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Equity Trading Strategies - July 8th 2004
Corrective fall in the DAX may end at 3885; FTSE 100 may reverse the trend at 4330 - 4310
We are looking for the a new bullmarket to initiate before the week is over; strong follow-through expected next week
DEVELOPMENTS TO WATCH TODAY: July 8 Europe
Crude oil futures rose in New York on concern that supplies from Russia, the world's second-largest exporter, may fall if the country's tax dispute with its biggest oil producer isn't resolved quickly. Crude oil for August delivery rose as much as 27 cents, or 0.7 percent, to $39.35 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $39.29 at 12:28 p.m. Sydney time.
- Gold futures in New York were little changed after posting their biggest gain in 13 months yesterday as economists scaled back estimates of U.S. economic growth and the pace of Federal Reserve interest-rate increase. The estimates cut, following a smaller-than-expected employment gain last month and rising energy costs, sent the dollar to a near three-month low against the euro. Gold rose 2.5 percent yesterday to close at $402.70 an ounce as a falling U.S. currency makes the dollar-priced metal cheaper for buyers using other currencies. Gold for August delivery fell 90 cents, or 0.2 percent, to $401.80 an ounce in after-hours trading on the Comex division of the New York Mercantile Exchange at 11:03 a.m. Sydney time.
- A survey from the U.S. National Association of Business Economists reports that a net 22% of employers increased headcount in Q2. This is up from 7% last year, and is in the top 10% of historical responses. 41% of respondents plan to increase further employment over the next six months, up from 34% last quarter. Such readings have historically been consistent with very upbeat labor market trends. Plans for capital spending also remain robust. Inevitably, cost pressures were a problem in the second quarter: a net 56% of businesses reported higher material costs. Moreover, a net 52% expect prices to rise further in Q3; this seems elevated in light of the recent declines in commodity prices. There was also evidence of pass-through from higher materials costs to final goods prices: a net 20% of respondents reported higher product prices, still an elevated reading although down from Q1’s 25%. The outlook, according to this survey, is not comforting: 35% of respondents expect to increase product prices in Q3, while only 4% anticipate price declines.
Equity Market Summary
Japanese stocks fell today, led by Internet- related stocks such as Softbank Corp., after Yahoo! Inc. reported second-quarter profit that failed to beat some analysts' estimates. The Nikkei 225 Stock Average shed 53.57, or 0.5 percent, to 11,331.29 at the 11 a.m. break in Tokyo. The Topix index dropped 2.29, or 0.2 percent, to 1137.59, extending a five-day, 4.2 percent decline. The index is set for its longest losing streak since Feb. 26, 2003, when it fell for seven straight days. Nikkei 225 futures for September delivery lost 0.1 percent to 11,350 in Osaka and slipped 0.3 percent to 11,340 in Singapore.
U.S. stocks rose Wednesday, led by a rebound in technology shares after three days of declines, amid optimism earnings growth will be sustained. The S&P 500 added 2.12, or 0.2 percent, to 1118.33. The Dow Jones Industrial Average gained 20.95, or 0.2 percent, to 10,240.29. The Nasdaq Composite Index advanced 2.65, or 0.1 percent, to 1966.08. The Nasdaq, which gets 39 percent of its value from computer shares, had dropped 4.1 percent since Wednesday as Veritas Software Corp. and chipmaker Conexant Systems Inc. reported sales and earnings that lagged forecasts.
Yesterday's move higher was largely a response to the last three sessions of straight losses -- buyers re-emerged and targeted some of the hardest hit areas like technology. However, the conviction behind such efforts was weak -- as evidenced by the split market internals at the NYSE and Nasdaq. The major indices were therefore unable to put together a sustainable rally. On a weak technical note, the Nasdaq and S&P 500 alike finished below their 50-day simple moving averages. Selling in the software group held the Nasdaq Comp back as warnings from JDA Software (JDAS 10.99 +0.86) and PeopleSoft (PSFT 17.10 +0.28) melted bids. Blue chip areas were largely mixed for the day -- financials falling behind due to concentrated selling in brokerage; however materials, energy, and health care climbed higher.
European bourses on Wednesday failed to make headway on previous losses in spite of an easing in the price of oil and early gains on Wall Street. Corporate news and downbeat domestic manufacturing orders data influenced German investors more than positive foreign orders results, as the Dax shed 0.4%. In Paris, investors focused on troubled engineering giant Alstom, whose government-backed bail-out was recently approved by the European Commission. The CAC-40 nonetheless clawed-back losses to close down only 0.28 points. The British bourse briefly eyed the beginning of the Monetary Policy Committee’s two-day meeting; however, economists are almost unanimous in their opinion that the central bank will hold interest rates at 4.50% when they announce their decision today. As a result, corporate news dominated and the FTSE-100 failed to recoup any of previous losses, closing almost 0.4% down on the day.
DAX Index - the DAX fell again, and this time, the index has gone to as low as 3922. -- No change in the view -- the index is still susceptible to further declines, which may extend the downmove to 3870. Nonetheless, a reversal to the upside may happen in the next few days. The medium-term outlook remains unchanged -- expect a new upwards cycle thereafter which should go on and challenge the 4175 top further out, and perhaps go on and focus at a 4500 upside target later in the year.
FTSE 100 Index - the index fell further to 4354; but the index may keep on going towards the 4305 - 4290 baseline. Nonetheless,expect a major reversal soon. The medium-term outlook remains positive. The next upwards phase from there may kick off a new upside sequence which will go on and challenge the 4600 top, and perhaps extend gains further towards 4750 later in the year.
S&P 500 - the index bounced back somewhat but this small rally should be followed by further declines which may extend to 1105. The corrective decline should end soon as the uptrend revives. Recent action is indeed supportive of the view that the new bull market cycle has began and would accelerate higher at some point. The new upwards phase may go on and challenge the 1165 top, and thereafter extend gains to 1300 later in the year.
Dow Jones Ind Ave. - no change in view aas the Dow fell sharply Tuesday -- we may yet see a sell-off to 10,100 . We are looking for a middling correction before the main uptrend resumes. A new bull market waits in the wings -- and eventually, we expect to see a rally to the 10,800 top, and perhaps further appreciation towards 12,000 later in the year.
NDX 100 - the index traded sideways, but the downmove may yet extend to 1430 - 1425. However, the uptrend should reassert thereafter. The medium-term view remains strong -- a new bull market has taken the first steps -- we expect to see a test of the 1560 top thereafter, and perhaps further appreciation towards 1750 later in the year.
Nikkei - the index pay yet take a shot at 11,000 before support firms up. However, a new bull market should initiate soon from those support levels, which may have 15,000 - 15,500 as the major goal late in the year.
Hang Seng - no change in view -- the index may pull back to 12,000 then ratchets higher to challenge the 12,600 resistance. The scenario of a corrective decline back to 11,800 - 11,700 may be running out of time, as the rest of the market gets set for a new bull market rally. The uptrend should then resume and may target the 16,500 - 17,000 area later in the year.
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