US - Market Direction 01 (May 08 - Jul 08)

[kennynah]

fyi....
**********

Turnover rose across the board, causing both the S&P 500 and Nasdaq Composite to register another bearish "distribution day." Selling by mutual funds, hedge funds, and other institutions caused total volume in the NYSE to rise 25% above the previous day's level, while volume in the Nasdaq ticked 15% higher.

Trading is often light ahead of Federal Open Market Committee (FOMC) meetings, but that was not the case yesterday. Volume in both exchanges exceeded 50-day average levels. Declining volume in the NYSE only marginally exceeded advancing volume. The Nasdaq adv/dec volume ratio was negative by 2 to 1.

[kennynah]

25Jun08 - PreMarket Review (Part II)

Yesterday, the Dow Jones Industrial Average probed below key support of its March 2008 low on an intraday basis, but reversed to close just above it. Now that the index has completed the entire reversal back to its March low that we have been anticipating for weeks, this major area of support could give traders a good excuse to start buying stocks again, at least in the near-term. The following daily chart of the Dow illustrates the potential for at least a short-term "double bottom" to be formed:


DJIA Daily Chart


Even though the Dow could easily put in a significant bounce off its March low, remember that the blue-chip index has shown the most relative weakness on the way down. Of the main stock market indexes, only the Dow has moved fully back down to its March 2008 low.

Going into today, traders will be focused on the Fed's decision on interest rates and its accompanying statement on economic policy. Trading is typically light and range-bound in the first half of Fed days, but higher volume in the preceding day means we could see some volatility this morning as well. Although pre-market futures action is indicating an open near yesterday's highs, be prepared for whippy and erratic price action after the 2:15 pm EDT Fed announcement.

[winston]

Ten months in and Wall St is still too optimistic
By R SIVANITHY

AFTER falling an average of 15-25 per cent so far in 2008, are global stocks now cheap?

For instance, if we express everything in US dollars, the Hang Seng has lost 19 per cent, the STI about 10 per cent, China around 45 per cent and India 35 per cent.

The whole of Europe, in the meantime, is about 15 per cent lower since the start of the year, while the Nikkei 225 and Australian ASX 200 are down about 6.5 and 10 per cent respectively.

With losses of such magnitudes, it would be tempting for contrarians to start wondering if equities represent good value, and to be perfectly honest, they might.

After all, if markets have taken a pummelling over the past 9-10 months ever since the sub-prime crisis erupted in full force, then it would be logical to expect value to eventually emerge.

As always, though, the problem lies with Wall Street. Despite an ever-growing list of woes, US investors and analysts have remained stubbornly optimistic and this has led to the market still being arguably over-valued. Which, as far as investors in this part of the world are concerned, can only be bad news because it suggests that there could be worse yet to come.

Consider the following which some commentators equate to the worst combination of economic factors since the Great Depression of 1929:-

1) the US is facing the biggest property market crash in its history with home prices falling 14 per cent year-on-year,

2) oil is US$135 a barrel or 40 per cent higher in 2008 alone,

3) unemployment is rising (May saw the biggest jump in US joblessness in 22 years),

4) wages are stagnant,

5) food prices have risen sharply,

6) credit has been tightened considerably,

7) the consumer is being squeezed and

8) the Federal Reserve has dropped strong hints that its rate-cutting days are over because, clearly, inflation is rising.

Yet, despite all this, all three major US benchmarks - the S&P 500, Dow Jones Industrial Average and Nasdaq Composite - have, as of Monday's close, only fallen 10 per cent for the year.

Put differently, the source of the problem for equity markets everywhere has yet to exhibit the same pain that others have suffered.

Of course, such relative outperformance might be justified if it's supported by earnings, but on close scrutiny, this may not be the case.

According to Bloomberg's financial service, the S&P 500 at June 23's closing of 1318 traded at 22 times current earnings and had a dividend yield of only 2.3 per cent - figures that don't offer much hope to the bulls.

However, it is forward earnings that matter and since this figure is a relatively benign 14.4, then US stocks might arguably offer some upside.

It should be noted, however, that even though current earnings per share (EPS) is US$60, the forward consensus estimate is a whopping US$91, which means that on average, US corporates have to report a 50 per cent increase in earnings this year to support present prices. With the many headwinds outlined earlier, this is surely too big a task, especially if interest rates might be raised instead of lowered in the second half.

The equivalent figures for the Nasdaq Composite also point to caution - it sells for 36 times current earnings with only a 0.89 per cent dividend yield and its forecast earnings multiple is 22.7, based on EPS rising from US$66 now to US$105.

The VIX Index, in the meantime, which is a weighted average of implied volatilities of options traded in Chicago but is traditionally seen as an indicator of complacency, stands at around 22, less than half the level of 45 reached during 9/11 or the period that preceded the invasion of Iraq.

In other words, instead of fearing further downside or pricing in a hugely uncertain earnings outlook, Wall Street investors appear to be more fearful of being left out and missing the next big upturn.

Assuming that sooner or later Wall Street faces reality and acknowledges that it has to temper its expectations, how low can it go? A ballpark guess would be a further 10 per cent at least from current levels, which would translate to about 10,700 for the Dow (versus 11,800 on Monday) and 1,200 for the S&P (versus 1,318 on Monday).

Until then, it is likely that stock markets everywhere will remain on tenterhooks and will probably continue to pay the price of Wall Street's overly optimistic stance.

[winston]

Oil down $4; Gold down $10 and Dow is only up 70 ? Market seems very weak..

Looks like 1H Window Dressing will not be here this year. And there was no 1Q Window Dressing. And no "End of Year 2007" Window Dressing.

And also no January Effect ...

Looks like the traders have lost their Almanac ..

[kennynah]

W : too much focus on oil and financials weaknesses...that's overshadowing this window dressing wayang...it appears...

[kennynah]

the entire market went into a "stalled" mode...practically no movements at all.... !!!!

[blid2def]

the entire market went into a "stalled" mode...practically no movements at all.... !!!!

That's normal lah - it's exactly how it was during the first round of rate cuts. Still remember that time... nothing nothing then VOOM!

[kennynah]

now i am hearing the "vroom, vrroom, vvvveeerrrrroooommmmmmmmm"..... gear in neutral but engine raving away..... 30 more mins...

[blid2def]

Either way I guess much ado about nothing lah. Whatever effect it has, probably a few days later, forgotten liao. Well, unless it's a shock decision that hits people on the blindside. Like a 0.5% hike or more. Woo... upz the lorry.

[blid2def]

Nothing exciting. 不好玩的.