TRADE Focus

04/16/2009

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The Trade Focus commentary portion of this edition was written on Wednesday, April 15th, while the market analysis portion was prepared during the course of the trading day on Thurday, April 16th.

It has been a fairly busy week so far for economic news. Retail sales for the month of March were a rather big disappointing surprise falling by 1.1 pct. Inflation data was a non-event except for the headline PPI which showed a much greater 1.2 pct drop than the expected flat reading but the core rate was in line. The CPI readings were much as what was expected. Industrial Production for March was worse than pre report estimates but the Empire State Manufacturing Index ( New York ) showed improvement month over month. There was more improvement seen in the area of housing as the National Association of Home Builders index climbed to a reading of 14 from 9 the previous month. This is the third or fourth housing statistic that has surprised to the upside. The last item released up to now is the Fed's beige book which said that some of the reporting districts were showing a decreasing level of decline in economic activity, mostly east coast regions plus Kansas City. It also said that credit conditions remain tight and that the job market continues to weaken. In fact one comment we saw from the New York district went something like, ".. jobs are scarce and the supply of workers is unending." Remaining on the economic calendar for the week are Housing Starts and permits, the Philadelphia Fed index and the University of Michigan Sentiment Index. Other issues impacting market activity centered on the earnings season kicking into gear this week. Goldman Sachs impressed with strong earnings and an announcement that they will do an offering, pending approval, of $5 billion in common shares to use for TARP repayment. Goldman follows Wells Fargo from last week with a good showing. We saw it noted that the S&P Financial Index has risen some 80 pct since March 6. It doesn't hurt that the government has created a feeling that they will provide the needed capital to banks in order to keep them in business. There is also a very beneficial yield curve where the banks can borrow at very low rates and lend at higher ones. Intel also released early in the week with reasonably good numbers, beating the street on eps and revenues but disappointing by not adjusting guidance more favorably. All this being said, it seems the stock market knew all this ahead of time as it is finishing the day of this writing still slightly down for the week. We find it appropriate to add too that for the past few weeks that many of the commentators we have heard and some traders included have been talking about an expected sell off or correction. Perhaps this attitude has helped to fuel the advance and keep the down strokes minimal. But we really can't think of anyone saying the stocks are still well undervalued and the market has a need to continue onward and unabated. Now that we have said that perhaps we've helped open that door to correction.

We had an interesting thought pop out during the course of some friendly conversation this week. The revelation that this business of trading, and most every thing associated with it, requires a great deal of intestinal fortitude. We are often concerned that we are boring with our commentary or beat the same drum over and over but it may be that we find this aspect so important. A trader really needs to let losing trades roll off his back just like a duck does with bad weather. We have said that each trade is a new trade and the one before should be long gone from the trader's mind but that is so much easier said than done. It is very difficult to keep a loser or particularly a string of losing trades from having an adverse effect on decision making and over all attitude. It is so easy to get down after a disappointment and lose objectivity or the desire to apply proper attention and analysis to the next situation. This is where a strict regimen much like a quarterback's check down from the time he gets to the line of scrimmage until he finds a target to throw to is so helpful and important. Making each action mechanical and therefore each trade mechanical helps to keep the pressure of decision making less painful. But there are those instances where it's just plain time to take a break. It's ok to take a breather from trading activity. There will always be a market and always another opportunity just like if you miss a bus there will be another one coming.

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