of oil tomorrow, and we are feeling more and more confident that will be done, so we don't recommend being short. Whether through very tough rhetoric on fighting inflation or a 25 basis point rate hike, the FOMC will take advantage of this policy meeting in order to stop inflation, the number one problem for future growth. We think the FOMC is bold enough to address inflationary pressures over already stagnant growth. Please recall Chairman Bernanke was criticized for being too slow to act previously; perhaps that'll all change Wednesday at 2:15pm ET. The markets and talking heads seem to be caught in the headlights, and with such price erosion occurring lately in the indexes and such pessimism, POTC sees psychology changing on a dime. A major bear market bounce will come as crude breaks through to the $120s. The FOMC is in a closed door meeting at this moment, and they have the sword to strengthen the greenback and slay the crude oil dragon. Our readers should not force any trades until crude oil breaks down. The unwinding of the oil trade will offer 10% plus upside for most Indexes, so please be patient. Thanks for returning. We trust the Psychology of this patient Call will make you money.

Monday Intraday Update

The markets are mixed, with oil and solar up, while financials are sold off. The "pain" trade of long oil and short financials is still working, and we don't see any reason why that should change. Until we get a break down in oil, below $130/barrel, the "pain" trade will continue to work until we see "demand destruction".
http://en.wikipedia.org/wiki/Demand_destruction
Do you believe demand destruction is ahead? The consequences of traveling less by car and plane would result in people using the internet a lot more, yes? Why should Sally drive a 60 mile round trip to the mall outside of Chicago or LA, when she can use her PC to buy and receive delivery of just about anything, all without wasting a single gallon of $4.00+ gas? Please consider buying Google (GOOG) when the Nasdaq closes that 2,300 gap.

The FOMC will issue their policy statement and smattering of psychology at 2:15pm ET this Wednesday. Our readers should position themselves more for July 16th, as the details of the Fed meeting/minutes are released. POTC feels they will be more hawkish than the more neutral spin offered this coming Wednesday: interest rates are heading up, and the stock market will not rally until oil breaks $130/barrel. Lastly, remember this is an election year and the economy is very sensitive with high food and energy, so the FOMC's statement could be more political on Wednesday and then reveal greater truths on July 16th at 2:00pm ET.

We remain bearish. Please follow the 11 Commandments and 7 Pillars, the Psychology of the Call team wishes all our new and return readers a good Monday.

The Psychology Driving the Upcoming Week's Market

Good day to all our new readers, but especially our loyal supporters in no fewer than 88 countries. The Psychology of the Call team (POTC) hopes you are learning the fascinating dynamics of market mechanics and how psychology affects the ebb and flow of prices/money. POTC remains bearish, and we trust many of you lost less money than the average investor/trader, and hopefully made money on our recommendation of buying Nasdaq E-mini puts two weeks ago in a Sunday night piece titled 'Apple Optimists Need Not Apply'. Don't forget our mention of the Nasdaq gap at 2,300, we reiterate that point. Now, take a deep breath and read on...

POTC finds it very interesting that Canada's pride and joy, Research in Motion Ltd. (RIMM), reports Wednesday after the market. Perhaps this aids in closing that Nasdaq 2,300 gap?
Quick Psychological Financial Fusion: IF crude oil fails to break down into the $120s, we urge our readers to steer clear of RIMM ahead of their report, as the negative macro factors outweigh the positives. We are confident RIMM will not have an upbeat call, even though their numbers can better the estimates. High energy prices crimp discretionary spending, and now we have Midwest flooding and a Treasury market turn, therefore we add another negative to the list. The past sell off (rising yields) in Treasuries has stopped, forcing us to switch Treasuries from the positive to negative column.

Also, we're adding the mounting tensions of geo-political factors surrounding Israel/Iran, as well as the Nigerian turmoil:
The positives remain:
1) Election year;
2) GDP fails to signal recession;
3) Extreme pessimism in the Michigan Consumer sentiment (contrarian indicator eventually).

However we feel the positives are outweighed by the negatives:
1) Rising Unemployment;
2) Crude oil fails to break down;
3) Rising food prices (Midwest flooding) http://news.yahoo.com/s/ap/20080621/ap_on_re_us/midwest_flooding_stranded_barges;
4) Recent Treasury market strength (lower yields/flight to safety);

5) Israeli/Iranian and Nigerian tensions;
6) Hurricane season of 2008 looms;
7) NASDAQ gap at 2,300;
8) Weak greenback;
9) Uncertainty surrounding the June 25th FOMC decision and future policy.

As you see, the negatives vs. the positives are 9-3, approaching extreme fallout and long/bullish opportunities ahead. Fasten your seat belts, as we already did.(http://psychologyofthecall.blogspot.com/2008/06/exit-long-positions-today.html)
The bearish thesis cannot change to bullish just yet, and for good reason(s).
In our last weekend psychology piece, we informed you: "it makes more sense to short the bounces than to go long." And we hope many of our return supporters acted on that advice.

POTC will continue to expose CNBC's Jim Cramer as a destructive monolithic bull. We strongly feel he has single handedly ruined many investors and traders alike. He gets a letter grade of D+ for his mantra: "there's always a bull market somewhere". POTC has stated before, and we'll state it again, sometimes the markets invert/sell off so hard and fast, that "the only bull market is called the bond market." Has Jim Cramer ever recommended a single bond or informed viewers how he made money shorting stocks on CNBC? We haven't seen any evidence. Our eighth Commandment says: ‘There are two sides to the market, long and short, take advantage of that leverage.’

POTC is not in business to make enemies, only to educate and inform our supporters of the truth about market mechanics, so if we offended anyone, we apologize. Jim Cramer should be ashamed of his monolithic thesis on the "bull market". Please read our piece on him from two weeks ago, as he stated the market was going through a "small correction". Has he apologized? http://psychologyofthecall.blogspot.com/2008/05/thursdays-economic-psychology-and.html

The chart below depicts short interest psychology on the NYSE since 1990. Most short interest is hedge fund driven, a normal and efficient market phenomenon. After Friday's close, the NYSE released its mid-month short interest report. Since the end of May, short interest increased by > 7%, marking the third time this year short interest increased by > 5%!

Please note the two sectors the hedge funds have locked their teeth into, regional banks and consumer discretionary goods. They are obviously betting on oil staying above $120/barrel (bad for consumer discretionary). They also see the credit crisis in banking/real estate to continue (bad for financials, especially regional banks with direct credit exposure):

The $64,000 question is whether these shorts will cover in the coming weeks, especially if the FOMC leaves rates unchanged, or will they wait for bankruptcies in hopes the FOMC raises rates and delivers the last crushing blow.

Herein the conundrum/dislocation lies: as the FOMC raises rates, the greenback should be strengthened, therefore potentially bursting the inflation of crude oil and food.
Do any of our readers feel it makes better sense studying long positions in consumer discretionary goods today; we do. But we urge our readers to NOT pick from any on this short list, as there are stronger names that will respond more favorably IF crude breaks down, and we feel it will. Please understand hedge funds also short specific stocks due to the micro economics surrounding that specific company. But, when a sector is so heavily shorted, it weighs on the gems in that sector. Value is to be found in consumer discretionary names in our opinion, especially after the market sells off in climactic fashion. Consider companies like Coca-Cola Co. (KO). Consider a limit buy at $52, with a stop sell of $49, and a potential profit target to $65, or 20%. That type of trade set up will rarely hurt you compared to the buy and hold mentality. The buy and hold days are long gone in today's dynamic global market. Our readers must learn to exhibit greater patience, as setting up entry and exit points is critical to long term success.

The volatility (VIX) is still not signaling the fear we need to begin going long. Please wait as POTC has written before, "until after the July 4th fireworks." Realize "patience" is the key to your success, NOT relying on monolithic/one sided talking heads like Jim Cramer, or forcing trades. Allow market forces to shake out all the long market speculators, and only then the shorts are left to ironically drive the market higher. POTC embraces the freedom of markets, and none is more relevant than the ability to sell short and then be forced to eventually buy back at lower or higher prices. Shorting is a double edged sword, and today’s shorts have the longs squarely in their guillotines. Stay clear until the heavy death spike down occurs; only then will the dust settle and a boring market evolve. POTC did warn our readers in previous articles that market bottoms are formed when a boring/complacent psychology sets in and we’re not there yet. Attempting to time the bottom usually turns out to be ruinous. Allow market mechanics to take their toll and the blood letting to stop.

TWO FEAR FACTORS THAT DROVE CRUDE OIL HIGHER FRIDAY:
Nigerian terrorists attack oil pipeline:
http://news.moneycentral.msn.com/provider/providerarticle.aspx?feed=OBR&date=20080621&id=8809281

Israeli's military test run:
http://www.nytimes.com/2008/06/20/washington/20iran.html?_r=1&ref=world&oref=slogin

After touching the $131 levels on Thursday, crude may have seen its final run up. IF crude breaks into the $120s June 23-27, the equity market will breathe a sigh of relief, and long positions will be rewarded. Here's a chart; you decide:

Crude oil continues to hold the markets hostage. Never before have so many experts been so confused, afraid, and in denial that bear markets are a normal cyclical phenomenon. Please recall our piece that addressed avoiding the financial sector months ago. The first link is to a post that presages the Bear Stearns disaster:

1. http://psychologyofthecall.blogspot.com/2008/03/cats-seen-bouncing-from-broadway-to.html
2. http://psychologyofthecall.blogspot.com/2008/03/wow-recent-developments-surrounding.html

3. http://psychologyofthecall.blogspot.com/2008/03/philly-fed-report-kick-starts-stocks.html

Many experts were calling a bottom in financials in March and April; now we know they were wrong. POTC felt and continues to feel the banking regulations ahead, especially for Investment Banks, are beginning to be reflected in prices, but it's not over on in many cases. Avoiding all financials today makes sense. The drumbeats surrounding government oversight and regulations, coupled with higher rates, make buying any financial stock today rather foolish in our opinion. Don't be fooled by today's P/Es or any forward-looking P/E estimate, as earnings ahead are too difficult to peg.

Raising the fed funds rate wields the bloodiest hammer to financial sector stocks, as they make and lose money based on the yield curve and expansion of credit. Cheap money (low fed funds rates), in theory, causes loan demand and business development to expand, so when the FOMC raises rates, the financial and business sector will be ball and chained.

In our opinion, the conundrum and market dislocations are 70% to blame on high energy and food prices, and 30% to blame on credit/real estate woes. Quick Psychological Fusion: Some argue the weak greenback is the culprit of both problems: we somewhat agree, although we are more concerned with the psychological fall out of a rate hike and oil prices not backing off as the greenback fails to strengthen. Although that is a doom and gloom type of argument, we want our readers to understand all possible angles.

POTC sees no reason to go long stocks just yet, unless you are a seasoned trader that understands trading volatility. Trading volatility is an inexact science that can make you millions of dollars, but you must be disciplined in taking profits as well as losses, never falling in love with any stock or position. Our fifth Commandment of Trading bears that out in black and white.

We are deeply grateful to all our loyal return supporters, especially the ones who have helped us spread the blog by printing, emailing, copying, pasting, and Facebooking to family and friends. POTC will give timely intraday updates everyday this week, but especially monitoring these three things:
1) Price of Crude;
2) The FOMC decision Wednesday at 2:15pm ET;
3) Canada's pride and joy, RIMM's earnings Wednesday after market close;

Here's to patience and trading volatility, or just waiting for the climactic bottom to occur, the Psychology of the Call team leaves you with this relief/survival video:
http://www.youtube.com/watch?v=I4s0nzsU1Wg

Our Expansion and Our Commandments for Trading

The Psychology of the Call team (POTC) wants to thank everyone for returning to our blog on a daily basis. We wish you a happy and healthy weekend, with dreams of better days ahead~ Our aspirations for a bigger audience and greater ideas have taken shape. We have finalized the details of our shift to a highly reputable forum of select financial blogs on the Internet. We will continue to strive toward making Psychology of the Call the go-to financial portal for analysis and articles on geo-political macro issues as well as individual recommendations on micro ideas/stocks. We will introduce a real-time, intraday trading service that will feed off the explosive trading opportunities that result from daily volatility in the markets as they respond to economic and earnings news. Our chief analyst has many years of experience making many millions of dollars for his clients and we will bring his skills to you, starting next week.

Now, as part of our Friday ritual/routine, we bring you the 11 Commandments. POTC wants every individual supporter to understand how critical they are to your financial longevity/success going forward. Without an actionable plan, many well known investors of our time have failed, but eventually succeeded due to diligent adherence to strict rules. Although there are thousands of financial forums on the Internet, filled with great facts, opinions, rumors, and educational information; POTC offers you a more scientific channel to help through this maze of information. We stress the need for actionable plan than mere hope. Hope and faith should never enter into your investment/trading ideas, ever. Perhaps no one is more qualified than "Master Kung", the great Chinese thinker/philosopher Confucius (479BC) to explain why modest words are important, but nonetheless, quantifiable methods of action/behavior must surpass mere modesty of solely well meaning words of hope: "The superior man is modest in his speech, but exceeds in his actions".

The Eleven Commandments of Trading

1. Never trade more than 10% of your total capital/account value in any one position.

2. Cash is King, and we recommend keeping 20% liquid to take advantage of dislocations and volatility.

3. Cut losses to 15% maximum whenever possible. If your psyche is shaken, step away and don't trade for 1 week.

4. Take and enjoy profits of 30% or more.

5. Never fall in love with a stock and never force trades or over trade; remember commandment #2.

6. Never accept excuses from management, period.

7. Use technical and fundamental data & psychology/sentiment from the conference call to select trades.

8. There are two sides to the market, long & short; take advantage of that leverage.

9. Understand the significance of the macro geo-political economic environment.

10. Unforeseen events/shocks will happen, inverting the market upside down (remember commandments #1 & #2)

11. All of the above are void without reading the Psychology of the Call.

Exit Long Positions TODAY

With the FOMC policy meeting scheduled for June 25th, the uncertainties of their actions can only cause panic for traders on Friday and Monday, June 23rd. Monday has Consumer Confidence, Durable Goods Orders, and New Home Sales scheduled for release. Do you feel confident in any of those data points? POTC reiterates there is no reason whatsoever to be long stocks in the face of a potential interest rate hike. Two of the Fed governors have probably made up their minds to hike rates by 25 basis points, or a quarter of one percent come Wednesday June 25th. There were two dissenters to the rate cut last time, so a rate cut at this point is out of the question. With Paulson and the Fed governors addressing a strong dollar all last week, it looks certain a rate hike is ahead. Please remember that Wall Street rarely rallies before the first fed hike, and rarely rallies after it. Some feel this time is different because of the weak greenback and high crude oil. But what happens if oil fails to pull back after the FOMC raises rates? The anticipation of that psychology still out weighs the bullish argument.

The positives remain:
1) Election year;
2) GDP fails to signal recession;
3) Treasury Market sell off;
4) Extreme pessimism in the Michigan Consumer sentiment (contrarian indicator eventually).

However we feel the positives are outweighed by the negatives:
1) Rising Unemployment;
2) Crude oil fails to break down;
3) Rising food prices;
4) Hurricane season of 2008;
5) NASDAQ gap at 2,300;
6) Weak greenback;
7) Uncertainty surrounding the June 25th FOMC decision.

Bubblin' Crude Finally a Bubblin' Down, Caution

Good morning and good evening. Crude oil looks to break into the $120s Friday. The Psychology of the Call team (POTC) feels 'freaky Friday' will be a lot more interesting as crude continues its fall. POTC has had crude oil 'failing to break down' as one of the seven negatives against the bull argument. As crude prints a twenty dollar handle Friday, it will make for a very interesting and extremely volatile options expiration day. The alternative energy plays like First Solar (FSLR), Canadian Solar (CSIQ), and Energy Conversion Devices (ENER) will make smart put/short trades. POTC remains bearish for the other six negative reasons, although the psychology of investors seeing crude in the $120 range will cause portfolio adjustments, but especially exiting alternative energy stocks. The talking heads on CNBC will emphasize the word 'bubble' like a broken record all day Friday, so we wanted our option traders to be one step ahead of that herd. Crude oil closed down $4.70 Thursday, and nearly $3.00 of that fall occurred in the last 60 minutes, so caution is warranted. Here's a Barclay's chart that mimics price per barrel, ticker "OIL":



IF crude falls more than $5.00 tomorrow, that would send it to the mid $120s, and fear of sub $100 crude will be hotly debated. IF crude oil opens down over $2.00 Friday, we recommend shorting or buying puts on the stocks mentioned above, even if only for a day. 'Freaky Friday' will live up to its name, no doubt. Lastly, if crude closes in the $120s Friday, it will have to be monitored Monday and all next week to verify whether the break is a short term occurrence, or long term trend. IF this turns out to be a long term trend, it will have to be released out of the negative factors that weigh on the market. Please use this time sensitive information for trading purposes only, as crude oil in the $120s still has detrimental effects on the economy, yet offers our readers tremendous short term opportunities. Thanks for your Thursday night attention, please vote in our poll, the Psychology of the Call team.

The Frustration of Higher Interest Rates and Slowing Growth

Manufacturing in Philadelphia Region Shrank in June

http://www.bloomberg.com/apps/news?pid=20601087&sid=ay5MtkdxQ3Wo&refer=home

"Philadelphia Fed Jun Price Paid 69.3 Vs May 53.8"

The FOMC must raise interest rates soon to stave off run away inflation, as witnessed in the Prices Paid Component this morning at 69.3. The Prices Paid Component has NEVER has it been that high. Slower growth is now expected and must be accepted, but in POTC's opinion rising prices can no longer be tolerated.

Despite the market being up as of this 12.25 ET writing, we remain bearish on stocks until we get the FOMC decision this coming Tuesday, June 25th. POTC sees a lot of uncertainty before that 2:15 PM ET announcement, and that usually translates to lower stock prices. Tomorrow is what is widely known as 'freaky Friday', so do not let the option expiration day fool you into dressing as a bull.

The Psychology of the Call team wishes you a good day.

Thursday and Friday

On Thursday, June 19th Initial Claims for Unemployment are released for week ending 6/14 at 8:30 ET. http://www.briefing.com/Investor/Public/Calendars/EconomicReleases/claims.htm The employment picture has steadily worsened and this is a greater worry for the FOMC than crude oil. The last weekly unemployment number came in at 384K and that is getting too close to that dangerous 400K recession type alarm. A nation's employment is the most important barometer of future economic health, so traders will not be sleeping in late come Thursday. Since this is only a weekly number, the revision aspect will mute the response, unless it comes in north of 400K. Strangely enough, there are no current consensus estimates, but the last estimate was for 357K and it came in at 384K. Caution is warranted ahead of this release. The Philadelphia Fed Index is released at 10:00 ET. http://www.briefing.com/Investor/Public/Calendars/EconomicReleases/phil.htm The prior reading came in at -15.6 and now the consensus is between -10 and -12. The improvement in most estimates this week is not bullish, as expectations of the stimulus checks seem to be very optimistic. The prices paid component in the Philly Fed Index is what you should be watching more closely than the raw number. The prices paid have blipped above 60 only twice since 1992, so this release could confirm the worst case scenario: rising unemployment and rising prices, a nightmare for the FOMC. No releases are scheduled for Friday, and that usually does not make for a bullish day. With the FOMC policy meeting scheduled for June 25th, the uncertainties of their actions can only cause panic for traders on Friday and Monday, June 24th. That Monday has Consumer Confidence, Durable Goods Orders, and New Home Sales scheduled for release. Do you feel confident in any of those data points? POTC reiterates there is no reason to be long stocks in the face of a potential interest rate hike: none. Two of the Fed governors have probably made up their minds to hike rates by 25 basis points, or a quarter of one percent come Tuesday June 25th. There were two dissenters to the rate cut last time, so a rate cut at this point is out of the question. With Paulson and the Fed governors addressing a strong dollar all last week, it looks certain a rate hike is ahead. Please remember that Wall Street rarely rallies before the first fed hike, and rarely rallies after it.Some feel this time is different because of the weak greenback and high crude oil. But what happens if oil fails to pull back after the FOMC raises rates? The anticipation of that psychology still out weighs the bullish argument. The positives remain: 1) Election year; 2) GDP fails to signal recession; 3) Treasury Market sell off; 4) Extreme pessimism in the Michigan Consumer sentiment (contrarian indicator eventually). However we feel the positives are outweighed by the negatives: 1) Rising Unemployment; 2) Crude oil fails to break down; 3) Rising food prices; 4) Hurricane season of 2008 5) NASDAQ gap at 2,300 6) Weak greenback; 7) Uncertainty surrounding the June 25th FOMC decision.

Morgan Stanley and the Remainder of the Week

In our analysis of this week's economic and earnings data (http://psychologyofthecall.blogspot.com/2008/06/psychology-in-upcoming-weeks-economics.html) we wrote: "MS Q2 2008 earnings report before market open. MS will no doubt report the worst quarter in many years. That is expected, and now regulations are on the way. http://www.morganstanley.com/about/ir/index.html

There are no economic or earnings data coming Friday, so trend setting Tuesday's economic and earnings data along with oil will dictate the tone for the week."

Morgan Stanley reported a 60% drop in net income to $1.03 billion Wednesday.

Morgan Stanley Earnings Reignite Financial Firm Fears.
By Kate Haywood Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--The cost of debt protection for Morgan Stanley (MS) moved wider Wednesday after the investment bank unveiled a 60% slump in second-quarter profit, reaffirming fears about financial firms.

Five-year senior credit default swaps, or CDS, on Morgan Stanley initially traded at 164 basis points, following the results and has since moved wider to 168 basis points, according to broker Phoenix Partners Group in New York. The CDS closed Tuesday's session at 160 basis points, Phoenix Partners said, adding that the five-year contract had traded at 167 basis points prior to the earnings release. Another trader however pegged the CDS at 158/163 basis points first thing Wednesday.

This means the annual cost of protecting a notional $10 million of Morgan Stanley bonds against default for five years is now $168,000 versus $160,000 late Tuesday.

Net revenue at the bank's fixed-income trading powerhouse fell 85% amid a $436 million loss from trading mortgage-related assets, and weak results in the booming commodities area. Morgan Stanley also lost money on investments on real estate and in private equity, traded poorly for its own account in equities, and had to take a $120 million loss after a credit trader violated company policy and improperly valued his positions.

Just a day after Goldman Sachs (GS) gave investors a glimmer of hope that the credit crunch may be turning a corner, Morgan Stanley's numbers raise question marks over whether the market and indeed, the firm itself, is emerging from the crisis, or whether there is still more bad news on the horizon.

Investors' fears were exacerbated last week when Lehman Brothers (LEH) warned it would report a $2.8 billion loss for the second quarter, its first quarter in the red since the brokerage went public in 1994. It confirmed the loss Monday. Goldman Sachs however managed to allay some of those concerns Tuesday after it posted better-than-expected second-quarter results, which smashed analysts' expectations.

"Having a positive number in front of your earnings is a good thing," said Carl Kaufman, portfolio manager at Osterweis Strategic Income Fund in San Francisco, Ca.

But he said that the earnings reports don't provide the clarity the credit market needs in terms of how banks and brokers' have marked down valuations on their assets.

Market participants are, rightly so, continuing to remain cautious. Analysts at BNP Paribas said in a note to clients late Tuesday that despite the relatively solid results at Goldman, earnings and earnings quality continue to deteriorate for financials, and particularly for brokers.

"It's a case of two steps forward and one step back," said Jim Cusser, portfolio manager at Waddell & Reed in Overland Park, Kan.

The slightly weaker tone in the high-grade credit market is reflected in widening in the benchmark high-grade derivatives index. The Markit CDX IG10 was quoted at 113 basis points following Morgan Stanley's results, according to Phoenix Partners. It has since come in a touch to 112 basis points, data from Moody's Investors Service's CreditQuotes showed at lunchtime. The index closed Tuesday at 109 basis points, according to Markit. That means the annual cost of protecting a notional $10 million on bonds from a basket of 125 North American high-grade companies for five years is now $112,000, compared with $113,000 earlier Wednesday and $109,000 Tuesday.

Also contributing to the more negative sentiment Wednesday, economic bellwether FedEx Corp (FDX) said it swung to a fourth-quarter loss, hurt by a charge related to its 2004 purchase of Kinko's. It also cut its fiscal 2009 profit outlook, citing the spike in fuel costs and restrained demand.

Although wider, Wednesday's moves in the CDX and individual financial names are tame when compared with the volatility seen earlier this year when the market was prone to massive swings in risk premiums or spreads on a daily basis. But since the dramatic rescue of Bear Stearns Cos. (BSC), the market has become much calmer. Although investors are constantly reminded that it isn't going to be easy to shake off this crisis that began a year ago, there is nowhere near the panic seen in March.

"It's amazing how we become immune to bad news after a while.. nothing really surprises me in this market any more now," said one market participant, who preferred not to be named. "The 17th time you hear bad news it's 'yeah whatever..'," the market participant added.

-By Kate Haywood, Dow Jones Newswires; 201-938-2348; kate.haywood@dowjones.com (Rob Curran and Donna Kardos contributed to this report.) (END) Dow Jones Newswires June 18, 2008 12:40 ET (16:40 GMT) Copyright (c) 2008 Dow Jones & Company, Inc.

Destruction and Misery creates Opportunity

The horrendous flooding in the MidWest region of the US has displaced tens of thousands of people from their homes and caused the loss of between 1 and 3 million acres of corn production. More breeches in the banks of the Mississippi River are anticipated today and the threat of further destructive flooding in Iowa, Missouri and Illinois is very real.

There are two certain consequences of this natural catastrophe. The already-rising price of corn will continue to rise, and tens of thousands of individuals will now find themselves in need of lumber and other home building related goods. This reality combines with the fact that we’re in the midst of the 2008 hurricane season and Florida, the Carolinas, and other coastal areas could experience property damage.

POTC will buy Home Depot (HD) and Lowes (LOW) in anticipation of increased sales and revenues over the next several months.

Home Depot (HD)
Limit buy $26
Stop sell $24 (8% loss)
Target $33 (27% gain)

Lowes (LOW)
Limit buy $23
Stop sell $21.20 (8% loss)
Target $29 (26% gain)

Financial Fallout

Today the Psychology of the Call team purchased July $160 puts on Goldman Sachs (GS). We did so because of the threat of regulations on financials, our anticipation of GS reporting their worst quarter in a long time, and the continued crushing influence of crude oil prices on the market in general. We bought small lots at various times throughout the day and the average price paid per contract was approximately $3.05 - $3.10. Goldman reports Tuesday morning before the market opens. We'll update the trade at that time.

Crude Oil Holding the Market Hostage

The surge in oil prices is holding the market hostage. And pleas to the Saudis to increase production may meet with limited success. Reports this morning suggest that the Saudis may be incapable of increasing crude production by more than 200,000 barrels a day, pretty much a drop in the ocean. Here's the chart for the last two weeks; tack on another $3 to get to today's price.

Psychology & Politics behind the NY Empire Index Weakness

In our weekend piece under Monday's analysis, we erred, please allow us to clarify. The extreme weakness in the NY Empire manufacturing Index, below 8, ties the FOMC's hands and makes it very difficult to raise rates. POTC was thinking strength in this number would do that, we were wrong in our fundamental analysis. We hope our readers understand the politics behind the nearly 200 manufacturing executives answering the survey in a very negative way. The negativity is an attempt to stave off interest rate hikes, as tighter money would mean worse NY Empire manufacturing numbers ahead. We apologize for our fundamental mistake, but we are happy to clear up the politics and psychology behind this reading, as it makes perfect sense. POTC stands behind our weekend statement that oil will determine today's trade, and it is trading above $139/barrel as of this writing. The Psychology of the Call team reminds our readers of patience, one of the 7 Pillars so critical to your long term trading/investing sanity and financial success.

Psychology in the Upcoming Week's Economics & Earnings Data

Good morning and good evening to all. We are happy to have you back. Last week's market activity was negative, yet many are left optimistic after Friday's concussive short covering rally in the financial sector. There are a couple of interesting mechanical facts that must be understood and respected, specifically related to "Profit Taking Friday" with the financials, and "buy the rumor, sell the news" with Apple (AAPL). First though, let's take a quick look back at what transpired with the averages, and while doing so please keep in mind our bearish stance on the NASDAQ last Monday with the article "Apple Optimists Need Not Apply."

The NASDAQ closed down 20 points or 0.8% for the week. From a 6 June close at 2474.56 to a 13 June close at 2454.50.

The S&P 500 Index closed down a whisker for the week, from a 6 June close at 13.60.42 to a 13 June close at 1360.03. Do you appreciate the significance of the flat close in the S&P500 this week, in spite of many financial stocks finishing up 10% plus on Friday? Here's what happened:

The main driver for the week was the financial fallout related to the Brothers Lehman (LEH) and the short covering that occurred all day Friday. LEH closed on at $32.33 on 6 June and rallied from under $21.00 at one point on Thursday to close at $25.81 for the week: that's still a 20% fall. Did anyone find CNBC's Charlie Gasparino's two day old comments from Merrill Lynch (MER) reiterated intraday on cable TV a bit suspect? MER's CEO John Thain did report they may need to raise capital on Wednesday, so Gasparino's commentary was out of bounds: do you agree? Perhaps the market shook down enough in order for his hedge fund buddies to cover at lower prices. Here's a 3 month chart since a 5 day wouldn't show the gap down from its $32.33 close on Friday, 6 June:

Ironically, "Profit Taking Friday" did come true in an up market, as hedge funds decided to cover their short positions in LEH and many other financials. Friday's 20 point explosive S&P rally can be single handedly accounted for in short covering of the beaten down financial sector, but especially Goldman Sachs (GS) and Morgan Stanley (MS), both up 6.9%. The S&P is heavily weighted with financials, so it is a rare day to see the financials rally with the S&P down. Our readers should not be fooled into thinking the financial sector is a buy here after Friday's rally, as earnings from LEH come Monday, GS Tuesday and MS Wednesday. Quick Psychology: If it weren't for short covering in financials and relief rallies caused by MSFT and GOOG, the Consumer Price Index (CPI) coming in at 0.6% was enough to derail the market. The Producer Price Index is slated for Tuesday and hopefully the short covering continues for the bulls’ sake, but we don't think it will.

Please be advised… Wall Street hates uncertainty, and the regulations that lay ahead will not be known for many months. What we do know today is forward earnings will contract due to the dried up real estate/credit/derivative markets as well as lack of global Initial Public Offerings (IPOs) and Merger and Acquisition (M&A) activity of late. The high price of crude and food is affecting many nations and the drumbeats of rate increases from ECB's Trichet and Chairman Bernanke are getting louder. POTC urges readers to be cautious with any long positions, especially ahead of Goldman's report and the PPI on Tuesday before market open.

Another interesting cliché and market mechanic that came true was "Buy the Rumor and Sell the News" with shares of AAPL. POTC was negative on the NASDAQ this past week in our Sunday night Apple piece and we want to congratulate all E-Mini traders who profited, as we did. Also, congratulations to all who voted AAPL would close down for the week in our poll.

POTC strives for all our readers to understand the simple fact that when everyone in the media is on the same side of the trade, as they were with the launch of the AAPL iPhone, the expectations usually back fire. Pete Najarian of Dylan Ratigan's CNBC show "Fast Money" mentioned buying AAPL call options several times preceding the iPhone launch, CNBC had reporters on the scene to cover the event and Steve Jobs. When factors like these converge, you have to realize it's only a matter of time until someone says "fire". Witness that selling stampede with AAPL's price falling over $21 from Tuesday's high to Friday's open. For the week AAPL shares lost.

The last driver that aided the market rally was Microsoft's (MSFT) adamant public statement regarding withdrawing from the Yahoo (YHOO) deal. It was obvious MSFT share holders were fed up with share price under performance and Steve Ballmer was forced to make a final stand: NO DEAL and shares rallied 2.9%. As a result of this news shares of Google (GOOG) rallied over $18.00 or 3% since it is less likely MSFT will be able to effectively compete in search advertising. POTC would buy GOOG on pull backs and does not recommend buying MSFT or YHOO.

Market mechanics were dynamic last week. POTC hopes our readers now better understand what transpired and led to the volatility. Why did the short covering rally ensue you ask? 1) LEH, GS, and MS all report this week. 2) The Fed window is open to cover any and all losses by bad trades and mismanagement, so the chance of another Bear Stearns is nearly zero. 3) The short trade was getting tired and had over 20% profit in one week, even in the face of a 13.7% Friday LEH rally alone! So, "Profit Taking Friday" did in fact occur. We apologize for not bringing you this information earlier, but POTC is very proud to have you aboard and promises to always look back in order to clarify and educate in the dynamics of market mechanics.

Bear in mind that forthcoming week ends with "triple witching" expiration on Friday. This is an event that occurs when the contracts for stock index futures, stock index options and stock options all expire on the same day. Triple witching days happen four times a year on the third Friday of March, June, September and December. This phenomenon is sometimes referred to as "freaky Friday", so be aware that things could be a little strange on Thursday afternoon and all day Friday.

On Monday, June 16th at 8:30 ET, the NY Empire State Index for the month of June is released. It is a regional manufacturing survey that quizzes nearly 200 executives on their current sentiment as well as their six month outlooks. The prior reading came in at -3.2%, now the consensus is from 0 to -2.4%. POTC feels this number will come in strong, as the survey is prepared by the Federal Reserve Bank of New York. Could some politics play into this number as Wall Street is under the knife? Of course. POTC would shrug off the rallies that ensue after this number and pay closer attention to crude oil as a day trade indicator. Also, please pay close attention to the financials, specifically LEH, GS, and MS. Is the short covering rally over? Perhaps, but LEH's Q2 2008 earnings report Monday at 10:00 ET will make headlines and the headlines cannot be good when losses mount and a call for capital is announced. Are Investment Banks not supposed to be experts in hedging strategies? Their mathematical computer models are only as good as their forward-looking projections/estimates/assumptions. The real estate market was thought of as bullet proof, a trade that couldn't lose. (Just ask Bear Stearns.)

Here's the link to the live LEH CC: http://investor.shareholder.com/lehman/events.cfm

Please don't force trades, allow the mechanics of the market and Institutional money (smart money) to give you direction. Our team will be monitoring these three hugely important gauges of short covering, earnings, and oil very closely, but especially the minutes after 10:00 ET, as Institutional money rarely trades early or late. GS reports before market Tuesday, so set your trades up accordingly, as there will be a reaction down before the opening bell. Please understand all these insights are only true with the 10th Commandment in mind.

On Tuesday, June 17th at 8:30 ET, the Producer Price Index (PPI) for the month of May is released.
http://www.briefing.com/Investor/Public/Calendars/EconomicReleases/ppi.htm

The prior reading came in at 0.2%, now the consensus is for 1.0%, which is 5X greater. The Core PPI, which strips out food and energy prior reading was 0.4% and the current consensus is 0.2%. Quick Psychology: Food and energy costs have some how not been passed through to other goods. Is it possible this finally shows up in this report? Yes, it is. If it DOESN’T show up, with crude being at roughly $135/barrel isn't the psychology more important than an enigmatic government statistic? We think so. As a consumer, do you see lower gas prices and homes selling at or above asking prices? As a consumer, are you taking more trips and spending the same amount of money as last year on clothes and cars and appliances? POTC is not looking-forward to Tuesday's report with any optimism. If the PPI does finally reflect the average consumer pain, and the short covering rally in financials is over, will the 20 point move up in the S&P on Friday look like a minor hick up to the fall come Tuesday? It's very possible.

Ironically, Housing Starts and Building Permits are released at 8:30 ET for May as well. If you want to see an ugly bear chart, please click this link:
http://www.briefing.com/Investor/Public/Calendars/EconomicReleases/starts.htm

Is it possible the aggressive Fed rate cuts will show an improvement in Housing Starts and Building Permits? POTC wouldn't bet on it with food and energy inflation now becoming a global phenomenon. Mr. Jim Jubak, a financial journalist we praise and hold in high regard wrote this timely piece: http://articles.moneycentral.msn.com/Investing/JubaksJournal/InflationFromAsiaTheNextCrisis.aspx
Are you still buying Friday's short covering bear market rally? POTC reiterates there are two sides to the market (long and short), and we hope our readers understand there is a time to be bullish and a time to be bearish. POTC will never pull wool over our faces and try to convince ourselves there "is always a bull market somewhere" (Jim Cramer). There are short covering rallies from time to time and we missed the opportunity to point that out to you before it occurred.

Industrial Production and Capacity Utilization for May are released at 9:15 ET.

http://www.briefing.com/Investor/Public/Calendars/EconomicReleases/indprd.htm

POTC will pay closer attention to Industrial Production, as it is slated to improve from a minus 0.7% to a positive 0.1%-0.2%. In past recessions, industrial production dipped well south of zero, which hasn't happened yet. Although it won't happen come Tuesday, the price of oil is taking a toll on both Asian and European economies with every passing day. For every day that crude stays above $130/barrel, negative effects mount squarely on the shoulders of the consumer. Producer and transport costs must eventually be passed on to the individual on the street and with the FOMC hinting at a rate hike, you have to wonder who would want to go long a single share of stock today. GS may in fact report their single worst quarter in over 2 years, so we urge caution. Here's a chart of how well GS did by shorting sub prime. Where will their next spring of wealth come from? Maybe that’s why GS could break down below $160 in the blink of an eye?
Keep in mind the profits from shorting sub prime began being reflected in 2004, now that Collateralized Debt Market (CDO) and Collateralized Mortgage Obligation (CMO) is gone:

GS Q2 2008 earnings report before market open, live CC link:
http://www2.goldmansachs.com/our-firm/investors/presentations/index.html
"Trend Setting Tuesday" will surely live up to its name, and POTC sees no reason to be bullish.

On Wednesday, June 18th at 10:30 ET, Crude Oil Inventories are released for week ending 14 June. This report is coming on the heels of $135/barrel oil, with little relief in sight. The chatter of regulating speculators and exchanges like the Chicago Mercantile Group (CME), and raising margin requirements is not a market friendly development. Markets can be manipulated, and we witnessed that with George Soros in 1992 and the British Pound, but did currency trading become regulated as a result? On the contrary, currency trading at the CME and NY Mercantile Exchange NMX has exploded, and that's a true reflection of well oiled/efficient market forces at work. Two sides to every market, with one winner and one loser. IF the government steps in to regulate the financial sector because of the recent real estate crisis, or the oil speculators, why should we even have a stock market? Perhaps the point is that in a truly free market system, the government does not get involved, except in the case of fraud. If anyone can manipulate a market, that means it still is not completely free, right? As much as we hate to praise George Soros, what he did to the Pound strengthened and exposed currency trading to the world. Nonetheless, until the regulations are understood it is very difficult to put a value on any financial institution like LEH or MS, or any exchange like CME or NMX. POTC will stay away from all financial institutions and exchanges until the dust settles and that won't happen for many months.

Today, shorting the bounces makes more sense than buying. So until crude pulls back under $100/barrel, the alternative energy argument only gets stronger. Have you ever considered First Solar (FSLR) or Energy Conversion Devices (ENER)? Although the irony with the alternative energy trade is if crude climbs and stays above $150/barrel, there is a possibility of a global stock market crash, then these companies get much cheaper.

MS Q2 2008 earnings report before market open. MS will no doubt report the worst quarter in many years. That is expected, and now regulations are on the way.
http://www.morganstanley.com/about/ir/index.html
There are no economic or earnings data coming Friday, so trend setting Tuesday's economic and earnings data along with oil will dictate the tone for the week.

On Thursday, June 19th Initial Claims for Unemployment are released for week ending 6/14 at 8:30 ET.
http://www.briefing.com/Investor/Public/Calendars/EconomicReleases/claims.htm
The employment picture has steadily worsened and this is a greater worry for the FOMC than crude oil. The last weekly unemployment number came in at 384K and that is getting too close to that dangerous 400K recession type alarm. A nation's employment is the most important barometer of future economic health, so traders will not be sleeping in late come Thursday. Since this is only a weekly number, the revision aspect will mute the response, unless it comes in north of 400K. Strangely enough, there are no current consensus estimates, but the last estimate was for 357K and it came in at 384K. Caution is warranted ahead of this release.

The Philadelphia Fed Index is released at 10:00 ET. http://www.briefing.com/Investor/Public/Calendars/EconomicReleases/phil.htm
The prior reading came in at -15.6 and now the consensus is between -10 and -12. The improvement in most estimates this week is not bullish, as expectations of the stimulus checks seem to be very optimistic. The prices paid component in the Philly Fed Index is what you should be watching more closely than the raw number. The prices paid have blipped above 60 only twice since 1992, so this release could confirm the worst case scenario: rising unemployment and rising prices, a nightmare for the FOMC. No releases are scheduled for Friday, and that usually does not make for a bullish day.

With the FOMC policy meeting scheduled for June 25th, the uncertainties of their actions can only cause panic for traders on Friday and Monday, June 24th. That Monday has Consumer Confidence, Durable Goods Orders, and New Home Sales scheduled for release. Do you feel confident in any of those data points? POTC reiterates there is no reason to be long stocks in the face of a potential interest rate hike: none. Two of the Fed governors have probably made up their minds to hike rates by 25 basis points, or a quarter of one percent come Tuesday June 25th. There were two dissenters to the rate cut last time, so a rate cut at this point is out of the question. With Paulson and the Fed governors addressing a strong dollar all last week, it looks certain a rate hike is ahead. Please remember that Wall Street rarely rallies before the first fed hike, and rarely rallies after it.
Some feel this time is different because of the weak greenback and high crude oil. But what happens if oil fails to pull back after the FOMC raises rates? The anticipation of that psychology still out weighs the bullish argument.
The positives remain:
1) Election year;
2) GDP fails to signal recession;
3) Treasury Market sell off;
4) Extreme pessimism in the Michigan Consumer sentiment (contrarian indicator eventually).

However we feel the positives are outweighed by the negatives:
1) Rising Unemployment;
2) Crude oil fails to break down;
3) Rising food prices; 4) Hurricane season of 2008 5) NASDAQ gap at 2,300
6) Weak greenback;
7) Uncertainty surrounding the June 25th FOMC decision.

The Psychology of the Call team wishes everyone a good week ahead. Thank you for sharing our insights with friends and family by printing, copying, facebooking, and emailing the blog spot as often as possible!

Friday's conundrum

So... in spite of crude oil at almost $135/barrel, rising food prices, ludicrous levels of home foreclosures and repossessions, surging unemployment, and inflation jumping the most in six months, the markets soared higher in the last two days, including today of course, normally referred to as "Profit Taking Friday”. A conundrum in the making, and a perfect illustration of why it’s absolutely essential to obey the following Eleven Commandments of Trading. Have a wonderful weekend wherever you may be and we look forward to seeing you again in this and another forum very soon.

The Eleven Commandments of Trading

1. Never trade more than 10% of your total capital/account value in any one position.
2. Cash is King, and we recommend keeping 20% liquid to take advantage of dislocations and volatility.
3. Cut losses to 15% maximum whenever possible. If your psyche is shaken, step away and don't trade for 1 week.
4. Take and enjoy profits of 30% or more.
5. Never fall in love with a stock and never force trades or over trade; remember commandment #2.
6. Never accept excuses from management, period.
7. Use technical and fundamental data & psychology/sentiment from the conference call to select trades.
8. There are two sides to the market, long & short; take advantage of that leverage.
9. Understand the significance of the macro geo-political economic environment.
10. Unforeseen events/shocks will happen, inverting the market upside down (remember commandments #1 & #2)
11. All of the above are void without reading the Psychology of the Call.

The Beige Book Weighs on Our Minds & Lays in Our Paths

On Wednesday, the FOMC will release regional banking sentiment, creating more uncertainty regarding their June 25th decision and sending the markets lower.

http://en.wikipedia.org/wiki/Beige_Book

Our readers should never force trades and the path of least resistance today is still down. The list of negative factors is getting longer and the negativity has now spread to Asia and Europe. The banking crisis is no longer solely a U.S. phenomenon and global inflation will be combated with higher interest rates and therefore slower growth for equities. The banking regulations ahead will take a heavy toll on the S&P, as a majority of that Index is weighted with financials. We did write about avoiding financials many weeks ago. Although we are against regulations, the global consumer has now taken center stage and is demanding some kind of relief action. Please remember to follow the 11 Commandments and 7 Pillars.

The Psychology of the Call team wishes you a profitable week.

Apple Optimists Need Not Apply

Welcome back! A couple weeks ago, the Psychology of the Call team (POTC) predicted the break down of the double top in the Dow Jones Transportation Index. It did in fact fail.

Today, POTC is excited to bring you very time sensitive trading insights regarding E-mini Nasdaq futures. We’re very concerned about the gaps in the Nasdaq at 2,300 and 2,350 just two months ago and we see a very favorable set up:

Quick Psychology: With the buzz around the new Apple iPhone (AAPL) scheduled for Monday, the Nasdaq could see a dead cat bounce to 2,490 or higher. IF that occurs, POTC strongly suggests that aggressive portfolios buy puts on the E-mini Nasdaq June 2008 contract. POTC is highly confident the Nasdaq will break down and close the gap in the 2,300 - 2,350 range rather abruptly, and here are the reasons why:
1. Lehman Brothers (LEH) reports second quarter earnings this week;
http://www.marketwatch.com/news/story/lehman-under-microscope-after-reports/story.aspx?guid=%7B7D9DC3CC%2DE1A1%2D4CD7%2D9A03%2D856E5BEDACC7%7D&siteid=yhoof
2. The unemployment rate is rising;
3. Prices for crude (and everything derived from it) and food continue to rise;
4. The destruction of real estate and credit;
5. The panic over global inflation only getting louder;
6. China's continuing earth quake fall out;
7. The hurricane season is upon us, and last but not least;
8. The UNCERTAINTY AROUND THE UPCOMING JUNE 25TH FOMC meeting,

We’re compelled to buy puts on the E-mini Nasdaq June 2008 contract. How do you interpret this data? (Please feel free to leave a comment.)

This blog is undergoing a facelift of sorts in the following days, as we transition to a hand picked core blogger role on a highly regarded and transparent portal. The Psychology in the Upcoming Week's Economic & Earnings Data which has received very positive feedback from you will be a staple of our business mission going forward. POTC feels investors/traders have an edge in knowing what, when, and how to anticipate economic and earnings data in the week ahead. Trades must be made looking-forward, anticipating the future collective psychology of the herd, which is much more often wrong than right. Too much time and effort is spent on paid sites like Motley Fool, Seeking Alpha and Minnyanville, for example, attempting to handicap and lure you into position trading. We know position trading rarely makes you money, as volatility shakes you out. Jim Cramer is another talking head we distance ourselves from, as he continually misleads his viewers in believing there is a "bull market somewhere". POTC believes in times of stock market panic, as is upon us now, the only bull market is called the bond market and even that investment theory sometimes fails. Therefore, we stress the 11 Commandments of Investing and the 7 Psychological Pillars, and ask that you never underestimate any of the Commandments, especially the 2nd and 10th.

Thank you for returning to our growing blog spot. We are privileged to have you aboard as a student of the market, not merely a follower of the latest fad/trend/stock. The Psychology of the Call team wishes all a healthy & profitable week.

Our Bearish Call

On Sunday June 1st, we told you why POTC is more bearish than bullish going foward, using positives and negatives to illustrate our argument.

Positives:
1) Election year;

2) GDP fails to signal recession;

3) Treasury Market sell off;

4) Extreme pessimism in the Michigan Consumer sentiment (contrarian indicator eventually).

We felt the positives were outweighed by the negatives:
1) Rising Unemployment;

2) Crude oil fails to break down;

3) Rising food prices;

4) Weak greenback;

5) Uncertainty what the June 25th FOMC decision will be, and regardless of what it is, uncertainty that the ship can maneuver through what looks like a "Perfect Storm".

Friday's surge in umemployment and the dramatic increase in the price of crude likely combined to signal the beginning of a new bearish phase and a retest of support on every major index. Exhibit caution on the long side, look for trades on the short side.

The Upcoming Psychology of Oil, Politics and Everything

POTC feels the House and Senate MUST lock themselves in a closed door session and pass drilling in Alaska ASAP. That single action would knock down the biggest evil to the global growth story; the explosion in the cost of a barrel of crude oil. We remain bearish due to the rise in the price of crude, although we do believe there’s a lot more politics behind this sudden rise in cost than any talking heads are yet reporting. Our readers should not be surprised if news surfaces of a concerted effort from the left wing fringe, especially the George Soros clan, bidding up oil in order for Barack Obama to win the election.

Thanks for your Friday attention. We will no longer be providing the Psychology of the Upcoming Week's Data on this blog. We have big changes in the works in the upcoming weeks, specifically the relocation of our blog to a highly regarded blog site (further details coming up soon) and the launch of a website that will host the Psychology of the Week’s Data, intraday updates, recommendations, and so much more.

To all our readers and supporters, we wish you a weekend filled with good friends and good cheer! We leave you with the 11 Commandments and the seven psychological pillars, all of which are so vital to your long term success:

The Psychology of the Call team.

The Eleven Commandments of Trading

1. Never trade more than 10% of your total capital/account value in any one position.

2. Cash is King, and we recommend keeping 20% liquid to take advantage of dislocations and volatility.

3. Cut losses to 15% maximum whenever possible. If your psyche is shaken, step away and don't trade for 1 week.

4. Take and enjoy profits of 30% or more.

5. Never fall in love with a stock and never force trades or over trade; remember commandment #2.

6. Never accept excuses from management, period.

7. Use technical and fundamental data & psychology/sentiment from the conference call to select trades.

8. There are two sides to the market, long & short; take advantage of that leverage.

9. Understand the significance of the macro geo-political economic environment.

10. Unforeseen events/shocks will happen, inverting the market upside down (remember commandments #1 & #2)

11. All of the above are void without reading the Psychology of the Call.

The Seven Psychological Pillars to Successful Trading

1. We believe in patience. A patient trader waits for superior opportunities to enter and exit. A trader who forces trades after winning or losing will set him/herself up for potential losses, because gambling, rather than psychology has taken over the mind.

2. We believe a stock's volatility is a positive attribute. Volatility can be caused by stock specific news related to earnings, management changes, law suits, technology/patents, market share, or short interest. Volatility can also be caused by the overall market/S&P. We take advantage of price volatility, setting specific entry and exit points based on basic technical analysis, with emphasis on the 200 day moving average.

3. We believe in only trading above average entry points, as the over sold and over bought stocks become evident to our trained psychological eyes. Learn to take advantage of these superior entry points, as wash outs and peaks offer attractive premiums as you go against the herd.

4. We believe the market will be around next Friday, next month, and next year, so we take one day a week off in order to clear our minds. Cultivate a hobby because a healthy life style contributes to a healthier mind. Better trading decisions result when we are well rested and involved in other things besides trading. Go fishing, visit a Museum, tend to your garden, tinker with your car, forget about stocks for a day.

5. We believe investor sentiment/psychology and S&P swings affect individual stock movements in the short run more than any fundamental metric or ratio. Exhibit caution when attempting to trade on backward looking fundamental analysis, forward P/Es or future cash flows.

6. We believe there is only one Warren Buffet, but if you master market mechanics you will be become a multimillionaire by understanding, appreciating and trading volatility.

7. Finally, we believe the importance of maintaining some cash/liquidity in the portfolio and always booking profits, but especially on Friday, as smart money sells to avoid the risk of some weekend geo-political event.