Stock Market Books

Thursday, January 31, 2008

The US and Malaysia Market

The Dow, which had been up more than 200 points after the Fed's decision, finished down 37.47 or 0.30 %, at 12,442.83.

The Fed's decision to cut rates follows an emergency rate cut last week of three-quarters of a percentage point. The central bank stepped in a the tme after global markets worldwide fell sharply amid fears that the US economy was tipping into recession and would hurt the global growth.

The rate cuts came on the same day as fresh evidence arrived that the economy had slowed significantly in the final three months of 2007.

Figures showed GDP expanded at a slight 0.6 % pace in the fourth quarter, less than half what had been expected. For all of 2007, GDP grew 2.2 %, the weakest rate since 2002.

Wednesday's move was the fifth cut the Fed made since it began making reductions in September following turmoil in the credit markets and in stocks markets.

I like to share with you what our analyst at SJ Securities Sdn Bhd has said as follows about the latest market outlook:

Officially, the US economy is not yet in recession. The active pursuit by the US Fed in managing the economy in recent times--thru monetary and fiscal expansions--indicates that the focus is on the current economy uncertainty arising from the collapse of the US subprime mortgage credit markets. Some have argued that the measures used to address the risks associated with the market uncertainty tantamount to reflating the economy. It is argued that the US Fed is concerned, and trying to avoid a repeat of the Japanese style deflationary situation happened years ago.

This time, there is not much risk associated with the monetary and
fiscal expansions. With the US core inflation for November at a mild
and manageable level of 0.3%, the pursuit of reflating the economy will
not be adversely inflationary. For instance, expressing an economic
equation on the monetary expansion from the huge interest rate cuts of
75 bps on 22 January, and the 50 bps cut on 30 January, will look like
this : lowering interest rates leads to dollar weakening, resulting in
imported inflation which is manageable as the mild core inflation
allowing some upside leeway.

Reflating the economy may just be the correct policy. It revives the
housing and finance industries through cheaper financing. Exports will
be higher; this will solve the trade deficits. While the downside risk
remains, reflating will arrest the current slowing 4Q GDP of 0.6% from
drooping into recession.

US markets lost 0.3%, as it focuses on the likelihood of bond
guarantors losing their AAA ratings. Meanwhile, regulators are
working towards a bailout plan for bond insurers Dow at 12,442 is
likely to dip lower as the S&P futures after market trading in the Asian
time zone, is currently down 13 pts. This translates roughly to 150 pts
on the Dow. On the chart, the pullback support is at 12,000. We
continue to maintain that the recent rebound is targeting 12,930.
Malaysian market is cushioned by market talks of the general election
in March 2008. It is on an immediate target at 1453. On the local
market, we are bullish. We are heartened to witness the mid January
2008 sold down from 1524 was halted at 1340. This is significant as the
Double Bottom at 1338 of November 2007 has not been violated,
thereby, lending credence to the expanding Diagonal Triangle scenario.
If we interpret the KLCI correctly, the chart development since October
2007 is forming an expanding Diagonal Triangle. In a Diagonal
Triangle, there are 5 rotating waves. We may have completed the 4th
wave at the recent 1340 low, leaving the current rebound to be the final
up 5th wave, with an upside at 1590.

Our bullish assessment based on the expanding Diagonal Triangle, will
be negated if the key support at 1330 is breached."

At 2.59pm, KLCI is up by 8.59 at 1392.67.

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