Smart Investing/Trading for the week ending October 31 2008

US Markets Update and Outlook

Hopes are 'worst October' signals worst is past
U.S. presidential elections, key economic data on tap


MarketWatch：Investors will start the month of November in the hope that the worst is behind for stocks, with credit conditions showing continued signs of improvement as governments around the world intervene to support financial markets. "We are seeing some easing of the credit crisis," said Paul Nolte, director of investments at Hinsdale Associate. "But we'll continue to have lousy economic numbers for at least the next three to six months, if not more, and earnings will be the same."

While the U.S. presidential elections on Tuesday are not seen as a major wildcard, a slew of mostly bad economic data will culminate with Friday's employment report, expected to show the economy lost 200,000 jobs in October. "As for the elections, the market will appreciate a decisive victory -- if one candidate comes out strongly ahead, instead of making us stay up until three in the morning like we saw over the last few elections," Nolte said. "Anyway, economic policies taken by either candidate won't have any impact until the end of next year."

Bad month, good week

Strong gains over the past week have left market strategists hopeful that the market made a solid low earlier in October. On Friday, The Dow Jones Industrial Average gained 144 points to finish at 9,325. The S&P 500 gained 14 points to 968, while the Nasdaq Composite climbed 22 points to 1,720. The Dow rallied a whopping 11.3% for the week, even as it plunged 14.1% for the month, its worst October since the stock market crash of 1987. The S&P posted a monthly decline of 16.9% -- its worst month since 1987, but a weekly gain of 10.5%. The Nasdaq slumped 17.7% in October, its worst month since 2001, but it rose 10.9% from last Friday's close.

"This is marking a real change in market behavior," said Ken Tower, market strategist at Quantitative Analysis Service. "It's not only the stock market rallying but [evidence that] the pressure is coming off of the money markets." The London interbank offered rate, or Libor, for three-month dollar loans fell for a 15th consecutive day on Friday. And data released Thursday showed the commercial paper market, a crucial source of funding for corporations, grew for the first time in seven weeks. The month of October had started with the Treasury almost failing to convince Congress to pass its $700 billion rescue plan for the financial system, after the collapse of Lehman Brothers accelerated the credit crisis and stocks tumbled around the world.

Help came in the form of global governmental injections of capital into major banks and financial institutions but it still took several weeks, and many rate cuts from central banks, including the Federal Reserve, for credit markets - and for stocks to start showing signs stabilization. "It's safe to say that few market participants will mourn the end of October 2008, a month that will certainly find a prominent place in the financial market history books," said Doug Porter, senior analyst at BMO Capital Markets. "But even with a spirited late-month rally, stocks around the world will be licking their October wounds for some time to come," he wrote in a note.

Market looks past bad numbers

With this in mind, the week's market gains came along with mostly dire data, signaling that the U.S. economy has already started to contract. On Thursday, the Commerce Department estimated the U.S. economy contracted by 0.3%, the most since the end of the last recession in late 2001, as consumer spending declined at the fastest rate in 28 years. "We've had a lot of negative economic surprises," Tower of Quantitative Analysis said. "Given the cautious nature of the recent market gains, I wouldn't recommend investors chase the market on the way up."

"We've had a sign that perhaps the worst of this might be behind us and we're in a period of stabilization now," he said. "But a bull market? I don't think so."

On Monday, investors will parse key data from the Institute for Supply Management's October index, which is expected at 41.5%, another confirmation that the manufacturing sector is in recession. Auto sales data for October will also be released that day. General Motors is the worst performing stock of Dow's 30 components, having now fallen 24.9% year to date. On Tuesday, factory orders for September will be released. Wednesday brings the ADP private-sector survey of the jobs market, along with the ISM's service-sector survey for October. Weekly jobless claims data on Thursday will also be parsed for any clues about Friday's jobs report.

Earnings

With 327 of the S&P 500 companies having reported quarterly results, earnings so far are expected to have fallen 11.7% in the third quarter from the year earlier, according to Thomson Financial. At the start of the quarter, on July 1, expectations were for earnings to rise 12.7%. "That's a combination of analysts cutting estimates and companies missing," said John Butters, an earnings analyst at Thomson. Predictably, financials are the worst performers, with earnings in the sector down 94% year on year.

With the sell-off in commodities accelerating over the past month, crude-oil futures on the New York Mercantile Exchange tumbled 33% during October, marking their biggest monthly percentage drop since trading began in 1983. On the upside, consumers can finally say they paid less at the pump than a year ago: Average retail prices fell 31% by the end of the month to $2.504 a gallon, or 14% lower than the same time last year, says AAA.

KLSE CI Technical Update and Outlook

ICap: The KLSE CI is below its 30-day, 50-day and 50-week moving averages. Both its daily MACD and DMI are bearish.

On the KLCI's monthly index. The monthly stochastic oscillator is severely oversold, suggesting that the KLCI has been pushed down to an unjustifiably low level. Given the global market weakness and panic, it is not surprising that the KLCI is trading at such extremely low stochastic values. In the past, such extreme overselling has coincided with the start of a bull market. ICap sees the same salivating trend happening again.

* To Dr Setev Shaaribu, people says "life begins again", I hope yours (and family's) will also begin again too...sorry....life is always unfair.....this is a fact. period.

* Good bargain?...Hypermarkets get free publicity from the media worth millions of ringgit by slashing prices on certain goods but not across the board.......Consumers, don't be too happy!

* TheStar readers to Melaka CM: Are single mothers seen as desperate that they have to be taken as a 2nd wife? Don't you have better things to do than to pay men RM1k to take 2nd wife? What a stupid idea? Why only these ideas come from Malaysia?

* TheStar: Please grow up, will you? see details.

* Japan's interest rate has been cut to 0.3% from 0.5% last Friday.