Smart Investing/Trading for the week ending August 1 2008

US Market Update and Outlook

U.S. stocks look to Fed for direction

MarketWatch: Stocks will turn to the Federal Reserve for direction next week, after the market's roller-coaster ride over the past five sessions reflected continued uncertainty over the problems still gripping the financial system and the economy. "The street had been a one up over its fears over the past few weeks," said Robert Pavlik, chief investment officer at Oaktree Asset Management. "We've been away from economic reports during that time," he said. But "now that earnings season is largely over, attention is turning back to oil and more fundamental reports." Key next week will be the Fed meeting on interest rates Tuesday. With oil prices sliding about $20 from highs above $147 in mid-July, expectations that the central bank will raise rates later this year have waned. The market is now pricing in a little over a 30% chance of a September hike. "The Fed meeting will be carrying a lot of weight," Pavlik said. "For a start, if we were to see a more hawkish tone in the Fed statement, and the dollar began to strengthen for good, we'd see more of a sell-off in the commodities."

Meanwhile, after 75% of S&P 500 companies already reported quarterly results, another 68 will report next week, including Dow components Procter and Gamble on Tuesday and insurance giant AIG on Wednesday. With 373 S&P 500 companies having already reported earnings, earnings are now expected to have fallen more than 20.4% in the second quarter, according to Thomson Financial. Financials are again the main culprit as earnings there are now expected to be 86% below the year earlier.

A crazy but flat week leads into August

The past week saw the market experience huge daily swings, with ailing financials and the broader market falling sharply on Monday after news of more bank failures the previous Friday. But financials rebounded Tuesday after Merrill Lynch announced it would offer $8.5 billion in stocks to cover investment losses. And the broad market continued to rally Wednesday, after the SEC extended rules to protect shares of key financial firms, including housing-finance giants Fannie Mae and Freddie Mac. But worries about jobs and the economy were back to the fore on Thursday and Friday. The Dow Jones Industrial Average fell 51 points, or 0.5%, to end at 11,326 on Friday. News that unemployment ticked up to 5.7%, while crude oil prices jumped back above $125 sapped enthusiasm on the first trading session of August. The broad S&P 500 index found late support from a rebound in financial shares Friday, but still ended down 7 points at 1,260. The Nasdaq Composite fell 14 points to finish at 2,310. For the week, the Dow lost 0.5%, while the S&P gained 0.2% and the Nasdaq finished flat. Similarly, the Dow eked out a slight 0.2% gain for the month of July, the S&P fell 1% while the Nasdaq advanced 1.4%.

KLSE CI Technical Update and Outlook

I Capital on weekly KLSE CI. It has continued to rebound this week, aided by the drop in oil price that has helped to improve the outlook for economic growth. Though its weekly MACD and DMI are still bearish, they have instead shown early signs of recovery and the grossly oversold weekly RSI has also turned neutral. With its long-term ascending trendline still holding up, I Capital believes that the KLCI is in the process of bottoming out.

* Oh I see...since the rationale for Axis's big selling was probably due to insider information(major shareholders selling ahead of bad news-financial accounts in dispute), will the authorities start going after the culprits for insider trading? So far companies reported to be having financial disputes with the watch dogs are JPX, Axis, HoHup, OilCorp, LFE, GPlus, Wimens, Fotronic. Also AturMaju? Expect more companies facing such disputes as the economy slows down and creative accountants gets more desperately "inspirational" and brave.

* US economy grows at an annualised rate of 1.9% in the 2nd Q 2008. (earlier estimates 2.3%)

* Euro Zone's inflation rose to 4.1% in July(ECB's 2008 forecast was 2%)

* S&P has just raised China's long-term sovereign credit rating to A+ based on its strengthening external positions.

* Bloomberg: China is restricting approval for share sales to arrest a decline in its stock markets. So far Great Wall Motor Co and 1/3 of the IPO applications were turned down.

* Reuters: This is rather surprising. Total Indonesian vehicles sales are expected to show a 55% jump to 59,500 units in July, a new record monthly high! Are the Indonesians doing so well that they are immuned to to the fuel price increase of 30% in May?

* Malaysian to enjoy lower petrol price in September as crude oil prices fall? I seriously think the implementation is not so easy as it seems. Also, forget about cheaper food as the middlemen have always some good excuse not to drop prices.