Wednesday, June 18, 2008

Thursday and Friday

On Thursday, June 19th Initial Claims for Unemployment are released for week ending 6/14 at 8:30 ET. 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. 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.

1 comment:

Anonymous said...

What if a hurricane forms and heads for the Gulf this weekend, crude could sky rocket to $150.
Good analysis, thanks for Energy Conversion Devices/ENER as well.