The Psychology of the Call team is sticking our necks out in predicting the S/P has topped out yesterday at 823. We believe smart money is taking profits here, and aggressive money is shorting/buying puts as this bear rally fades... Although strength in the broad market this Tuesday is impressive considering Monday's monstrous move, the resiliency is softly rooted in lower volume, fewer sellers, and growing hope in an effective bank plan. Although both involve positive technical and fundamental elements, we remind of the huge foundational crack the economy may fall into IF the bank plan were to fail or its success post dated a 9.5%+ unemployment rate. Two variables forward-thinkers must consider before jumping long into any asset class today. Goldman Sachs argues a 9.5% or > unemployment rate would cause great tension in commercial real estate (CRE) and all connected assets. With most ears and eyes on the Bernanke - Geithner's AIG testimony, it's evident that these two men are well meaning. Yet we feel they have very little influence on righting the rusting Ship of Unemployment. The employment problem along with falling residential and CRE
prices remains extremely troubling for making a bullish case for stocks. We would like nothing more than to witness toxic bank assets brokered to buyers and then experience some sort of expansion of credit/loans, leading to more jobs and a needed turn in real estate. Wow, do you think all those events will occur by year end, not us. We look to 2011 for a meaningful economic turn and late 2010 for a fundamental stock market bull run. Until then, it'll remain a treacherous trader's market. Only until employment turns coupled with favorable real estate sales do we feel a new bull market grow horns. Even IF bad bank assets find buyers, the sentiment of most consumers push toward downsizing/getting smaller. Whether fewer family cars or smaller homes, we feel it's only the first inning of consumer downsizing. Most talking heads say deleveraging is over, but we feel they are only referring to corporations. We view the consumer as walking around with a blackened eye for the past several years, and it may not heal even after the banks are cleaned up. Yet the Dow rose 500 points Monday due to talk that one piece of a gigantic puzzle may fit. Banks are flushed with more cash today than ever in history, yet not writing loans due to the uncertainty of the upper-limit unemployment and year it will occur. Most economists say end of 2009, we disagree. Considering the tremendous net worth deterioration of most Americans, spending behaviors going forward may shift down to a lower gear. We know the rosey statements from government officials have vested interests in their outlooks, and herein lies the future economic conundrum. IF the Obama economic team's peak unemployment estimates of 8.1% are wrong (Peter Orszag), and we're at that percentage today, then their enormous spending bills will be viewed as irresponsible. A problem 10X greater than today's may be ahead of us on this fade to black bear market path.
The Psychology of the Call team reminds forward-thinkers of the power gained from positioning your account in cash at the end of the trading day, but especially after Monday's huge bear bounce. We wish you a profitable trend setting Tuesday.