Smart Investing/Trading for the week ending January 2 2009

US Markets Update and Outlook

Year-end rally to get put to the test
As volume returns, will recent euphoria depart?

MarketWatch: Like so many New Year's revelers, the U.S. stock market may try to stick to its resolutions -- and fail miserably.

After a dismal 2008, U.S. stocks started out the new year with a splash. The Dow Jones Industrial Average on Friday rose above 9,000 for the first time since early November and finished 6% higher for the week, ending a four-week losing streak. But with many professional money managers home for the Christmas and New Year's holidays, the stock market made its recent moves in very light volume. The return of institutional money next week will determine whether these gains stick. "The real question is, is this going to last when traders come back from vacation?" said Doug Roberts, chief investment strategist at investment research firm ChannelCapitalResearch.com.

Every day next week, traders will get a dose of new corporate and economic news that may give them more insight into the depth of the U.S. recession and credit crunch. Items most likely to move stocks include minutes from the Federal Reserve's last interest-rate setting meeting, two big tech conferences, returning lawmakers' efforts on another stimulus package and Friday's job report.

Autos, Madoff

The trading week starts out with a bout of Detroit dolor, Capitol Hill head-cracking and the end of an era at Apple, Inc. On Monday, U.S. automakers disclose auto sales for December. Industry sales risk dropping below a rate of 10 million on a seasonally-adjusted annual basis, or the lowest for 2008. The Treasury Dept.'s move last week to grant $5 billion in bailout money to GM's financing arm GMAC LLC, which immediately prompted GM and GMAC to ease lending conditions for new auto loans, probably came too late to sway December sales, say analysts. Still, with General Motors Corp., Ford Motor Co. and Chrysler LLC executives making no secret of their problems in hearings last month, the market may shrug off auto sales data unless the expected drop turns into a freefall.

"People are obviously expecting pretty bad numbers," said Bill Stone, chief investment strategist at PNC Wealth Management. "The fear is that you get something far worse."

Also Monday, the House Financial Services Committee will hold a hearing on the $50 billion Ponzi scheme investment manager Bernard Madoff allegedly orchestrated. The panel, led by Barney Frank, D-Mass., says it will interview witnesses with an eye on making "the most substantial rewrite" of financial markets laws since the Great Depression.

TARP, Macworld

Any word from Washington on its efforts to stem the current financial crisis -- and prevent the next one -- is likely to pique investors' interest. President-elect Barack Obama and Democratic lawmakers say they want to pass a second fiscal stimulus package to create jobs and deliver tax cuts to low-wage and middle-income workers. Recent estimates of its size have ranged from $850 million to as much as $1 trillion. Plus, lawmakers are expected to enter a new round of wrangling over the uses of the $700 billion Troubled Asset Relief Program. The Bush Administration's decision to extend the financial system bailout money to automakers pushed total TARP payouts past $350 billion. The Treasury Department must now convince Congress, which is at odds over the best uses of TARP, to release the second half of the $700 billion.

The House Financial Services Committee will hold a hearing Wednesday on uses of the TARP. Separately, Treasury Secretary Henry Paulson is scheduled to speak on the government-sponsored mortgage agencies. For tech investors, the annual Macworld trade show kicks off Tuesday with a keynote speech by a top Apple official -- but not Apple CEO Steve Jobs. The announcement last month that Jobs would forego his traditional opening remarks sent Apple's stock tumbling as worries resurfaced about Jobs' health. This is also the last Macworld Apple plans to attend. The sector gets a doubly whammy of product news next week as Microsoft Corp., Cisco Systems, Inc. and other tech heavyweights head to Las Vegas for the annual International Consumer Electronics Show.

More job losses

Economic data starts to pile up Tuesday with releases on the services sector, pending home sales and minutes from the Federal Open Market Committee's Dec. 16 meeting. That's the meeting when policymakers threw everything they had at getting credit moving in the economy.

To a certain extent, those efforts seem to be working. Mortgage rates dropped, and yields on Treasurys steepened as investors clung less desperately to safe-haven assets. Spreads on corporate debt have narrowed slightly, suggesting investors are feeling a bit more comfortable lending companies money.

"I'm cheered by the fact that spreads have come in and mortgage rates have come down," said Stone. "But we'll see if it follows through when we actually have people trading." Economic indicators early in the week -- plus Wednesday's ADP employment report and jobless claims on Thursday -- are the opening acts for Friday's main show, the December unemployment report.

Economists are looking for more of the same sorry news on the economy. They expect about half a million jobs to have disappeared in December, contributing to a 5% to 6% drop in the fourth quarter's gross domestic product.

"As we turn into the new year, the message from the data flow is as straightforward as it is glum," said J.P. Morgan Chase economist Bruce Kasman in a report Friday. "We are in the midst of a deep global economic contraction, one that is likely to produce the sharpest four-quarter decline in global GDP in the post-World War II era." In corporate news, Constellation Brands Inc., Monsanto Co, Bed Bath & Beyond Inc. and KB Home are scheduled to report earnings. Chevron Corp.will release an interim production update.

KLCI Update and Outlook

BT: The composite index's daily trend continued to stay below its intermediate-term downtrend. It continued to stay below its intermediate-term downside support.

The KLCI ended the year on a rather weak note when it closed at 873.43 on December 31, posting a year-on-year loss of 571.60 points, or 39.56 per cent. The FBM Second Board Index tumbled 2,778.34 points, or 41.27 per cent, to 3,954.01 while the FBM Mesdaq Index plunged 2,863.91 points, or 46.88 per cent, to 3,245.25.

Its daily and weekly fast MACDs (moving average convergence divergence) continued to stay above the support of their respective slow MACDs at the market close yesterday. Its monthly fast MACD continued to stay below its slow MACD.

The index's 14-day RSI stayed at 60.87 per cent level yesterday. Its 14-week and 14-month RSI stayed at 35.39 and 32.02 per cent levels respectively.

The composite index staged an overhead breakout of its 50-day moving averages on December 30 and continued to stay above that at the market close yesterday. This signalled a shift in market momentum.

With the shift in market momentum to the upside, the KLCI is now staging a re-test of its previous resistance high of 926.65 set on November 5 2008. A decisive breach of this resistance is likely to see a major trend reversal.

Next week, the index's envisaged resistance zone hovers at the 897 to 930 levels while its immediate downside support is at the 856 to 890 levels.

* Back to school tomorrow! Happy learning and making new friends!

* RGE: DJIA's stocks performance in 2008 is the worse since 1931.

* AP: Singapore's economy shrinks 12.5% in Q4. Citigroup: " If we are correct, 2009 will mark the most severe recession in Singapore's history.

* RTTNews: Japan PM says the country will be the first to recover from the financial crisis.

* Too much to handle? Bursa experienced its 3rd technical(after the lunch break) glitch since Bursa Trade implemented more than 1 month ago.