Smart Investing/Trading for the week ending May 16 2008

US Markets Updates and Outlook

Stocks seek to push higher, along with oil surge

Oil near $128 creates headwinds but also supports market

MarketWatch: Stocks will attempt to continue the market's two-month advance next week, with rising investor optimism about the U.S. economy helping overcome concerns over surging crude and other commodities. "The crude-oil rebound is creating some headwinds for this market," said Paul Mendelsohn, chief investment strategist at Windham Financial Services. "But the market is increasingly under the belief that this widely anticipated recession may have fizzled, or if we are into one, that it's going to be mild." On Friday, the broad market staged a late comeback, with surging oil and gold prices fueling gains in energy, metals and other commodities-related stocks. The Dow Jones Industrial Average fell 5.86 points to end at 12,986.80, pressured by financial stocks American Express Co. and J.P. Morgan Chase & Co. But oil stocks Chevron Corp. helped support the blue-chip index. The technology-heavy Nasdaq Composite Index fell 4.88 points, or 0.2%, to 2,528.85. With the lift from the energy and commodities sectors, the S&P 500 Index rose 1.78 points, or 0.1%, to 1,425.35. For the week, the Dow industrials rose 1.9%, the S&P 500 2.7% and the Nasdaq 3.4%. Stocks have been in rebound mode since mid-March, after the near-collapse and subsequent bailout of Bear Stearns Cos. along with massive interventions by the Federal Reserve and the U.S. government -- seemed to put a floor under the market. Concerns that the high price of oil and food will further pressure the U.S. economy were highlighted Friday by a survey showing consumer sentiment dipped to a 28-year low in May But the report further pressured the dollar, which in turn helped boost the price of oil to a new record high just below $128 a barrel. When the U.S. unit drops, dollar-denominated commodities such as oil and gold become cheaper for holders of other currencies, leading the market to lift their price.

Elusive recession

A litany of economic reports over the past week confirmed overall weakness in the U.S. economy. But the data consistently came above market expectations, which are influenced by forecasts from economists at major Wall Street banks. "We've been getting good economic numbers and earning numbers, which overall have come in better than expectations," commented Mendelsohn of Windham Financial. The credit crisis that began last summer and the associated weakening of the U.S. economy have continued to pressure the greenback. The weak dollar increasingly has become a matter of global concern, as energy and food prices have ballooned all over the globe.

Benign neglect?

At the April 11 meeting of the G7 group of industrialized nations, world financial leaders are believed to have tried "talking up" the dollar, or raising the threat of possible global market intervention to lift the U.S. currency. The buck, which began stabilizing against major counterparts after the Bear Stearns near-collapse in mid-March, began firming up after the G7 meeting. "But you got to be careful what you wish for," warned Ritholtz of Fusion IQ. "The sectors of this market that are doing best are the energy, commodities, and industrials sectors, where all benefit from a weak dollar. A continuing rally in the dollar would have a negative impact on the S&P 500." Besides commodities-related stocks, multinationals' earnings have been boosted by dollar weakness, as U.S.-made goods become cheaper overseas while repatriated profits benefit from currency translation. By boosting exports and profits, the weak dollar is therefore also helping shore up the U.S. economy. This, along with the U.S. central bank and the government's interventions, including tax rebates, are leading some observers to believe that election-year politics might be at work. "The government is pushing the problems down the road, hoping the recession will occur later rather than sooner," said at Windham's Mendelsohn. "In the meantime, keeping the dollar low is part of U.S. policy." "We're also not going to be far from having $1 trillion of stimulus being thrown into the U.S. financial system and economy," the strategist added. "Even if it's all inflationary, the market likes that, and it's right to like it." Data next week will likely continue highlighting further concerns over inflation, when the April producer-price index is reported on Thursday. Friday will bring existing-home sales data for April, as well as another consumer-sentiment survey. On Wednesday, the market's attention will turn to minutes from the Fed's last meeting on interest rates, when the central bank signaled that it would pause its campaign to lower interest rates.

KLSE Technical Update and Outlook

I Capital on the weekly KLSE Composite Index. While it is in the midst of testing 1,305-resistance level, buying momentum is crucial to sustain the breakout. The weekly MACD and DMI are still on the way up but have not confirmed their bullishness yet. Looking at the neutral trend indicators, further consolidatioon is expected. Will there be any fresh leads to push the market?

* Lingam's Video Clip - Probing the Famous 6 - lets hope this is not a political stunt but the beginning of serious actions by the Government to tackle the many abuses of power and corruptions in our country.

* With so many natural disasters that struck us recently causing loss of lives, properties and business, one would wonder how many people have life insurances to protect themselves against loss of life and income. Below are some insurance penetration rates-measured by the ratio gross life insurance premium and GDP of some selected countries:- Malaysia(45% of the population has life insurance, penetration rate 5%), India 4%, China (Beijing/Shanghai 4%, Sichuan province 2%), Singapore/US 8%, Japan/Taiwan 11%. Average developed countries 6-9%.

* Sunday Star: Australia expects a GDP growth of 9.25% next year due to increasing export prices but productivity growth is about 1.4% for the passed 5 years. Inflation now is 4.2% and in order to fight inflation, the Government has proposed in its Budget amongst others: 1) cut spending by A$7b and 2) increase intake of skilled migrants to a record level of >30% (ie 133,500 of the total intake of 190,300 will be skilled migrant) to improve productivity.