Market Outlook 3rd Sep 2009

INTRADAY calls for 03rd Sep 2009
BUY BPCL-540 for 555-565-573+ with sl 532
BUY HPCL-385 for 399-410+ with sl 379
BUY DABUR-134 for 139-142+ with sl 131

 

NIFTY FUTURES LEVELS
SUPPORT
4583
4570
4537
4526
4492
RESISTANCE
4626
4639
4672
4683
4716
Buy REDINGTON;BERGER PAINTS

Strong & Weak  futures 
 This is list of 10 strong futures:

Aban Off shore,  Shree Renuka, Tata Motors, Oracle Fin Serv, DCHL, Bhushan Steel, HCL Tech, India Bulls Retail, Unitech Ltd & Orchid Chem.

And this is list of 10 Weak futures:

Sesa Goa Ltd, Tata Steel, India Cements, ACC Ltd, Sail Ltd, MTNL, JSW Steel, Indian Bank, Dr Reddy & PTC.
 Nifty is in Up trend

NIFTY FUTURES (F & O):
Below 4583 level, selling may continue up to 4570-4572 zone and thereafter slide may continue up to 4537-4539 zone by non-stop.

Hurdle at 4624-4626 zone. Above this zone, expect short covering up to 4637-4639 zone and thereafter expect a jump up to 4670-4672 zone by non-stop.

Sell if touches 4681-4683 zone. Stop Loss at 4714-4716 zone.

On Negative Side, break below 4526-4528 zone can create panic up to 4492-4494 zone. If breaks & sustains this zone then downtrend may continue.
 
Short-Term Investors: 
Bearish Trend. 3 closes below 4623.80 level, it can tumble up to 4092.20 level by non-stop.
SL triggered. 3 closes above 4623.80 level, expect short covering up to 4889.60 level by non-stop.
 
BSE SENSEX:  
Lower opening expected. Selling should continue. 
Short-Term Investors:
 
Short-Term trend is Bearish and target at around 14235 level on down side.
Maintain a Stop Loss at 15973 level for your short positions too.

 

POSITIONAL BUY:
Buy REDINGTON (I) (NSE Cash) 
Profit Booking expected.

Mild sell-off up to 254 level can be used to buy. If uptrend continues, then it may continue up to 278 level for time being. 

If crosses & sustains at above 298 level then uptrend may continue.

Keep a Stop Loss at 234 level for your long positions too.
 
Buy BERGER PAINTS (NSE Cash) 
Uptrend may continue.

Mild sell-off up to 66 level can be used to buy. If uptrend continues, then it may continue up to 76 level for time being. 

If crosses & sustains at above 80 level then uptrend may continue.

Keep a Stop Loss at 62 level for your long positions too.
  

FUNDS DATA

FII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores)
Category	Date	Buy Value	Sell Value	Net Value
FII	02-Sep-2009	1525.1	2213.41	-688.31

DII trading activity on NSE and BSE in Capital Market Segment(In Rs. Crores)
Category	Date	Buy Value	Sell Value	Net Value
DII	02-Sep-2009	1307.15	1233.36	73.79

 

SPOT LEVELS TODAY

	4608.35	( -0.37 %)	-17.00
		1	2	3
Resistance		4647.00	4685.65	4720.85
Support		4573.15	4537.95	4499.30

	15467.46		( -0.54 %)	-83.73
			1	2	3
Resistance			15599.48	15731.50	15834.90
Support			15364.06	15260.66	15128.64

 
Global Cues & Rupee 
The Dow Jones Industrial Average closed at 9,280.67. Down by 29.93 points.
The Broader S&P 500 closed at 994.75. Down by 3.29 points.

The Nasdaq Composite Index closed at 1,967.07. Down by 1.82 points.

The partially convertible rupee closed at 48.96/97 on yesterday, up from Tuesday's close of 49.05/06.
 
 Interesting findings on web:
U.S. stocks ended down slightly on Wednesday after factory data added to worries about the sustainability of an economic recovery.

Factory orders rose 1.3 percent in July, a much slower pace than the 2.2 percent expected.

The S&P 500 was down for a fourth day, its worst losing streak since late May.

The Dow Jones industrial average .DJI was down 29.93 points, or 0.32 percent, to end unofficially at 9,280.67. The Standard & Poor's 500 Index .SPX was down 3.29 points, or 0.33 percent, at 994.75. The Nasdaq Composite Index .IXIC was down 1.82 points, or 0.09 percent, at 1,967.07.

Worries about growth in China have started to rattle investors here, who are concerned that the U.S. can't go this recovery alone.

"We can't have the kind of recovery we've planned without China," said Tracey Ryniec, an analyst at Zacks.com.

The stock market extended its slide as investors worried that a weak job market would trip up an economic recovery.

Stocks posted modest losses on Wednesday, a day after tumbling on fears about banks and concerns that a six-month rally of more than 50 percent has left the stock market overheated.

A private-sector report on unemployment gave investors new reason to fret about what is widely seen as the biggest problem facing the economy. The ADP National Employment Report found that employment fell by 298,000 in August after a revised loss of 360,000 jobs in July. The losses were the smallest since September 2008 but more than analysts had expected.

ADP said private employers cut 298,000 jobs in August, more than the 250,000 expected.

The weak data also prompted stock investors to shift some of their money into assets deemed safe such as precious metals, sending gold futures up to their highest level in almost three months.

"Investors are turning to gold as a hedge" against financial malady, said Chad Morganlander, portfolio manager at Stifel, Nicolaus & Co in Florham Park in New Jersey.

The report shapes expectations for the Labor Department's monthly reading on jobs, which is due Friday. Unemployment has hurt consumer spending, which accounts for about 70 percent of the nation's economic activity. Without more help from consumers, the economy will have trouble pulling out of the longest recession since World War II.

"Until Friday's data comes, no one is really making any big bets," said Neil Massa, senior trader at MFC Global Investment Management. "A little profit-taking looks healthy at this point."

The key data point this week will be the August jobs report, due out on Friday. Economists expect to see that 233,000 jobs were lost, slightly fewer than the 247,000 lost in July, and that the unemployment rate ticked up to 9.5 percent.

"[W]e reckon Friday's official number will be about 250K. That's still terrible, but it does mean that the trend towards smaller net job losses continues," Ian Shepherdson, chief U.S. economist at High Frequency Economics, wrote in a note to clients. "The move to payroll stability ... is some way off yet, though."

Analysts said the market's ability to avoid another steep drop was a good sign but cautioned that trading volume remained light ahead of the Labor Day weekend. Light volume can skew the market's moves and make it difficult to draw conclusions about investor sentiment.

"We need these periods of backing off," said Darin Newsom, senior analyst at DTN in Omaha, Neb. "When there is no news to really spark the interest that we need to take this thing higher, the inclination is to sell off."

Even with stocks down for three consecutive days, major market indicators have given up less than two weeks' worth of gains. The Standard & Poor's 500-stock index is still up 47.5 percent from a 12-year low on March 9.

The day ends with a small spurt of selling but it wasn't enough to break the morning lows. The Dow Jones Industrial Average (DJIA) closed with a loss of 29 points. The S&P 500 (SPX), Nasdaq Composite (COMP), and Russell 2000 (RUT) posted minor losses as well.

The Amex Gold Bugs Index (HUI) remained the standout leader for the day with its 8% surge. The streetTRACKS Gold (GLD) gained just over 2%. The Regional Bank HOLDRS (RKH), SPDR Homebuilders (XHB), and Amex Biotech Index (BTK) were among the weaker areas. 

Financial stocks once again were top decliners. The KBW Bank Index lost 2.3 per cent, with regional banks, such as SunTrust Banks down 7.2 per cent at $US20.17.

Regions Financials was down 6.3 per cent at $US5.19.

The current mean estimate of economists polled by Reuters is for a loss of 225,000 jobs in Friday's non-farm payrolls report for August.

"The (non-farm payrolls) numbers don't have to be great, but the market needs a confirmation that the trend is improving" to see a rebound, said Marc Pado, US market strategist at Cantor Fitzgerald & Co. in New York.

The S&P 500 has climbed about 47 per cent from a 12-year closing low in early March, leading some investors to speculate that a correction may be on the way.

Minutes from the most recent meeting of the Federal Reserve, released earlier in the day, showed improved outlook in August, but market reaction was muted.

On an encouraging note, Federal Reserve policy makers are confident the recession is ending and are therefore more comfortable slowing down their economic-recovery plan, according to minutes from their last meeting.

On the Nasdaq, Dell Inc was up 0.9 per cent at $US15.35, helping the tech-heavy index cap some losses. Shares of Leap Wireless International also climbed 7.5 per cent to $US17.71 on speculation that AT&T was interested in buying the wireless service provider.

Another bright spot in Wednesday's market was the health insurance group. WellCare Health gained 1.9 per cent to $US23.62 while Aetna Inc climbed 2.9 per cent to $US28.68.

And the CBOE Volatility Index, widely considered the best gauge of fear in the market, eased about 1 percent, ending below 29, after surging 12 percent in the previous session.

"Fundamentally, it's a good time to be in the market," said Theresa Harezlak, a financial advisor at Savant Capital Management. "There is absolutely potential for more growth in this market," she said.

Hardware stocks rose following a couple of pieces of news from the sector: Dell [DELL  15.34    0.13  (+0.85%)   ] has agreed to sell Brocade [BRCD  7.29    0.02  (+0.28%)   ] networking and storage gear through its sales operations, offering corporate customers a wider selection of products.

Palm [PALM  13.73    0.39  (+2.92%)   ] and Research In Motion [RIMM  73.91    0.37  (+0.5%)   ] rose as Credit Suisse anticipates there is potential for 1.5 billion smart phones worldwide by 2015 and U.S. regulators are mulling ways to expand the reach of broadband services.

In fact, Credit Suisse upgraded its rating on RIMM and Motorola [MOT  7.82    0.80  (+11.4%)   ] this week, saying the under-served corporate market is likely to boost RIMM and that Motorola will benefit from better-than-expected sales and spending discipline.

And there are rumors that AT&T [T  25.37    0.01  (+0.04%)   ] may be looking to buy Leap Wireless [LEAP  17.71    1.23  (+7.46%)   ].

Meanwhile, Nokia [NOK  13.30    -0.02  (-0.15%)   ] is taking another shot at Apple [AAPL  165.15    -0.148  (-0.09%)   ], offering an $820 laptop in addition to its plans to launch a smartphone line.

Dow energy components ExxonMobil [XOM  68.18    -0.23  (-0.34%)   ] and Chevron [CVX  68.04    -0.44  (-0.64%)   ] ended lower as oil prices finished the day flat at $68.05 a barrel despite a report that showed crude supplies declined by 400,000 barrels last week.

BP [BP-LN  Loading...      ()   ] rose more than 4 percent after the oil company announces what it terms a "giant" oil discovery in the Gulf of Mexico. ConocoPhillips [COP  44.34    0.19  (+0.43%)   ] is also a partner in that project.

Gold stocks soared as one analyst pointed out: September may be bad for stocks but it's typically good for gold. Plus, the Indian wedding season is coming up, when a lot of people will be buying gold.

"Investors are turning to gold as a hedge" against financial malady, Chad Morganlander, a portfolio manager at Stifel, Nicolaus, told Reuters.

Randgold Resources [GOLD  63.10    6.11  (+10.72%)   ] and Royal Gold [RGLD  42.77    3.65  (+9.33%)   ] were up about 10 percent, while Jaguar Mining [JAG  10.63    1.42  (+15.42%)   ] shot up more than 15 percent.

Banks finished mostly lower, including SunTrust [STI  20.17    -1.56  (-7.18%)   ] and Regions Financial [RF  5.19    -0.35  (-6.32%)   ], as the sector continued to smart from rampant rumors on Tuesday — that appeared to be unfounded — that another bank was going down.

Bank of America [BAC  16.27    -0.19  (-1.15%)   ] and JPMorgan [JPM  40.86    -0.81  (-1.94%)   ] were among the biggest drags on the Dow.

Wells Fargo [WFC  26.09    -0.12  (-0.46%)   ] finished lower even as the bank said it won't need to raise more money to pay back the government bailout loan.

Fannie Mae [FNM  1.37    -0.22  (-13.84%)   ] and Freddie Mac [FRE  1.64    -0.26  (-13.68%)   ] both tumbled more than 10 percent.

Citigroup [C  4.56    0.02  (+0.44%)   ], however, eked out a 0.4-percent gain.

Boeing shares [BA  48.40    -0.37  (-0.76%)   ] slipped as the aerospace giant and rival Airbus will find out this week which one won what may just be the biggest commercial trade dispute in modern history.

Pfizer shares [PFE  16.28    -0.10  (-0.61%)   ] fell after the company agreed to pay a $2.3 billion to settle civil charges over the marketing of its withdrawn pain medication Bextra and other drugs.

Oil,Gold & Currencies:

Light sweet crude oil settled unchanged at $68.05 a barrel on the New York Mercantile Exchange.

Gold prices rose as investors turned to the safety of hard assets. Gold gained $22.15, to $978.50 an ounce on the spot market.

The dollar was mixed against other major currencies.

The yen traded near a seven-week high against the euro before a European report estimated to show retail sales fell in July from a year ago, backing the case for the region's central bank to keep interest rates low.

The yen was also close to its strongest level in seven weeks against the dollar as Asian stocks fell for a second day, boosting demand for the relative safety of Japan's currency. The euro traded near the weakest in two weeks versus the greenback on speculation European Central Bank policy members will signal at their meeting today they intend to keep interest rates low.

"Risk aversion is prevailing amid worries over the sustainability of the global economic recovery," said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan's largest currency broker. "The yen may appreciate further."

The yen traded at 131.54 per euro at 10:28 a.m. in Tokyo from 131.54 in New York yesterday, when it rose to 131.04, the highest level since July 15. The currency was at 92.22 per dollar after earlier climbing to 91.95, the strongest level since July 13.

The euro bought $1.4264, unchanged from yesterday. It reached $1.4178 on Sept. 1, the lowest level since Aug. 19. The currency fetched 1.5137 Swiss francs from 1.5133 francs yesterday, when it touched 1.5125 francs, the weakest level since July 13.

European Retail Sales

Europe's single currency was close to a seven-week low versus the Swiss franc as the 16-nation euro region's retail sales fell 2.2 percent in July from a year earlier, after a 2.0 percent drop in June, according to a Bloomberg News survey of economists. The European Union's statistics office will release the report in Luxembourg later today.

The ECB will keep its main refinancing rate at a record low of 1 percent at its meeting today, according to all 58 analysts surveyed by Bloomberg News. The central bank, led by President Jean-Claude Trichet, won't raise borrowing costs before the third quarter of 2010, another survey shows.

Japan's currency strengthened versus 12 of its 16 major counterparts today as the MSCI Asia Pacific Index of regional shares retreated for a second day, losing 0.1 percent. Japan's Nikkei 225 Stock Average declined 0.4 percent, adding to yesterday's 2.4 percent slide.

The yen may strengthen further on expectations a Ministry of Finance report tomorrow will show Japanese companies cut spending, dimming investor risk appetite. Capital spending, excluding software, sank by 23.0 percent in the second quarter, after a 25.3 percent decline in the previous quarter, a Bloomberg survey of economists showed.

The ministry reported today that Japanese investors sold 78.1 billion yen ($847.3 million) more overseas bonds and notes than they bought during the week ended Aug. 29.

U.S. Jobs

The dollar may weaken before a U.S. report tomorrow forecast to show unemployment increased in August, adding to signs a recovery in the world's largest economy may be slow.

The jobless rate is expected to increase to 9.5 percent from 9.4 percent in July, according to a Bloomberg survey of economists. Employers in the U.S. cut 230,000 workers last month, a separate Bloomberg survey showed before the Labor Department's payroll report tomorrow.

"There are worries the rebound in the U.S. economy may be delayed," said Yoh Nihei, trading group manager at Tokai Tokyo Securities Co. in Tokyo. "This may lead to dollar-selling."

ADP Employer Services reported yesterday that companies eliminated 298,000 workers in August after a revised drop of 360,000 in the previous month. The median forecast of 32 economists surveyed by Bloomberg was for a decrease of 250,000.

The Dollar Index, which the ICE uses to track the dollar against the currencies of six major U.S. trading partners including the euro, was at 78.408 from 78.412 yesterday.

Bonds:

Bond prices rose, pushing down yields. The Treasury's benchmark 10-year note rose 16/32, to 102 22/32, and the yield fell to 3.30 percent from 3.36 percent late Tuesday.

What to expect:

THURSDAY: Chain-store sales; weekly jobless claims; ISM services index

FRIDAY: August jobs report

Asia:

Asian mining stocks advanced after gold prices climbed and Alcoa Inc. raised its forecast for global aluminum consumption. Automakers fell as U.S. employers cut more jobs than forecast and the yen climbed.

Newcrest Mining Ltd., Australia's largest gold miner, climbed 6.6 percent after gold climbed the most in more than five months yesterday. Aluminum Corp. of China Ltd. gained 2.1 percent in Shanghai. Honda Motor Co., which gets 45 percent of its revenue in North America, dropped 2.4 percent in Tokyo as the yen rose to a seven-week high versus the dollar.

The MSCI Asia Pacific Index was little changed at 112.50 as of 11:33 a.m. in Tokyo. About the same number of stocks on the measure rose as fell. The gauge has climbed 59 percent from a more than five-year low on March 9 on speculation the global economy is recovering.

"The economic data has caught up to where the market was," said Stephen Halmarick, Sydney-based head of investment- markets research at the firm, which holds about $115 billion. "For the equity market to really move on again, you need the next stage to take place, which is a more sustained recovery and better profitability."

Japan's Nikkei 225 Stock Average fell 0.4 percent, while Hong Kong's Hang Seng Index gained 0.4 percent. South Korea's Kospi Index lost 0.3 percent.

Seoul shares [KR;KSPI  1617.07    3.9099  (+0.24%)   ] Seoul shares moved higher with technology issues such as LG Display fueling upward momentum, while Hyundai Steel rose on a positive brokerage note.

Australian stocks [AU;XJO  4444.8    6.60  (+0.15%)   ] started off higher but made a pull back, after investors digested news top percent in early trade on Thursday, defying falls offshore, as phone company Telstra rose after a broker upgraded its recommendation to neutral.

Taiwan stocks [TW;IXTA  7127.2    87.4302  (+1.24%)   ] saw gains, with AU Optronics leading technology shares higher after the island's top LCD maker said it was considering setting up a new panel plant in China.

Nikkei 225 10,238.68     -41.78 ( - 0.41%).(08.18 AM IST).

Japan's Nikkei stock average lost 0.4 percent on Thursday as exporters fell on worries about the U.S. economy after dismal jobs data, while Dainippon Sumitomo Pharma (4506.T) rose on news it would bid for a U.S. drug firm.

Shares of securities-related firms such as Nomura Holdings Inc. (8604), Daiwa Securities Group Inc. (8601), Matsui Securities Co. (8628) and Monex Group Inc. (8698) traded lower Thursday morning on re-emerging concerns that business conditions in the securities industry may worsen.

Megabank shares such as Mitsubishi UFJ Financial Group Inc. (8306) and Sumitomo Mitsui Financial Group Inc. (8316) traded lower Thursday morning in response to an overnight decline in U.S. financial issues against the backdrop of dour employment conditions in the country.

Tokyo stocks fell Thursday morning as a strengthening yen took a toll on Japanese exporters amid concerns about the U.S. economic outlook on worse-than-expected employment data. 

HSI 19652.86 +130.86 +0.67%.(08.22 AM IST).

Hong Kong shares posted modest gains early Thursday, with China-related stocks tracking advances in Shanghai and gold miners soaring after a big rise in gold prices. The Hang Seng Index gained 0.2% to 19,568.53, but was still shy of the psychologically-important 20,000-point level. The Hang Seng China Enterprises Index added 0.6% to 11,254.54, lifted by continued gains for the Shanghai Composite Index, which rose 1.4% to 2,751.88. Zijin Mining Group Co. Ltd. jumped 7.6% in Hong Kong, while Zhongjin Gold Co. Ltd. rose 6.9% in Shanghai. Base metal producers also advanced, with Jiangxi Copper Co. Ltd. rising 2.2% and Aluminum Corp. of China Ltd. climbing 1.5% in Hong Kong. In Shanghai, the pair rose 2% and 3.6%, respectively. 

SSE Composite  2776.12  + 2.25. (08.25 AM IST)

Chinese shares open higher on Thursday

Chinese equities continued the upward trend of the previous two consecutive trading days and opened higher on Thursday morning with the benchmark Shanghai Composite Index gaining 0.27percent, or 7.33 points, to open at 2,722.31.

The Shenzhen Component Index advanced 0.31 percent, or 33.8 points, to open at 10,772.76.

The Industrial and Commercial Bank of China (ICBC), China's largest lender, opened at 4.66 yuan (68 U.S. cents) per share, up 2.19 percent. Yang Kaisheng, ICBC' s President, said Wednesday that the bank extended 38.1 billion yuan of new loans in August.

China's key stock index opened up on Thursday, with four small firms making a strong debut in Shenzhen, after a top securities regulator assured investors that the country's market was healthy and that there would be continued support for blue-chip companies.

Many Chinese investors still consider the Shanghai Composite Index [CN;SHI  2782.359    67.3848  (+2.48%)   ] to have technically entered bear market territory, however, after it closed below the closely watched 125-day moving average for a third day.

Baosteel sees improved profit in H2.

China Development Bank forms RMB 35-bln investment fund.

Beijing's e-Town launches wireless broadband network.

Country Garden floats 5-year notes worth US$300 mln on Tue. 

Chinese swine-flu vaccine approved: report

China's State Food and Drug Administration granted approval Thursday to a swine-flu vaccine developed by domestic pharmaceutical company Sinovac, according to a Agence France-Presse report. Sinovac said the vaccine is effective after only one dose, the report added.  

China to buy up to $50 billion of first-ever IMF bonds

The Chinese government has agreed to purchase up to $50 billion worth of International Monetary Fund bonds, the first such notes in the fund's history, the IMF said Wednesday.

The global organization said the note purchase agreement "offers China a safe investment instrument," and is part of a broader plan to help the fund weather the economic downturn.

The IMF announced plans to issue bonds to member countries in June, as part of a plan to help bolster its resources. China expressed interest at that time in purchasing the notes.

Other countries reportedly interested in purchasing the IMF bonds include Russia and India.

The IMF said in a statement that the Chinese purchase will help "boost the Fund's capacity to help its membership -- particularly the developing and emerging market countries -- weather the global financial crisis, and facilitate an early recovery of the global economy."

Chinese officials have previously held up the IMF as a possible source for a world reserve currency to supplement or replace the dominant role of the U.S. dollar

Geithner sees signs of growth, but stimulus remains needed

U.S. Treasury Secretary Timothy Geithner said on Wednesday that the United States and other countries should continue to stimulate the economy despite some early signs of growth.

"You have seen now the first signs of growth, positive growth, in this country and around the world," he said in a media briefing ahead of the weekend's London meeting of the Group of 20 finance ministers and central bank governors.

Geithner said that efforts by the United States and other nations to fight the worldwide economic crisis have been able to pull the global economy back from the abyss. But government support to the economy needs to last until the recovery becomes clearer.

He says he will stress that point at the meetings of finance ministers in London that start on Friday.

The U.S. economy contracted 1.0 percent in the second quarter of this year, after declines in the previous three quarters. Most analysts expect the world's largest economy to post a growth in the third quarter.

More and more recent data signaled that the U.S. economy is returning to growth.

U.S. President Barack Obama said a day ago that the country is "on the path to economic recovery."

The Institute of Supply Management, a leading economic data provider, said on Tuesday that its index of the factory sector, also known as the purchasing managers index, jumped to 52.9 percent in August after 18 months of decline. Any number above 50 indicates growth.

The Labor Department reported on Wednesday that U.S. workers' productivity rises 6.6 percent in the second quarter, a six-year high. And the Commerce Department reported the same day that U.S. factories orders rose 1.3 percent in July.

Some experts said it seems that no more stimulus actions are needed since it will worsen the country's rocketing budget deficit.

If not for debt, 'bull' would be back

Let's start with a technical analysis of the stock market:

It is hovering around 9,500 points, 4,700 points below its high of 14,165 in October 2007. The market hit 6,542 on March 9, which, so far, has signaled the low for the bear market.

The first important positive technical hurdle occurred Aug. 7, when the Dow Jones Industrial Average and the Dow Jones Transportation Average simultaneously reached new highs in the current market upswing.

Dow Theory is explicit in that "no significant movement up or down in the market may occur without the Transportation Average confirming new highs or lows in the Dow Industrial Average."

The next big step in this market would be witnessing the Dow Industrials reaching 10,354 points, 850 points higher than current levels. If the Industrials reach 10,354, the halfway mark between the high of 14,165 points and the March low of 6,542, a huge technical milestone would be reached. If the Dow Transports confirm the resurgent Dow Industrials after they have reached 10,354 points, there is a good bet that the bear market is over, and we really are in a new bull market.

But a brand-new, full-blown bull market will certainly encounter many and extreme difficulties.

Problems in the economy

At this point, U.S. private savings is now confirmed to be at least 7% and thought to be 9%. That is huge, and it has accounted for trillions of dollars in savings being accumulated over the last few years.

To improve the economy, there must be an increase in consumer demand that will entice savers to part with some of their savings and spend their money.

The whole idea of a stimulus program is to encourage the public at large to spend their money. Prudent business operators and families, however, are not spending on anything but necessities. The fear of further economic collapse encourages people to build savings and discourages people from spending those savings. An increase in demand cannot be created by government, or Federal Reserve System, policy.

Unemployment now exceeds 10% and is approaching 12%. The Bureau of Labor Statistics estimates that we will lose 8 million jobs in this economic downturn. Additionally, we need to develop 150,000 jobs a month in this country just to absorb labor entering the employment market.

For us to be whole again, we need to return the 8 million jobs plus 150,000 jobs a month, which will be tough and take time, particularly if people choose to continue to save rather than spend part of their savings.

Not included in these figures are 6 million people who are working part-time and are looking for full-time jobs. These statistics dampen the probability for rapid economic expansion. To get back to where we were in jobs a year ago, 23 million jobs need to be created in five years. That would mean adding 15% annually to the employment base. Unlikely!

The housing market, a significant part of our economy, has been picking up. In the month of July, of the houses that were sold, about 30% of them were short sales from banks (that lost money on each sale), and another 30% of homes sold were foreclosures. So 60% of houses sold recently are houses that are moving because they are troubled assets. When this inventory is depleted and newly built houses are being absorbed by demand, the housing market will be on the way to being whole again. But it is certainly not well yet.

Estimates of the government's bailout funds range all the way up to $12.9 trillion, and nobody can check the sources of these estimates because the Federal Reserve System has never been audited. There is an attempt in Congress to have the Fed audited so that we can measure the real obligations of our financial system. The resistance to auditing the Fed is so great one can only surmise that there are things in that audit the public cannot see, because it would make them furious if they did. Continued government dishonesty and lack of disclosure will not help in rebuilding any kind of economic resurgence.

Seventy-seven banks have closed so far this year. Many other banks are insolvent. Nobody in the private sector really knows the magnitude of the problems with these other banks, which is another reason for auditing the Fed.

The new rule, to mark to the market, assets held by lending institutions is creating a furor among bankers.

They know that marking most of their troubled assets to current value means marking them down substantially from where they are currently carried on the books. That means banks would report large losses of capital. Further, many other banks would be insolvent. Until we get beyond bank foreclosures, which may last another 18 to 24 months, economic recovery will remain frustrated.

In the 1960s, Hamilton Bolton, one of the founders of Bank Credit Analyst, and also a strong Dow Theory proponent, proved that every $3 of new debt produced $1 of new GDP. Mr. Bolton's successor, Ian McAvit, writes in his latest report, "Over the four years to September 2007 when the meltdown began, U.S. GDP rose $2.86 trillion, or 25.8%. Total credit market debt increased by $14.85 trillion over those four years.

This translated into $5.19 of new debt for every $1 of new GDP (14.85 ÷ 2.86 = 5.19). In the two years to September 2008, new debt required for each $1 of additional GPD had ballooned to $6.49. Increasing federal debt to recapitalize banks isn't going to translate into resurgent growth and consumer spending."

Remember, each new dollar of debt, and we have at least $3 trillion this year, requires interest payments.

Those interest payments take away from money that could be spent on something that is more productive in creating jobs.

Here are some interesting numbers through July 31 that relate to our economy in this fiscal year:

· Federal deficit for July: $181 billion (a record)

· Total deficit so far in 2009: $1.3 trillion (a record)

· Government spending in July: $332 billion (a record)

· U.S. government receipts in July: $152 billion (5.6% decline from '08)

Any reasonable human being who understands math can see these numbers cannot be sustained.

Furthermore, there is no indication in government planning, or in economic activity, that this disastrous posture created by our government will be abated at all, let alone any time soon!

To compound the problem, government revenues are down 33% this year, and government transfer payments (stimulus funds) are up 33% this year. These are not good, or healthy, signs.

In 1984, total U.S. debt was 1.25 times greater than GDP. In 2009, our total debt is 3.1 times greater than GDP. We are swimming in a tidal wave of debt.

We have run into the problem of trying to find buyers for the national debt. Seventy percent of our past national debt is owned by Social Security and Medicare, the former which is using 100% of its annual donations, and the latter which is already running deeply in the red. That eliminates them as further buyers of treasury funds.

The two recent biggest buyers of U.S. treasury securities, China and Japan, are not buying any more treasuries because, with the value of the dollar going down, they lose money daily. The only thing left is a scam: The Fed creates the money with a printing press and turns around and uses that new money to purchase debt from the Treasury Department, and debt results from deficit spending. Because nothing of value was rendered for the new cash, there is now much more cash in the economy than is necessary for the goods and services that can be made available in the economy. The result is inflation.

We may stave off inflation a little bit while unemployment remains high; however, we will get slammed in the future if and when full employment returns.

The current decrease in the value of the dollar is a direct result of investor fears of future inflation. Walter Wriston, long-time chairman of Citibank, which was successful in the '60s and '70s, says, "Money goes where it is wanted and stays where it is well treated." We may expect the irresponsible treatment of our money supply to chase investors away until the government takes some reasonable action to balance the budget.

Suffice it to say, the outlook is gloomy. We are not in a confirmed bull market, even though many economists say we are. We are not healthy, even though many economists say we are recovering.

What to do?

There is nothing wrong with cash. It gives you time to think. There is a huge socialistic agenda being placed before the Congress. All of these agendas are to be paid from "increasing tax revenues." That is government speak for "tax the rich" because there is no one else to tax. Margaret Thatcher said, "The problem with socialism is that eventually you run out of other people's money!"

For investors interested in equities, there are some buys. All of the following are A-rated companies with long-term records of both increasing dividends and increasing earnings. They all yield 3.4% or more, and they all sell at price-earnings ratios far under their historical averages: Abbott Labs, Altria, Chevron, Clorox, Coca-Cola, Emerson, Home Depot, Johnson & Johnson, McDonald's, Pepsico, Phillip Morris International Inc., Proctor & Gamble and Sysco. We have not seen a list of good values in so many A-rated companies in more than quarter of a century.

There is a bright spot. U.S. factory utilization is the lowest it has been since World War II. Our factories are in good shape. When business improves, the private sector will be gushing cash. If the profits are not stolen by the government and business is allowed to hire more people and produce more products, our economy could be cured more quickly than it appears. 

Investors Are Going for Gold As Price Nears $1,000 Again

Shares of global gold miners jumped 10 percent Wednesday while options activity in the companies spiked, as economic pessimism and a weak U.S. dollar spurred gold to its highest level since June.

Top producers Barrick Gold [ABX  37.89    2.84  (+8.1%)   ] and Newmont Mining [NEM  43.90    3.72  (+9.26%)   ] rose 8.5 percent and 9.3 percent, respectively, while the S&P/TSX global gold index gained 10.1 percent, touching its highest level in three months.

Gold futures rallied above $980 per ounce Wednesday, up from $955 an ounce late on Tuesday, as weak U.S. private-sector jobs data and Tuesday's sharp drop in equity markets shook investors' confidence in the economy and prompted a flood of safe-haven gold buying.

A weak U.S. dollar and expectations of further greenback losses also helped, analysts said.

"I think the realization that the economy is not as robust as everybody thinks has the classic hedges resurfacing," said John Ing, president of gold-focused Toronto investment dealer Maison Placements.

Gold briefly topped $1,000 an ounce in February, but has been locked in a rough $910-$960 range in the past three months. Gold bulls have maintained that billions of dollars in U.S. stimulus spending will lead to soaring inflation, thus pressuring the greenback and boosting the metal.

Canada's Barrick climbed C$3.29 to C$41.93 on the Toronto Stock Exchange, while top U.S. gold miner Newmont rose $3.72 to $43.90 in New York.

Other top Canadian gold miners also hit multi-month highs, as Goldcorp [GG  39.76    3.63  (+10.05%)   ] gained 9.8 percent to C$43.86, while Kinross Gold [KGC  20.61    1.86  (+9.92%)   ] gained 10.6 percent to C$22.90, and Agnico-Eagle Mines [AEM  62.42    6.10  (+10.83%)   ] increased 11 percent to C$69.15.

South African miners AngloGold Ashanti [AU  39.77    3.46  (+9.53%)   ] and Gold Fields [GFI  13.20    1.34  (+11.3%)   ] surged 9.5 percent and 11.3 percent, respectively, on the New York Stock Exchange.

The surge in larger gold players belied recent gold rallies, when junior players have significantly outperformed senior producers.

"You're finally getting a performance out of the big cap stocks and that's been lacking for so long," said Ing.

Heavy Options Action

A number of the U.S.-listed miners attracted heavy option activity, on both the call and put side, indicating investors were both expecting more gains and hedging in case the rally does not gain traction.

Investors often use equity call options — allowing them to buy the company's shares at a fixed price within a specified time period — to speculate on potential share gains. Put options are a similar bet on the sell side.

Frank Holmes, Chief Executive of U.S. Global Investors, said in a note Tuesday that September has historically shown the best month-on-month price appreciation in gold and gold stocks.

He also said that gold stocks tend to outperform gains in bullion when the metal's price is rising.

Treasury Yields Near Lowest Since July Before Services Report

Treasury yields were near the lowest level since July before a private report that economists said will show service industries, the largest part of the U.S. economy, shrank for an 11th month.

Notes, little changed today, have gained this week as Bill Gross, co-chief investment officer at Pacific Investment Management Co., said intermediate- to long-term bonds will perform well as long as policy rates and inflation remain low. U.S. Treasury Secretary Timothy Geithner said it's too early to remove policies aimed at boosting growth.

"People have to buy Treasuries," said Satoshi Okumoto, a general manager at Fukoku Mutual Life Insurance Co. in Tokyo, which has the equivalent of $61.8 billion in assets. "There is still a flight to quality. Stagnation in the economy may last longer than people anticipated."

The 10-year note yielded 3.32 percent as of 11:32 a.m. in Tokyo, according to BGCantor Market Data. The 3.625 percent security due August 2019 traded at 102 18/32. Yields declined to 3.28 percent yesterday, a level not seen since July 13.

Treasuries rose yesterday as the Standard & Poor's 500 Index dropped 0.3 percent. The MSCI Asia Pacific Index of regional shares was little changed today, and it is down 1.3 percent this week.

The Institute for Supply Management's index of non- manufacturing businesses, which make up almost 90 percent of the economy, rose to 48 in August from 46.4 in July, according to the median forecast in a Bloomberg News survey of economists before the report today. Readings below 50 signal contraction. It would be the highest level in almost a year.

Further Gains

Bonds will "continue to do well as long as inflation stays down and growth is tempered," Gross said yesterday in an interview with CNBC.

The U.S. and global economy may grow at half the pace it has over the past 25 years, said Gross, who is based in Newport Beach, California, and runs the world's biggest bond fund.

Geithner said the Group of 20 nations has been "very successful" in helping to end the global recession. "We've come a very long way but I think we have to be realistic, we've got a long way to go still," Geithner told reporters yesterday in Washington.

Philadelphia Federal Reserve Bank President Charles Plosser said policy makers may need to raise the benchmark U.S. interest rate "aggressively" to avert an outbreak of inflation.

"If we don't execute an exit strategy carefully, we could be setting the fires for inflation down the road in the next year or two," Plosser said in an interview yesterday with CNBC.

Real Yield

Treasuries gained in July and August as U.S. inflation slowed. Ten-year notes yield 5.42 percent after accounting for the cost of living. The so-called real yield was as high as 5.95 percent in August, the most in more than 20 years.

The difference between rates on 10-year notes and Treasury Inflation Protected Securities, which reflects the outlook among traders for consumer prices, narrowed to 1.6 percentage points from last month's high of 2.05 percentage points.

"People are looking to buy time until they figure out which way growth is really headed, which has been bullish for Treasuries," said George Goncalves, chief fixed-income rates strategist at Cantor Fitzgerald LP, one of the 18 primary dealers that trade with the Fed. "Until the employment situation gets figured out, Treasuries look like an attractive place to park your money."

Job Losses

A Labor Department report tomorrow will show the U.S. lost jobs for a 20th month in August, a Bloomberg survey shows.

Treasuries also rose yesterday as minutes of the Fed's August meeting showed officials expressed "considerable uncertainty" on the strength of the recovery.

Fed officials also discussed extending their purchases of mortgage bonds, according to the minutes.

The central bank is buying $1.25 trillion of agency mortgage-backed securities and $200 billion of agency debt under a program to cap consumer borrowing costs that is scheduled to end in December. Officials also discussed including adjustable- rate mortgages in their purchases, the minutes showed.

The Fed also is scooping up as much as $300 billion of Treasuries under a program it began in March and plans to finish in October.

Yields indicate its efforts are working.

The extra yield three-month Libor offers over the overnight indexed swap rate, the so-called Libor-OIS spread, narrowed to 16 basis points, the least in two years. A shrinking spread indicates banks are more willing to lend to each other.

U.S. 30-year fixed mortgage rates declined to 5.20 percent from this year's high of 5.74 percent in June, according to Bankrate.com in North Palm Beach, Florida.

Merrill Lynch & Co.'s U.S. Corporate & High Yield Master index yields 3.85 percentage points more than Treasuries, narrowing from 8.04 percentage points at the end of 2008. The index returned 20 percent this year, versus a 2.7 percent loss for Treasuries.

Fed Officials More Confident Recession is Ending

With the economy on the mend, Federal Reserve policymakers last month felt comfortable slowing the pace of one of its economic revival programs and not changing any others, according to documents released Wednesday.

Minutes of the central bank's closed door deliberations, held Aug. 11-12, also showed Fed Chairman Ben Bernanke and his colleagues striking a much more hopeful note about the economy's prospects compared with an assessment made in late June. Many Fed officials saw "smaller downside risks," the documents stated.

Fed officials expected the pace of the recovery to "pick up" in 2010, but there was a range of views — and considerable uncertainty — about the likely strength of the upturn because of concerns about how consumers will behave.

After being pounded by the recession, consumer spending finally appeared to be leveling out, the housing market was firming and manufacturing was stabilizing, the Fed said. Plus, the outlook for other countries' economies improved, auguring well for the sale of U.S. exports.

All that strengthened the confidence of Fed officials that "the downturn in economic activity was ending." They also repeated a prediction that the economy would start growing again in the second half of this year. That expected growth will be helped by President Barack Obama's $787 billion package of tax cuts and increased government spending, they said.

Against that backdrop, the Fed at its August meeting, announced that it would gradually slow the pace of its program to buy the remainder of $300 billion worth of Treasury securities and shut it down at the end of October, a month later than previously scheduled. The program is designed to force interest rates down for mortgages and other consumer debt, and spur Americans to spend more money.

The Fed also did not change another program that aims to push down mortgage rates. In that venture, the Fed is on track to buy $1.25 trillion worth of securities issued by mortgage finance companies Fannie Mae and Freddie Mac by the end of the year.

"With the downside risks to the economic outlook now considerably reduced, but the economic recovery likely to be damped" Fed policymakers agreed that it didn't need to either expand or cut back those programs.

Summing up the Fed minutes, "the overriding theme is that the economy was just beginning to turn around," said Stephen Stanley, chief economist at RBS.

Fed officials suggested consumers will be a wild card in the unfolding recovery.

A "poor" jobs market, evaporated wealth from decimated home and stock values, hard-to-get credit and wages that aren't supposed to advance sharply anytime soon mean consumers are still facing "considerable headwinds," the minutes said. How consumers behave is crucial to the recovery because their spending accounts for roughly 70 percent of all economic activity.

"With these forces restraining spending, and with labor income likely to remain soft, (Fed) participants generally expected no more than moderate growth in consumer spending going forward," the Fed minutes stated.

Unemployment — now at 9.4 percent and expected to top 10 percent this year — is the biggest burden facing American consumers. Another source of uncertainty: the extent to which consumers will sock more money into savings, the Fed said.

To entice consumers to spend more, the Fed last month also left a key interest rate at a record low of near zero. It pledged to hold that bank lending rate at between zero and 0.25 percent for an "extended period." Economists predict that means through the rest of this year and may be longer.

"We suspect that it won't raise interest rates possibly until 2011," said Paul Dales, economist at Capital Economics Ltd.

As a result, commercial banks' prime lending rate, used as a peg for rates on home equity loans, certain credit cards and other consumer loans, will stay at about 3.25 percent, the lowest in decades.

Given weakness in the job market and that factories — while improving — are far from full throttle, inflation should stay contained, the Fed said. Fed officials did, however, acknowledge that some on Wall Street have expressed worry that the central bank's aggressive actions and the federal government's bloated budget deficit will spur inflation later on.

To address those concerns, the Fed said it is important to keep sending the message that it has the will and the tools necessary to reel in the trillions of dollars it has pumped into the financial system to revive the economy. 
 

INVESTMENT VIEW
Abbott Labs To Join Hands With Pfizer For Research 
 
Unlike it's parent Abbott Inc, the subsidiary in India has had a rip roaring run at the bourses since March 2009, up 50 per cent. The news flow continues to remain positive around the stock with the parent announcing plans to develop cancer tests with another large pharma MNC Pfizer. This continuing move should take Abbott to a target price of close to Rs 750 by March 2010.
 

Abbott Laboratories will develop a test intended to identify patients who might be helped by a lung cancer drug being studied by Pfizer Inc.

 

The test is intended to scan non-small cell lung cancer tumors for a genetic mutation that exists only in those tumors and some other cancers, but not in healthy cells. The test would allow Pfizer to test its drug candidate PF-02341066 on patients it thinks would be most likely to benefit.

 

PF-02341066 is designed to target genes that are involved in cancer. The drug's safety is being tested in early stage clinical trials.

(Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.)
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Arvind Parekh
+ 91 98432 32381