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Strategies & Market Trends : IPO and Other Stock Plays -- Ignore unavailable to you. Want to Upgrade?

To: david777 who wrote (12737)	5/31/2005 11:23:14 PM
From: david777	Read Replies (1) \| Respond to of 13331

WEDNESDAY: The national ISM is released at 10ET, and it is taking on more importance with the market. Not so much as a show of the expansion in and of itself, but as to its impact on what the Fed is going to do over the next few FOMC meetings. The Fed has never hiked rates when the ISM was below 50. We are not suggesting that the ISM will turn in a sub-50 reading Wednesday, but if the trend toward that level continues the Fed will indeed have to start thinking that perhaps its view of the soft patch being over and that the bond market's flat yield curve is just an anomaly that will correct itself. If things keep going the way they are, eventually everyone will be out of step but the Fed, and we all know that means the Fed has misread the economy again. No great revelation there, but the results hurt all of us. We hear more and more talk about two more rate hikes and that is all the Fed will do. The Fed Funds futures contract has two 25 BP hikes as a certainty and a third is not there yet. Thus they are betting with the bond market, and that is not a bad bet though this far out it is problematical. As noted over the weekend, the market is moving as if it has just two more hikes ahead of it, and the market can be quite sage in sniffing out the Fed's plans. As we noted, however, it made a run in late 2004 in anticipation of better oil and a Fed that was close to finished, and that turned into a sell off when those hopes were dashed. The action in the market is still good, but it is not great. Volume is still quite low, getting just enough on key sessions to carry it past resistance points. There was not surge in volume off of the lows, at least not sustained volume, and with summer here there is likely not a lot of volume ahead. Thus it is going to have to continue the move on so-so trade. Definitely doable, and we will just have to do our typically diligence in watching our positions. Given that we continue to see stocks set up and make very good moves on solid trade, there is still plenty of healthy action in the market. Wednesday will be an interesting session. Tuesday was driven by some position shuffling at the end of the money, and we want to see if the general bullish action asserts itself once more now that the month end is over. New money is often put back into the market the day after it was taken out to end the month, but the results have been uneven at best as to whether the first of the month posted gains. We are looking for potentially some more softening ahead of the ISM number as a carryover from the Tuesday last hour selling. That would set up some upside if the bullish action persists, and as of now we don't see anything to show that has changed.