The Psychology in the Upcoming Week's Data

Here we take a look at the Psychological aspects of the upcoming week's data. We're certain you'll not find this very useful perspective anywhere else, so please read carefully and digest. Your wallet and your investment account will thank you. Your broker, if you have one, may not.

We look for Monday's Wholesale Inventories (10.00 AM EST) to come and go without any market moving impact. Wall Street pays close attention to the spending habits of Americans, but the Wholesale Inventories don’t reflect those habits. You really shouldn’t care how much inventory there is built up or down on the wholesale level.

Don't expect any help from Tuesday's Trade Balance release either (8.30 AM EST). Americans usually import $57B-$60B more than they export and the estimate for Tuesday calls for a deficit or imbalance of $59B. We feel this data is more important to our trading partners: Canada, Mexico, Japan, England, and China. It should be understood that if the U.S. Dollar continues to slide the Balance of Trade could affect foreign exports negatively, specifically the countries mentioned above.

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

Wednesday's Crude Oil Inventory data (10.30 AM EST) will have a definite market moving impact. For investors The Psychology of this particular Call has more to do with a realization of the domino effect that energy/gas prices will have on consumers, rather than the actual number. Regardless of whether there's a build up or a draw down in inventories, the simple fact that Oil will be in the news is a negative in our opinion. We feel OPEC is a paradox as what they say and what they do is always contradictory. According to one Moody's economist, Mark Zandi: “Everything is going wrong for households. They are struggling with rising unemployment; high debt loads, heavier because of mortgage resets and plunging housing values; soaring gasoline prices; wobbly stock prices. The data suggest bankruptcies will rise measurably through the remainder of the decade.”
We don’t agree with Zandi's prediction that U.S. bankruptcies will rise for “the remainder of the decade", but we do feel Wednesday's Crude Oil Inventory data will not help support stock prices. The release will only remind investors of the current spot price of Crude, which is almost $109 a barrel.




Monday's and Tuesday's volatility may be dwarfed by the reaction to Wednesday's "bubblin' crude" release. Our readers should welcome volatility and to use it wisely. Take advantage of greater price swings/movements whether you’re long, short, or just sitting in the weeds like a large mouth bass, ready to pounce with pockets full of cash. Volatility offers better entry and exit points; enjoy it.


Thursday's Retail Sales data (8.30 AM EST) looks to set the fundamental tone for the remainder of the week.

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

Retail Sales carry tremendous weight. If you believe Zandi's analysis above, you'll understand the significance IF the numbers surprise on the upside. The market would breathe a huge sigh of relief and celebrate UP!!! Bullishness!!! Although we don’t suggest you gamble on that chance. Until we see that 1,270 test on the S&P, we recommend our readers hold a minimum of 50% cash/money market. There are always opportunities to go into the game, especially when your mind is clear, the blood of others is evident, and your portfolio is flooded with more cash than equity exposure. And we're getting closer to some type of climax. The S&P 500 is a broad based U.S. Equity Index that money managers are always trying to out perform, so we ask, why so many mutual funds?

Most of them now wish they practiced our Second Commandment "Cash is King" since January 1, 2008. Oh well.. they haven't called us lately.. and you?

Friday brings the February Consumer Price Index (CPI) release (8.30 AM EST). The CPI is a set/fixed basket of products and services Americans buy and use. There are many who are critical of this metric/number, and for good reason. The month to month (m/m) number varies greatly and most economists give special weight to the year over year (y/y) change. We’ll not even attempt to guess this release, but with current investor sentiment it would have to come laced with solid Platinum and Blood Rubies to have any kind of positive effect. The Core CPI will also be released. The Core subtracts food and energy prices, which to many is ludicrous, realizing that the two things people do the most is discounted in terms of their inflationary effects. We reiterate.. ludicrous.

Friday also sees the release of Michigan's Consumer Sentiment, an extremely important poll that our readers must follow (10.00AM EST). DePaul University's Finance Professor Charlie O'Connell, who managed nearly half a billion dollars of the University of Chicago Endowment, paid very close attention to this number. For that reason and others we hope our readers do too (it foretold the stock market crash of 1987 and 2000). The expectations for this number are reaching 15+ year lows, so if it comes in below the 70.5 consensus, say at 64 or lower, investors may sprint for the exits and sell, sell, sell. And then there’s the weekend’s analysis by talking heads that will lead to more selling on Monday.

On the flip side, if it scores 73 or higher the opposite reaction may occur, although we can’t envisage the consumer being anything other than pessimistic in light of rising food and gasoline prices, coupled with an eroding stock market.

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

Here's a chart that illustrates just how telling the Consumer Sentiment number was ahead of the 1,500 point drop in the market in 2000:

http://www.safehaven.com/article-4035.htm

Although the Retail Sales release on Thursday is very important from a fundamental stand point, we see the price trend being set Tuesday. "Trend Setting Tuesday", as its referred to on Wall Street, often tips off data ahead, so pay close attention to Tuesday's numbers. “As go Tuesday's, so goes the rest of the week” is the saying. Barring any drastic Fed/Government Market intervention or Bank Bail Out package announcement, which is being tossed around over Manhattans in New York, we don't see the equity market recovering this week. Granted the S&P looks cheap, but Goldman's highly respected analyst Abby J. Cohen noted it was cheap in January, so maybe there was something she missed in her analysis? Maybe she blinked over the skeletons in the Investment Banking closets. Perhaps she was too strict in her adherence to historical metrics and numbers. As far as we can judge, the credit market has never had such a deep foundational crack, ever. And we believe most strongly that a blow out climactic day, or number of days, is approaching.

There's the week ahead as we see it. So trade accordingly and please tell your friends the Psychology of the Call team is always by your side.

Margin Call.. ing

In an earlier piece, we pointed a finger at Alan Greenspan for what we referred to as a "foundational crack" in the economy/banking system; maybe we failed our readers. The fact Alan Greenspan's Fed lowered rates to 1.25% made money super duper cheap, which is why we coined "irrational speculation" in the Real Estate/Mortgage Markets. But there's more. There's more than just Alan involved in this "Call."

We left out a very important element of the problem; the behavior of Banks and Brokers with that cheap money. My Grandfather Marcin once told me: the father didn't spank little Johnny for losing his allowance at the card game, instead he scolded Lil Johnny because he went back to play again in hopes of winning it back.

And there you have it in a nut shell; Banks and Brokers are like little Johnny. They lost a great deal of their assets through exotic credit vehicles/derivative products. And instead of saying "We surrender”, they kept going back and playing, over and over and over and over and over and over. Now you understand why the words "MARGIN CALL" are being thrown around so much.


We sure hope their behavior doesn't spiral off into the black hole of the abyss. You’re thinking “Maybe the Government will try and help”. Too late, this card game is over.

Psychology of the Call thanks you for your Friday attention, we urge you to return at 2:00pm EST to see the real truth~

FRIDAY 7 MARCH

On 28 February, in a piece entitled 'The Foundational Crack Revealed: Mass Confusion' we wrote: "We see the "biggest hammer being wielded" in anticipation of the Unemployment Number on March 7. This hammer will not be kind to those who are long stocks and investors should shy away from adding to any positions until after that date. Your Cash Will Be King as you sit and listen to the confused talking heads on CNBC and other for-profit channels." We hope that you took our advice and obeyed the 2nd Commandment of Trading: "Cash is King".

UPDATE On Our Calls

On 5 March, with regard to JRJC we wrote: "We look for $18.50 to be breached by Friday" Today (Friday 6 March) JRJC printed a low of $18.04 before closing at $18.35. On 3 March we wrote: "We hope you’re still parked with cash and no more than 50% of your account value in stocks." Today the S&P printed a 52 week low and tomorrow's Employment numbers may send the index further south. We hope most sincerely that you are at least 50% in cash. At least. At bare minimum. Today, Friday 6 March Jim Cramer ('Mad Money' CNBC) suggested that if John McCain wins the Presidency investors should buy Northrop Grumman Corp. (NOC) On 1 March we said that should John "Sidney" McCain III win the Presidential election, our readers would do well to buy NOC. On 27 February we said: "We caution equity investors not to commit more than 50% of their capital until the S&P breaks through 1475 on the upside, or retests 1270 on the down side. We suspect that 1270 could be tested when the Employment numbers are posted on March 7." Today the S&P and NASDAQ printed 52 week lows. Tomorrow's Employment numbers may put further pressure on the indices. PLEASE.. pay heed to Commandment 2: "Cash is King".

Psychology of the Call for JOYG

Joy Global (JOYG) reported earnings this morning. The stock sprinted to fresh 52 week highs above $70.00. Now we offer our two cents on what we heard on JOYG's live Call.

The call was very transparent. Mike Olsen was slow, but steady and consistent in tone, somewhat positive at the 12 minute mark when he addressed revenue growth visibility.

Next up was Mike Sutherlin. We started to feel management synergy. He had a very reliable tone and offered many facts. At 16 minutes 40 seconds into the call, he mentioned a very positive coal sea change in China. At 19:30 he scored points with us by underlining the growing need for coal. Copper was mentioned at exactly 22 minutes as a developing driver due to rising prices.

34:35 into the call we sensed some friction from Mark at Cleveland Research. He sounded somewhat doubtful/suspicious on the pricing power in steel. Answer: "We feel pretty good about backlog" at 40:20. At 42:20 the hint of any disruption from the storm in China was laid to rest, "not affected at all". Joel from Lehman had an incremental margin question at 43:40. The answer: "Exceeding expectations, much more consistent load, China coming on-line with lower cost, margins will grow into the low 20% range" at 44:30.

Joel asked what was the hold up with orders. The "lumpy" word was used, yikes!! We don't like Wall Street gibberish, the first "four letter word used. Jerry from Goldman at 46:50 had questions on run rate and sales ratio. "Build out in China with quality control and training Chinese in Milwaukee is hard work” at 48 minutes. “We will carry high expense levels for a few years” at 49 minutes, but the transparency/honesty scored huge points. A back log follow up question from Jerry at Goldman: "We are booked out through 2008. After market backlog is 6-7 weeks, we'd like 3-4 weeks". Back log is $1.9B (at 52:20). At 52:50, "Our back log numbers may not compare apples to apples." A positive answer.

JOYG is in the right industry at the right time. We feel management sounded more dynamic than a couple of analysts believe. Therefore, we feel strongly the cloudy back log/visibility is a benefit that causes JOYG's stock price to trade at a discount for our readers.

We see JOYG in a much better light and at a higher price with all macro economic factors being equal. There is "Munch" more happiness at Joy Global than at Wal-Mart in our opinion (see the article below). We would not wait too long to buy these shares, but realizing the Employment data is slated for tomorrow, exhibit caution. Buy part of your position in this Green Coal play (JOYG) tomorrow after the Employment data, and add more in market dips. You would be wise to hold these shares for the next five years as that specific time horizon was visible to management, at 1 hour 4 minutes. SG&A (costs) addressed at 1 hour 16 minutes by analyst Barry. Answer at 1 hour 18 minutes: "they will get better in 2008". The call ended at 1 hour 23 minutes.

We want to thank you for your continued support at the Psychology of the Call.

Attention Wal-Mart Shoppers!

Wal-Mart (WMT) reported what most analysts said were good numbers this morning. Our team looks at these numbers and visualizes a completely dIfFeReNt word than good. With our microscope in hand, here we go! Wal-Mart's same store sales rose around 3% for month ending February. The analysts cheered! Hip hip hoorah!! Hip hip hoorah!! One more time, Hip hip hoorah!! Now please exhale and finish this Psychology of the Call. If Wal-Mart's same store sales were to rise every month of the year at this alarming rate, Wal-Mart would experience 3% x 12 months= 36% growth! Wow! Sales were especially strong in gas, food, flat panel TV's, and video games. Are you getting an image of the average shopper? Lifestyle matters. Still cheering? Here's the skinny, or fat; you decide. In 2009 Wal-Mart's sales are estimated to be $405B and grow to $436B in 2010. This equates to 7.7% growth year over year (y/y) in sales. As noted above today's 3% sales growth in Feb would equate to 36% for the year, simply blowing out the estimates of a piddling 7.7%. And as you consider where the growth/sales are coming from, you visualize your ‘average’ shopper that drives sitting down, eats sitting down, watches TV sitting down, and plays video games sitting down. We don't cheer at that image of the Wal-Mart consumer. We believe the Arkansas retailer, on a financial metric growth of sales comparison, is doing spectacularly well. But we feel the issue is the Psychological component of what they sell, and not how much they sell. Americans may wave a red flag at the prospect of investing in an Arkansas based retailer which arguably could be based in Beijing! Our team believes there’s a lot more to a P/E ratio than strictly stock price divided by the bottom line, or earnings. So we’re not saying Hip hip hoorah and cheering like most analysts on the Street, whose current recommendations total 6 Strong Buys, 11 Buys, and 8 Holds. In fact, we wouldn't even fall into that "Hold" camp. That’s cheering from the Street. Jeering from us. Once again, thanks for understanding the Psychology of the Call.

SNDA & JRJC

Our second sitting with SNDA: Commandment #5 states to never fall in love with any stock position. It's difficult to tell SNDA that it's over, but we have to make the painful SELL call based on the macro market environment in China. SNDA continues to be on our list as one of the best American Depository Receipt (ADR) ideas in terms of mid cap growth, but the pressure on the Chinese Index is troubling. Shanghai is down exactly 30% from its 52 week high of 6,124. We suggest our readers SELL their shares in SNDA at current levels and revisit the trade after the Shanghai bear market shakes out further. Congratulations to those who profited from our recommendation in a very lopsided tape. Our second sitting with JRJC: As for JRJC, we suggest our readers hold their short position. We look for $18.50 to be breached by Friday. JRJC's CFO will have a much harder Q/Q comparable coming up. We feel he'll have to admit the truth and swallow his pride. We reiterate the Chinese Shanghai Index is down 30% from its 52 week high. We view the stock macro market environment to be of critical significance in attracting new "subscribers" as well as building a "stickier" customer base. Neither of those targets will be satisfied in this current Q, and we won't be surprised to see shares retrace and test $12.00 around the time of 2008’s first Q confession. We see JRJC's visibility to be more questionable today than ever before. We look forward to updating you on JRJC in one week, on March 12th. We want to thank you for returning to the Psychology of the Call again and again.

Munch Fear ScReaming in the Equity Risk Premium

When trusted Financial genius Warren Buffet uses the ‘R’ word on CNBC, equity investors should be concerned. Warren Buffet is a no-nonsense Nebraskan who understands the intrinsic (melted down) value of every copper penny in his pocket. Investors should worry even more after the following quick explanation of the Equity Risk Premium (ERP).

The Equity Risk Premium (ERP) is an accounting metric used by Wall Street money managers and some studious individual investors (you, for example). Sure, it’s only a statistic, and statistics only reflect the past, but we’d hate to see any of our readers return from the Drive-In Theatre without a rear view mirror.

It’s pretty easy to calculate the ERP. Just take the historical yearly return of the U.S. stock market (roughly 10.4% dating back to 1900) and subtract it from the risk-free rate of return of the U.S. Government’s 30 year Bond, which yields 4.37% today. Got that? Okay.

That means today's U.S. equity Investor is getting an ERP of over 6%! Now most University Professor types would agree that the historical average of this metric favors stocks anytime it rises above 4%. And therein lies the problem: the stock market continues to fall in the face of a 6% premium reward for taking on risk. Does anyone remember 1987's ERP? That’s right, it was close to zero. It made good business sense then to abandon stocks and get comfortable with the nearly 10% that the US 30 year bond was yielding.

So why is there no traction lately?

Maybe there’s a much different problem involved than simple home grown statistics to explain the feaR in the ERP; perhaps the problem lies in overseas markets. So, Warren Buffet's use of the 'R' word on CNBC could still reverberate much, much more, perhaps around the Globe, maybe even, oh.. Asia?! Have you checked the Nikkei Index lately? Click the link, but be warned: you might let out a "munch" louder scReam than you did when you heard Warren Buffet admitting RRRrrecession.

http://finance.yahoo.com/echarts?s=%5EN225#chart2:symbol=^n225;range=5y;charttype=candlestick;crosshair=on;logscale=on;source=undefined

And you thought that line was scary? Now look at the Shanghai bubble bursting (click on the 5 yr tab for a comparable chart)

http://stocks.us.reuters.com/stocks/charts.asp?symbol=.SSEC&WTmodLOC=L2-LeftNav-10-Charts

We want to thank you for letting Psychology of the Call be ourselves again.

The Parking Gear, Cash, and Buttered Popcorn

Are you enjoying the show? We hope you’re still parked with cash and no more than 50% of your account value in stocks. The Psychology of the Call team did advise our readers in the article dated Feb 27 to stay in cash. Remembering our 2nd Commandment, "Cash is King." Car accidents usually occur in the drive or reverse gears. We won't bore you with details of the inner workings of the gearbox, although we do know many readers enjoy their stick shift jets! Read on ... We urge you to remain in park until after the Friday March 7th release of Employment Data. We see the employment number only adding fuel to the selling pressure. As the saying goes, "the first Friday of every month wields the biggest hammer." We see the stock market getting hammer fisted to below the 1,300 level on the S&P at least, so the test of 1,270 will be critical. If you accepted our advice, congratulations. Now instead of sitting on the couch watching the talking heads, or constantly checking stock quotes, take your car for a spin to the Drive-In Theatre. There you’ll be free to enjoy a real show, with "cash and buttered popcorn in hand", secure in the knowledge that the Psychology of the Call team is parked beside you.

Reiteration on the Market and Your Capital

On Wednesday, Feb. 27th we wrote: "We caution equity investors not to commit more than 50% of their capital until the S&P breaks through 1475 on the upside, or retests 1270 on the down side." We consider that to be advice especially pertinent to market conditions. Click on the links above for further information.

The 2008 Animal Tug of War Explained, with a Twi$t of Lime

Greetings to our weekend readers, As you probably know, the mascot of the Democrats is the Donkey, whereas Republicans prefer the Elephant. The animals differ greatly and every individual animal-politician has a distinguishable and relevant psychology that will affect your investments. Do you prefer taking a chance being trampled under foot, riding up high, or a slow stubborn and deliberate ride? It depends upon what your standard of living is today. Please take a deep breath and read on In broad terms, considering that we're addressing your investments/money, the effects of taxes are where these Animal-Politicians differ the most. The Donkeys have stated publicly they will repeal the Bush tax cuts, which means higher taxes going forward. Higher taxes point to larger Government. Both Donkeys believe every American must have Healthcare, so repealing the Bush tax cuts seems logical to them. Please don't get ahead of yourself and start Googling healthcare stocks. The Psychology of the Call has only begun to referee this wild and dirty tug of war. The Elephant has stated publicly that he agrees with the Bush tax cuts and wants to make them permanent, meaning lower taxes going forward. Yes, lower taxes do spell smaller Government. The Elephant agrees with staying the course in Iraq and Afghanistan, so defense stocks won't get trampled. But before you pick a winner, we haven't even touched upon the two animals' individual psychologies/personalities, and here's where our analysis comes in to play. We’ll not bore you with the details as to why these investment scenarios may play out and we urge you to always do your own research before you agree or disagree with our final resultati. We considered many diverse facts in handicapping the two personalities, including party affiliation, work experience, voting record (or lack thereof), family back ground, age, spouse and children, social issues, health, wealth and life styles, and of course we weighed the forces of taxes on supply and demand. We have to mention two boring factoids: one of the Donkeys was a paid member on Wal Mart's board of Directors from 1986-1992 and the Elephant was shot down flying his 23rd attack mission in Vietnam in 1967 and imprisoned for 5 1/2 years (He would rather spent those 5 1/2 years as an Elephant in a zoo, if given a choice.) http://en.wikipedia.org/wiki/Image:Vietcapturejm01.jpg This formerly imprisoned Elephant may be very kind to France and Nicolas Sarkozy in general, since it was some Paris Peace Accord that eventually released him in 1973. If you're still reading, you are now more informed than 75% of voters in the United States. Here's how the Psychology of the Call team carved up the Donkey: Barack "Hussein" Obama -BUY Healthcare Application Software Gold (GG) iShares MSCI Africa Index (EZA) -SELL Aerospace/Defense (NOC) Brokerages/Banks (GS) Oil & Gas (HAL) Canada Latin America U.S. Dollar And now the Elephant: John "Sidney" McCain III -BUY Aerospace/Defense (NOC) Beverage/Brewers (BUD) Biotechnology (DNA) Farming & Const (JOYG, CAT, DE) France Oil & Gas (HAL) First Solar (FSLR), based in Arizona? -SELL Gold (GG) Russia Out of respect for our readers, we opted not to plagiarize any talking heads, cable channels, radio hosts, or even Wikipedia. Again we ask American citizens to do their own research and please vote, and as the saying goes "vote early and vote often". What’s that? The twi$t of lime? Ah yes, sorry! Are you anticipating the little green fruit? Sorry, no; we're talking about the natural resource. Latin: Calx, Old English: Lim, modern English: lime. Calcium Oxide (CaO), also known as burnt lime and quicklime. The production of lime is one of the oldest chemical reactions exploited by man. Extremely high temperatures are used to create it and its use predates recorded history. Lime is concentrated in rocks, especially limestone, but also in chalk and even coral reefs. When mixed with water and sand, mortar results. The stress on natural resources over the last 30 years is mind numbing and lime is but one example of a natural resource taken for granted today. Is it the Mayan culture of 3,000 years ago, in which a natural resource was used to make mortar for their pyramids that we want to blame for the inflationary bubble that we're in? Not really, but we must acknowledge that interest rates are too low in the U.S., fueling a Global bubble of sorts in all commodities, especially oil. Cheap money policies (low interest rates) are only fueling inflation and driving the price of everything from corn to wheat, oil, and food completely out of control. China is especially guilty here in a non-direct sense. Since the pegging of the Yuan to the Dollar in the 1990's, China is exploding with growth. Although we respect our Chinese partners, we feel China must reform its Banking structure and currency structure after the Beijing 2008 Olympics. Ironically, we see this upward bias in price action as the result of more freedom and Democracy around the Globe. Who would have imagined back in the late 1980's, that China, Russia and countless other countries would claim Capitalism? But is it truly Capitalism they are running? We’re suspicious. Chinese human rights and social issues in relation to labor (wages) and food safety laws in some Provinces are more ancient than those of the Mayans. The explosion in World population from the mid 70's and the need for technology are other factors stressing the supply and demand curve for all goods we buy. Contrary to what many suppose the weak U.S. Dollar has held up U.S. Corporate profits extremely well. A weak U.S. Dollar signals low interest rates and here's where the dislocation lies. As of this writing, the S&P 500 Index is trading less than 16X earnings, looking like a buy to most accountants. But we know that accounting is a study of the past and only wise Financial Forecasting can save those backward looking bead counters. The tug of war between the Donkey and Elephant may not be relevant, regardless of who ‘wins’. Most likely, the winner will wish he lost in the long run; sort of like the pain President Bush has suffered through since the terrorist attacks of 9/11. We urge great caution in the equity markets until a true shake out occurs, an event/shock that when it comes, will bring you back to this article and make you say the Psychology of the Call matters.

JRJC Update

We asked our readers to hold on to their short positions if JRJC: http://www.ino.com/info/196/CD3415/quotes.ino.com%252Fanalysis%252Ftrend%252F%3Fsymb=NASDAQ_JRJC/ closed below $21.28. It closed at $21.22. We retain our confidence that the fundamentals and the Psychology of the Call will prevail.

Coming Saturday: Market Psychology and Elections

The outcome of the Presidential Election in November presents a mixed bag of investment scenarios for investors. Tomorrow we will analyze the ramifications of the election with regard to how the result will push certain sectors up and other sectors down. Stay tuned for the best and worst possible scenarios for investors.

Market Insight and JRJC Commentary

Firstly, we want to affirm our bearish stance on the stock market. The Employment report on March 7th will bring more losses to investors and we see the 1,270 S&P level being tested. We urge you to be patient with new money at this point in time. We recommend our readers hold their short position in JRJC unless it closes above $21.28. Anything above that price target would break our Commandment of maximum loss from the $18.50 point and we always obey the 11 Commandments. Best Regards from Psychology of the Call team.

The Psychology of the Call for JRJC Q4 2007

Psychology of the Call hates when management avoids the truth and opts for buzz words. JRJC is guilty. The CFO's delivery was very defensive and more nervous than we prefer. CFO shrugged off the Chinese market melt down as "volatility" at least 2 times, not the transparency we appreciate. Investors know the Shanghai has fallen from 6,100 to approx 4,350 today, which points to a bear market more than simple volatility. Besides missing the high end of Q4 guidance, JRJC failed to guide up for the next Q. They’re estimating revenues to come in at $10.5M on the high end, where the previous high estimate pegged them at $10.7M, a red flag. We never recommend buying small cap ADRs that do not exceed estimates, never ever, period. JRJC's SG&A costs (selling, general, and administrative) are troubling. A subscription business model cannot be successful in the long run with such ballooning expenses/costs. Management tried to explain this away as "bonuses" to telemarketers, but we don't buy it and we urge our readers not to either. We see JRJC's future being crippled by higher operating costs through out 2008 and beyond. Sarbanes Oxley is not going away unless Ron Paul wins the election and the chance of that happening is near zero. Lastly, we view the Chinese Telecom deal as a negative development. Larger, better capitalized portals like BIDU could announce similar financial services for free tomorrow, causing over night insolvency. Is it possible JRJC's management is privy to a large portal planning to offer free financial information? Please close your eyes and visualize a publicly traded company in your portfolio with no competitive barriers toward entry. Now open your eyes and look at JRJC. Patents and intellectual property matter and JRJC has neither. We reiterate the back end loaded year as a mortal excuse which must be questioned in the face of a falling Chinese market, breaking our 6th Commandment. Brean Murray's analyst changed rating on the shares 3 times in the last 3 months, currently at a buy. We hope Brean Murray scrutinizes JRJC's back end loaded year as wishful thinking in what has become a painful Chinese stock market. We thank you for your time and remember, the Psychology of the Call is always on your side. Next JRJC update March 5th. Please obey the 11 Commandments.. cheers!

JRJC Insight Ahead of the Conference Call

First, congratulations to all who took our advice and shorted shares from $16.00-$18.50. Our high end price of $18.50 was an exact print/hit yesterday; we stand by our call after seeing JRJC's weak quarter and horrendously questionable guidance. "Back ended" is an excuse management mentions and that breaks Commandment #6 (see below); shame on them. Psychology of the Call views the Chinese economic environment as extremely inflationary and negative for any subscription based businesses going forward, especially in light of the 2008 Olympic Games. We advise our readers to gamble in a casino (Las Vegas, Monaco, or Macau) sooner than buy a single share of JRJC. Our conviction has never been stronger. Thank you for your patience. Awaiting the conference call for further analysis ...

China Finance Online (JRJC) Conference Call

We posted on Wednesday about the potential train wreck that is JRJC, recommending a short position and assigning it a letter grade of F. They reported their earnings this afternoon. http://biz.yahoo.com/prnews/080228/cnth024.html?.v=22 We'll have an in-depth analysis of the JRJC conference call (set for 20.00 EST) later this evening. Come back then for the Psychology of the Call.

The ELEVEN Commandments of Trading

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. 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 Foundational Crack Revealed: Mass Confusion

Psychology of the Call did finger Alan Greenspan yesterday for causing the "irrational speculation" in the Real Estate/Mortgage market, and today the fall out continues. The Unemployment numbers released this morning are inching up to disastrous levels. Greenspan's lowering of the Fed Funds rate to 1.25% unleashed a steroidal effect across the U.S. economy and now the credit and stock markets are in panic mode. The foundational crack has been revealed and it'll take a lot more than carpenters to fix it. Wall Street prefers the ability to forecast the future, giving them an understanding of what to do with their capital. Wall Street prefers growth orientated momentum on both sides of the accounting ledger, but neither stocks nor bonds feel comfortable here. A good childhood buddy in the Corporate Offices of Goldman Sachs in Manahattan, New York is beginning to question the legitimacy of what is left in the subprime market. The credit spreads are causing bewilderment in the most powerful Wall Street Institutions. Now that we know that, do we advise our readers to buy stocks today? Absolutely NOT! We actually see more lay offs on the horizon at major Wall Street houses, so exhibit caution. We see the "biggest hammer being wielded" in anticipation of the Unemployment Number on March 7. This hammer will not be kind to those who are long stocks and investors should shy away from adding to any positions until after that date. Your Cash Will Be King as you sit and listen to the confused talking heads on CNBC and other for-profit channels. As for Bernanke, the tone of his delivery and the trembling in his voice will only get worse after this morning’s employment data – ugly, ugly, ugly. What is the Fed to do? We’re not Economists and we wouldn’t wish Bernanke's job on Mahmud Ahmadinajad (well, maybe we would). But we urge our readers to sit back and watch the show, with cash and buttered popcorn in hand; don't step in what we see as a deep foundational crack. Happy trading and remember, Psychology of the Call matters.

Equity Market Insight for Wednesday

Good afternoon. The equity market continues to struggle as we predicted. Bernanke said nothing new as far as we're concerned at the Psychology of the Call. No doubt the Fed is facing treacherous waters as they try to steer their large vessel of Fed funds. Just what some equity traders fail to understand is that the Fed has absolutely no control over where long term interest rates go, and these are the rates that really matter for analyzing stocks. Even though the equity risk premium is overwhelmingly on the side of stocks at present, the markets fail to rally through certain resistance barriers. This is not good for bulls. The Fed funds rate is simply a rate that Banks charge each other for overnight transactions, nothing more. Still, the Fed funds rate is like the Sun in our Solar system; without it there would be no life and therefore no expansion of credit. Expansion of credit is what eventually creates jobs, increases corporate profits and hopefully stock prices. Stock prices rise and fall based on what investors are willing to pay for a given Dollar of earnings at a given time, or the P/E ratio. P/E ratio's contract or expand with investor sentiment/psychology. Furthermore, many equity investors fail to understand that the credit markets are just one factor that build or destroy P/E ratios. Bonds are a safer asset class to begin with, so why would a seasoned pro buy stocks when the credit/bond markets are suspect? In a free market system supply and demand forces should have free rein. Nonetheless the Fed's ability to control the Fed funds rate is where it begins and stops for them. The Fed is not as powerful as perceived; credit market "sentiment and psychology" plays a much greater role, since long term interest rates are set by supply and demand forces, regardless of what the Fed does with their overnight Fed fund transaction fee. The Fed can make over night loans cheaper and cheaper for its member Banks; they can lower rates to Greenspan levels of 1.25%, or even zero as my friend and retired executive Lance commented, but that doesn't mean people will want loans, or that Banks will be willing to offer the loans on favorable terms. The foundational crack in the Real Estate mortgage market is something that will take time to correct; "hang over" (inventory) is still a factor we must work through, regardless of what the cost of money may be. One negative thing for the equity market was Bernanke's tone of voice. His voice trembled and his delivery sounded uneasy and unsure, even when reading his prepared remarks. We caution equity investors not to commit more than 50% of their capital until the S&P breaks through 1475 on the upside, or retests 1270 on the down side. We suspect that 1270 could be tested when the Employment numbers are posted on March 7. With that date in mind, we appreciate your attention, and as always, the Psychology of the Call matters.

JRJC - Time sensitive update

Good Wednesday morning to all our Psychology of the Call readers. We believe our conference call analysis of JRJC will make you very happy come Friday morning. JRJC will be reporting their earnings after the market tomorrow, Thursday. Do not buy or hold any shares of JRJC. Short the stock anywhere in the $16.00-$18.50 price range. We see shares of JRJC slumping to the $12.00 range come Friday. JRJC is currently trading at $18.08, it is actually up $1.10, absurd! JRJC's management stumbled through their last conference call. We were able to catch some tells from the call. Management's conviction in their business model is suspect at best; in their own words: "We have very aggressive growth goals". That kind of empty rhetoric is a recipe for disaster, and we urge you to take advantage of this opportunity. The tone of the questioning from analysts to management was horrible at best, contributing to JRJC's 46% percentage rating and letter grade of F. One analyst in particular quizzed JRJC on what many consider a "dinosaur" subscription business model, and management offered no convincing come backs. JRJC recently released some news we feel is more of a desperation tactic than reason for joy. JRJC will try to excuse their current March ending quarter in terms of the Chinese New Year, when the market was closed for a full week! JRJC relies on the market to be open and rising; neither worked in their favor for the March ending quarter. They must address this issue in their forward guidance, which will be great for shorts. We feel their guidance will raise more questions on the viability of their subscription business model going forward. We advise our readers to short JRJC into what we predict to be a train wreck conference call and guidance. The tone of the conference call will only get worse with every quarter here. Happy trading, and tell your friends, the Psychology of the Call matters.

SNDA, the market and JRJC

First, congratulations to all who bought shares of SNDA Tuesday morning on our time sensitive recommendation. We did stress buying ahead of the Institutional money at 10:00AM, and there was actually one 3% pull back in the intra day chart as predicted. SNDA traded as low as $31.75 and as high as $35.00. Moves of 10% or more in a single day are rare, but we use the Psychology of the Call to indentify such potential moves. SNDA shrugged off the worst inflationary data since 1981 in the early going and Institutional money flow was steady into the close. Shanda traded nearly 3.6M shares, over 3.5X the average daily volume. The folks over at "Motley Fool" mentioned SNDA at 11:38AM EST in a positive article, but our readers bought before the article appeared. SNDA has been upgraded by many analysts, as we predicted. Volume, money flow, and the daily close of $34.70 all confirmed the incredibly positive tone on the conference call. Goldman Sachs increased their price target for Shanda to $41.00! And there you have the power of interpreting the Psychology of the Call correctly. We believe strongly that SNDA will break to new 52 week highs barring any unforeseen events, one being the over all market re-testing its January lows. We remain bearish on the market overall with Bernanke testifying tomorrow and Thursday to a mostly Democratic Congress. In this election year Bernanke will suffer increased scrutiny and grilling by the Democrats, therefore we urge caution with all long equity positions into Friday. Poor Bernanke isn’t responsible for the weak U.S. Stock Market, or the foundational crack in the U.S. Real Estate Banking & Mortgage market. Market cycles are caused by long term trends of supply and demand, not by a particular Presidential Administration or a lone Fed Chairman. That having been said, we can point a finger of blame at Alan Greenspan. His lowering of the Fed Funds rate down to 1.25% caused what we coin "irrational speculation" in the mortgage and real estate markets. Sadly Greenspan predicted the stock market bubble with his "irrational exuberance" phrase, but he didn’t foresee the mortgage/credit bubble that we’re suffering. Everyone making money speculating in Real Estate a few years ago was a dangerous trend that we would eventually have to pay for. The multiple credit market shocks have only eroded equity side psychology and the wounds won't heal tomorrow. The cheap money bubble (low rates) created by the Greenspan Fed is still playing out; yet Greenspan is still being quoted like some mythical Greek god. Rest assured: the Bond market is an extremely important animal that we follow around very closely, giving our readers a hidden edge that most financial sites miss. The stock market or credit/mortgage correction isn’t over just yet. Look for more sideways action in the S&P Index (minimum of 2 months), or a test of the previous low of 1270 printed on January 23. Don’t commit more than 50% of capital to the equity market until one of the two scenarios unfolds. As for our next pick based on the Psychology of the Call, we see potential in shorting China Finance Online ahead of earnings this Thursday. We have multiple reasons to believe JRJC will implode after they give clouded guidance. JRJC is operating a useless subscription model in an imploding Chinese stock market. Ironically, JRJC relies on a strong stock market for its only source of revenue. JRJC gets a letter grade of F and a percentage of 46%, making it a definite short side opportunity for our followers. So there are convincing opportunities at times, both short and long. SNDA is one we have scrutinized closely and recommend buying. The tone of the conference call had many tells that convinced our thesis that 52 week highs are around the corner. We’ll follow up with more analysis on SNDA on Wednesday March 5th, and we’ll have more on JRJC tomorrow. Until then, happy trading, and remember, the Psychology of the Call matters.

Update on SNDA

Shanda Interactive closed Tuesday at $34.70 after hitting a high of $35.00. That's a gain of 12.55% in one day. All of our expectations for SNDA remain in place. Hold your shares or call options in anticipation. Today's double digit gain is only the beginning.

Shanda Interactive (NasdaqGS: SNDA)

SNDA ($30.83) Letter Grade Rating "A", Percentage Power 93%

Time sensitive release: February 25, 2008 9:43pm PST

Sit back and enjoy the ride with shares in hand.

It's not because SNDA beat every analyst projection for the fourth quarter of 2007 on top and bottom.

It's not even because SNDA management continues to under promise on guidance and continually over deliver quarter over quarter over quarter on their conference calls.

It's because many analysts covering the stock have been very wrong and will have to admit it come Tuesday morning. As you well know, many analysts are given bonuses for being right, so we know a few of them won't be getting any quality sleep Monday night; zero, zilch, nada.

Within 4 weeks we look for SNDA to break out to new 52 week highs. This will result from massive Institutional money pouring in and positive articles hitting the wires from popular financial sites such as Motley Fool. Our readers will have the advantage of trading ahead of those optimistic articles and upgrades by possibly two analysts.

We look for SNDA to trade up several points on Tuesday alone, potentially as high as $37.00, and to continue its climb through $40.00 by Friday February 29.

We see 2 upgrades from the current 4 "Hold" ratings. If there are more than 2 upgrades, don't be surprised. Shanda Interactive’s future in the realm of "in game advertising" is an ace in the hole and will be addressed in our next SNDA write up.

We recommend investors buy the shares before 10:00AM EST and add through out the day on any pull backs of more than 3% from intra day highs. We look for SNDA to close very near its daily high and make our followers some easy money.

We are very excited to offer our guests this time sensitive information, as always,

Happy Trading.

(On tap: JRJC)