Smart Investing/Trading for the week ending October 3 2008

Weekly US markets update and outlook

After bailout, stocks face economic, earnings woes
Investors to seek signs in credit markets, economic data and earnings

MarketWatch: Investors will enter next week relieved that a $700 billion financial bailout passed Congress, but still concerned about seized-up credit markets and a worsening outlook for the economy and earnings, as reporting season officially kicks off."The news over the past week is that the credit crisis continues to widen, affecting other industries and banks in Europe," said Ken Tower, senior vice president at Quantitative Analysis Service. For the market, the bailout is "positive news that could lead to a short-term rally," Tower said. "But the longer-term picture is still that of an economy struggling with the impact of this credit crisis and the market is therefore not out of the woods yet." On Friday, the Dow Jones Industrial Average ended down 157 points, or 1.5%, to 10,325, with traders selling positions following news that Congress had approved the bailout. Stocks had rallied in anticipation of the vote and traders "sold the news," a typical reaction in cautious bear markets. The S&P 500 index fell 15 points to 1,099. The Nasdaq Composite lost 29 points to end at 1,947. For the week, the blue-chip average ended down 7.4%, the S&P fell 9.4% and the Nasdaq lost 10.8%. "This is a major market disruption," Tower said. "Even though we might be due for an interim rally, this is not the end of the problems. We're telling clients not to get over-invested in any rally that develops."

Another harrowing week

On Monday, the House of Representatives turned down the bailout, sending the Dow plunging by 777 points, its worst point drop on record. On Tuesday, the rates at which banks lend money to each other surged. The overnight London interbank offered rate, or Libor, registered a record one-day increase, reaching 6.875% from 2.568% on Monday. "A lot of what's going on in markets is confidence-related. At a bare minimum, the [bailout] bill should help with confidence," said John Miller, chief investment officer for Nuveen Asset Management, which oversees more than $60 billion in fixed-income assets. While overnight lending rates eventually came back down by Wednesday, money markets have remained nearly frozen as banks remain unwilling to lend to each other amid fear that more bankruptcies might be revealed. Many home-equity loans, lines of credit, student loans, small-business loans and credit-card rates uses Libor as a benchmark, further fueling worries about the wide economic impact. "Something has to change meaningfully in credit markets to avoid the continued slide in the economic data," said Miller.

Markets and the R-word

On Friday, the latest employment report revealed the economy lost another 159,000 jobs in September. The economy has now lost 760,000 jobs this year, further evidence that the economy was in a recession even before the financial market crisis of the past few weeks. "We are in a recession and the trend is in place to go to further job losses," said William Bellamy, who manages about $1 billion as director of fixed income at Thompson Siegel & Walmsley. "The bailout is going to work on the margin, at best," Bellamy said. "It will be nothing near the silver bullet people are hoping for. It's just one more step in a series that's going to need to be put in play. It will help. Will is cure it? No." With dire reports that the economy is shedding more jobs and that manufacturing continues to contract, investors have already started massively selling the shares of companies whose earnings depends on growth in the U.S. and globally. Separately, Merrill Lynch cut its 2009 oil price forecast to $90 a barrel from $107 a barrel and warned that a "synchronous global recession" could bring oil prices to $50 a barrel.

Economic data

On Tuesday, data on consumer credit in August will be released. Minutes from the last meeting of the Federal Reserve also will be released. The market is currently expecting that the central bank will cut interest rates by 50 basis points to 1.50% when it next meets at the end of the month. Wednesday will bring data on pending home sales for August, and on Thursday will be weekly jobless claims and wholesale trade data. Friday brings data on the trade balance in August, as well as the consumer sentiment survey by the University of Michigan.

Weekly KLCI Technical update and outlook

BT: Market to continue sideways? The KLCI's weekly and monthly fast MACDs (moving average convergence divergence) continued to stay below their respective slow MACDs. Its daily fast MACD continued to stay above its daily slow MACD. The index 14-day RSI stayed at 35.37 per cent level yesterday. Its 14-week and 14-month RSI stayed at 27.51 and 35.95 per cent levels respectively. The KLCI moved sideways during week as many institutional investors were away on their festive holidays. There was not much to work on during the three-trading-day week. Next week, the KLCI's immediate overhead resistance zone is set to hover at the 1,019 to 1,053 levels while its immediate downside support zone is likely at the 979 to 1,013 levels.

* USD700b bailout plan finally completed. Here is what to expect for market watchers and US consumers.

* Maybank also finally completed the 55.6% buy of BII, but at whose expense? (please read here for analysts' negative comments).

* Bloomberg: Now SGD is being sold down. Last Friday saw Aberdeen Asset and Daiwa selling the currency on speculation the central bank will curb the currency advance as the Singaporean economy teeters on the brink of recession.

* Last week saw Warren Buffett having another bite of a Wall Street company- GE with a USD3b stake in the company. His name speaks volume and confidence....Can't help but wonders whether he coming in too early?

* Japanese retail gasoline prices dropped for the 8th week in a row as price competition intensifies and demand weakens. Hello....When is the next reduction for Malaysia is going to be? sigh!

* Thailand's inflation slowed for the 2nd month in September falling to 6% from 6.4% in August.