Wednesday, June 4, 2008

Lehman, Regulations and Unemployment

The Psychology of the Call team witnessed one of the strongest and latest sell offs ever on Friday. We didn't know who was behind the massive block trades, but we now know that they were in fact correct in liquidating, and we feel confident and proud to have pointed it out graphically to all our supporters. It seems to us that the sell off was related to someone privy to the S&P downgrades of Investment Bank credit ratings Monday afternoon, but especially Lehman Brothers (LEH). The 'regulators' drum beat is getting louder, especially in exotics like credit default options and commodities like crude oil, which is governed by the Commodities Futures Trading Commission (CFTC).

POTC warned our readers a month back about the fallout of regulations. The massive spike down late Friday that we highlighted in the weekend 'psychology piece' was in fact forward-looking Institutional 'smart money'; technicals do matter. Do we feel LEH is going the way of Bear Stearns? Nearly impossible, as the Fed window is open. Do we feel LEH has earnings problems ahead? Definitely. Even Pimco's 'bond king' Bill Gross pointed out LEH has a P/E problem in an afternoon interview on CNBC Tuesday. Are we still as bearish as we were this weekend? No. The fact Hillary Clinton did not throw her support behind Barack Obama could see the market rally Wednesday and Thursday, but we still urge caution with the biggest hammer, Friday's Employment Report lying in our paths. So, a bullish trade set up for Wednesday, as crude continues its pull back and the ISM Services data comes in above 51. The prices paid component (ppc) will be nose bleed - very inflationary - but IF crude continues its descent, the ppc will be shrugged off. The trapped bulls will be able to break through the ice and take a few deep breaths Wednesday.

As always, thanks for returning to the Psychology of the Call.


Anonymous said...

Crude is controlling the trade, hurricane threat is an issue. Good blog.

mattryan99 said...

Just had to say: I recently found your blog and I'm very impressed. Incredibly acute analysis, particularly on this Monday's ISM report. Spot on! You're now at the top of my morning bookmarks.

Anonymous said...

Your analysis came true, nice job. Europe was down nearly 2% before open, shows we still are the big dog wagging the global markets silly. Go McCain, long for today.