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Monday, July 14, 2008
Morning Call - July 14 2008
Market Grape Wine :
In House :
Nifty at a support of 3995 and 3935 levels with resistance at 4115 and 4165 levels .
Buy : in F&O Tisco above 644 target 665 s/l fo 635
Sell : in F&O Centextile below 490 target 465 s/l of 505
Out House:
Markets at a support of 13456 & 13232 resistance at 13786 & 13636 levels .
Buy : Sail & Tsico
Buy : Sbin at dips
Buy : ITC at dips
Buy : Bhel & LT at dips
Buy : ACC
Buy : RIL
Buy : Titan at dips
Dark Horse : Sbin , LT , RIL , Suzlon & Tisco
Pre Session Commentary - July 14 2008
The Indian Market is expected to have positive opening on the back of favorable global cues as Asian markets are trading in green and crude oil prices dropped in Asian trade. It dropped $1.65 to $143 a barrel. The Indian market on Friday closed in deep red on inflation data, which stood at 11.89% for the week ended June 28 as against 11.63% in earlier week and IIP number for the month of May, which declined at 3.8% as against 10.6% in same period of last year. Indian market opened on positive note due to the mixed cues from the global markets but soon it slipped with giving up its initial gains. Further after showing some volatility it lost more grounds to close in extremely negative territory. From the sectoral front, all indices closed in red and major selling witnessed among the frontline indices mainly the Capital Goods, IT, Metal, Power and Oil & Gas stocks. IT index closed with deep cut of more than 6% and Capital Goods and Power indices slipped by more than 4%. The BSE Sensex closed lower by 456.39 points at 13,469.85 and NSE Nifty ended down by 113.20 points at 4,049. We expect that market may remain voaltile during the trading session.
On Friday, the US market was closed in red on concern about the health of U.S. mortgage lenders Fannie Mae and Freddie Mac, which send bank shares to an 11-year low. U.S. These two large US mortgage financing companies slumped on Friday on fears for their financial stability. The Dow Jones Industrial Average (DJIA) closed lower by 128.48 points at 11,100.54 along with NASDAQ ended down by 18.77 points at 2,239.08 and S&P 500 index closed down by 13.90 points at 1,239.49.
Indian ADRs ended down. In technology sector, Infosys ended down by (13.30%) along with Satyam by (9.17%), Patni Computers by (4.74%) and Wipro dropped by (2.82%). In banking sector, ICICI bank and HDFC bank lost (7.38%) and (3.43%) respectively. In telecommunication sector, Tata Communication and MTNL ended down by (3.89%) and (2.46%)). Sterlite industries increased by (0.07%).
Today the major stock markets in Asia are trading firm. Japan’s Nikkei is trading higher by 146.21 points at 13,185.90, Hang Seng index is trading up by 113.57 points at 22,298.12 and Taiwan Weighted trading at 7,229.85 gained 14.91 points.
The FIIs on Friday stood as net seller in equity and in debt. The gross equity purchased was Rs1,988.40 Crore and the gross debt purchased was Rs28.60 Crore while the gross equity sold stood at Rs2,334.40 Crore and gross debt sold stood at Rs31.10 Crore. Therefore, the net investment of equity reported was (Rs345.90) Crore and net debt was (2.50) Crore.
Today, Nifty has support at 3,979 and resistance at 4,137 and BSE Sensex has support at 13,222 and resistance at 13,740.
Trading Calls - July 14 2008
Nifty (4049) Sup 3960 Res 4095
Sell Tata Power (976) SL 985 Target 950, 945
Sell HCL Tech (239) SL 244 Target 230, 225
Sell TCS (799) SL 806
Target 784, 778
Sell Kotak Bank (507) SL 514 Target 494, 491
Buy Sterlite (661) SL 654
Target 680, 685
Of Soros and sorrows!
There are people who are always anticipating trouble, and in this way they manage to enjoy many sorrows that never really happen to them.
Global investor George Soros has done some Quantum buying associating himself with those who are temporarily losing their Power and glory. Betting against the British pound in 1992 made him famous and richer. Will be able to extract his pound of flesh from the Indian market only time will tell.
The string of sorrows on Friday saw an overreaction. We expect a rebound at the opening bell after Friday's weak show. Some more short-covering-led rallies are not ruled out. Don’t get fooled by such pull-backs as there is no dearth of perceived bad news.
The trend this week will hinge on a slew of variables, such as the global markets, crude oil, macro-economic data, FII flows, results and of course the political situation. The Dow Jones Industrial Average managed to bounce back on Friday after sliding under the 11,000 mark in early trades. Crude oil too has cooled off after hitting a new record above $147 on Friday. Asian markets are mixed, with the Nikkei is up over 1%, while the Straits Times and Taiex are down 0.2-5%.
In a rare development, the key indices actually managed to post modest gains for the week, mainly on account of short-covering in the F&O segment. The Nifty, which hit a low of 3848 on July 2 has not breached that bottom ever since. This may provide some comfort to the bulls, though there is every danger that the level will also be taken out if the current string of bad news persists.
One thing is pretty difficult to attain in stock market i.e. timing of entry and exit. Last week's resilience notwithstanding, we still can't say whether a temporary bottom was reached on July 2. It’s too tough to ascertain the market's direction at this juncture.
Results Today: Axis Bank, CMC, Everonn Systems, Tanla and Tata Sponge.
Silverline Animation Technologies Ltd. and KSK Energy Ventures Ltd. will get listed today.
Ranbaxy may be under pressure as the US government has sued Ranbaxy for concealing and forging crucial data to get a favourable judgment in an ongoing investigation.
HCL Tech is another stock that will face investors' ire after announcing that it may incur forex losses of about US$65-75mn for the quarter ended June 30, owing to a weak rupee.
The US Securities and Exchange Commission (SEC) says it is examining ways to prevent stock-price manipulation by short sellers and others amid amid worries about the financial health of mortgage giants Fannie Mae and Freddie Mac as well as Lehman Brothers.
In Asian markets, the Nikkei is up 1.1% while the Hang Seng has turned flat after being up nearly 200 points. the Kospi in Seoul is up 0.2% while the Straits Times in Singapore is down 0.65%. The Shanghai Composite in China is up 1.3% and the Taiex in Taiwan was down 0.4%.
US stocks fell on Friday, but closed off their lows, as fears that Fannie Mae and Freddie Mac would collapse eased amid reports that the Bush administration will rescue the mortgage financiers and talk that the Federal Reserve would open up its discount window.
The Dow dropped below the 11,000 level for the first time since August 2006. But, the blue-chip index settled at 11,100.54, down 128.48 points, or 1.1%. For the week, the Dow lost 1.6%.
The S&P 500 Index shed 13.89 points, or 1.1%, to 1,239.50, giving it a weekly loss of 1.8%. The Nasdaq Composite Index skidded 18.77 points, or 0.8%, to 2,239.08, giving the technology-laden index a 0.3% weekly loss.
Fannie Mae and Freddie Mac both fell by close to 50% in early trading amid fears about their bankruptcy and speculation of a government bailout.
But shares trimmed losses as the day wore on, recovering after Treasury Secretary Henry Paulson and Sen. Christopher Dodd, D-Conn., made comments that sought to assuage some fears. Freddie ended 3% lower and Fannie ended 22% lower.
For the financial sector and for the stock market, there's more pain to come before a bottom is reached, according to some Wall Street analysts.
US light crude oil for August delivery gained $3.43 to settle at $145.08 a barrel on the New York Mercantile Exchange, after hitting a trading record of $147.27 earlier.
The national average price for a gallon of regular unleaded gas fell Friday to $4.096 from $4.104 Thursday, according to AAA.
In currency trading, the dollar fell versus the euro and the yen. In the bond market, Treasury prices tumbled, raising the yield on the benchmark 10-year note to 3.95% from 3.80% late on Thursday. COMEX gold for September delivery rose $18.70 to settle at $963.20 an ounce.
Lehman Brothers lost another 16.6%, amid continued uncertainty about the brokerage's financials since it reported a nearly $3bn second-quarter loss last month. Citigroup managed to close with just modest losses, after the company said it is selling its German retail banking unit to France's Credit Mutuel for $7.7bn.
GE reported weaker earnings that met forecasts on higher sales that beat estimates. The company reiterated that it would earn $2.20 to $2.30 per share for the full year versus analysts' estimates of $2.22 per share. GE also said it will sell its Japanese consumer finance business for $5.4bn. GE shares ended nearly unchanged, after rising a bit in the morning.
Over the weekend, Anheuser-Busch accepted Dutch brewer InBev's sweetened bid of $70 a share, according to media reports. Anheuser-Busch stock gained more than 8% in regular trading.
The US trade deficit narrowed in May by more than expected, as the record demand for exports - due to the weak dollar - overshadowed the record demand for imports, including crude oil.
The University of Michigan's July consumer sentiment index inched up to 56.6 from 56.4, versus forecasts for a drop to 55.5. However, the index's expectation component, which relates to consumer spending, fell to a 28-year low.
European shares ended around three-year lows on Friday due to a spike in crude oil futures and fresh concerns over the financial sector. The pan-European Dow Jones Stoxx 600 index tumbled 2.7% to 270.36, taking year-to-date losses to nearly 26%.
Germany's DAX 30 fell 2.4% to 6,153.30, while the French CAC-40 dropped 3.1% to 4,100.64 and the UK's FTSE 100 fell back into bear market territory after it lost 2.7% to 5,261.60.
Last trading session of the week ended with a sharp cut. Markets started off with a positive gap but immediately slipped into red on back of disappointing guidance from IT bellwether Infosys. Sentiments were further hit after India’s industrial production tumbled in May, to 3.8% from 10.6% in the same month last year. What's even worse was that April's growth has been trimmed to 6.2% from 7%.
Inflation figures were also another dampener. India’s Inflation accelerated to the fastest pace since 1995. Inflation rose to 11.89% in the week to June 28 against 11.63% in the previous week
Finally the Sensex lost 456 points to close at 13,469 and the Nifty lost 113 points from to close flat at 4,049.
Bharti Airtel gained by half a percent to Rs745 after the company announced that it adds 2.56mn subscribers in June according to industry data. The scrip touched an intra-day high of Rs798 and a low of Rs737 and recorded volumes of over 9,00,000 shares on BSE.
Sterlite Industries gained by 1.7% to Rs661 after the company along with its unions representing the workers of US based Asarco agreed to acquire all the assets of the bankrupt copper producer. The scrip touched an intra-day high of Rs680 and a low of Rs652 and recorded volumes of over 4,00,000 shares on BSE.
Shree Ashtavinayak advanced by 1% to Rs562 following reports that the company is planning to invest ~Rs9bn in its forthcoming movies. The scrip touched an intra-day high of Rs583 and a low of Rs540 and recorded volumes of over 50,000 shares on BSE.
Max India advanced by 1.6% to Rs158 after the company announced that it would spend Rs1bn along with Bupa Finance for setting up an Insurance company. The scrip touched an intra-day high of Rs167 and a low of Rs155 and recorded volumes of over 54,000 shares on BSE.
Welspun-Gujarat Stahl slipped by 2.5% to Rs304. The company announced that it won order worth Rs30bn and also said that it has total orders worth Rs77bn. The scrip touched an intra-day high of Rs315 and a low of Rs300 and recorded volumes of over 1,00,000 shares on BSE.
Shares of Infosys Technologies plunged by over 7% at Rs1676 erasing early gains as the company didn’t increase guidance for FY09 on back of continuation of challenging business outlook. The stock had hit an intra-day high of Rs1876. However, went on to hit an intra-day low of Rs1,641 recording volumes of over 20,00,000 shares on BSE.
Infosys Technologies reported a net profit of Rs13.02bn in the quarter ended June 30, 2008 as against Rs12.49bn in the previous quarter. This translates into a sequential growth of 4.2%. This is better than expectations of a slight dip Quarter on Quarter (QoQ).
Infosys Technologies hiked its revenue and earnings per share (EPS) guidance for the fiscal year 2008-09 as per Indian GAAP. The company expects net sales to be between Rs212.78-216.22bn for the year ending March 2009. The EPS for the current fiscal year is expected to be in a range of Rs99.34-101.06. The company has taken a conversion rate of 1 US$ = Rs.43.04.
Allied Digital gained by 1.2% to Rs906 after the company announced that it acquired 80.5% stake in US based EnPointe Global Services for US$30mn. The scrip touched an intra-day high of Rs932 and a low of Rs880 and recorded volumes of over 4,000 shares on BSE.
BHEL declined by 2.6% to Rs1521. The company announced that it won order worth Rs21.75bn from Tamil Nadu Electricity Board. The scrip touched an intra-day high of Rs1588 and a low of Rs1493 and recorded volumes of over 5,00,000 shares on BSE US government files suit against Ranbaxy Laboratories for concealing and forging crucial data to get a favourable judgment in an ongoing investigation.(BS)
HCL Technologies may incur forex losses of about US$65-75mn for quarter ended June 30, owing to a weak rupee. (BS)
BHEL receives Rs22bn contract for setting up a 600MW thermal power generating unit in Tamil Nadu.(FE)
ADAG group on look out for acquisitions to start its cement business much before it completes its 4,000MW mega power project at Sasan, Madhya Pradesh.(BS)
JSW Steel looking to acquire US-based United Coal Company. (ET)
Athena Energy Venture, a JV between Power Trading Corp and IDFC to set up a 1,320MW coal-fired power plant in Andhra Pradesh. (DNA)
ONGC may offer joint operatorship of a KG block to British Gas in exchange for rig support to complete drilling in 2009.(BL)
Swan Telecom in negotiations with BSNL for a strategic alliance under which the former will utilise the network of the state-owned company to roll out its operations.(BS)
SAIL-Tata Steel JV company wants five coal blocks to cut imports.(FE)
JSW Steel will explore the possibility of importing iron ore from its mine in Chile and sell it in the local market.(BS)
Maxis Communications would not sell Aircel stake to any third party.(TOI)
Tata Steel is looking at acquiring an iron ore mine in Western Australia to supply ore to Corus’ plants.(Mint)
Jindal Stainless is close to acquiring chrome ore and manganese mines in West Asia to cater to its project in Orissa.(BS)
Welspun Gujarat Stahl secures orders worth Rs30bn from Indian as well as overseas companies. (DNA)
Wipro’s Asian unit looking to secure deals worth US$100mn from India and Middle-East.(FE)
Ansal API announces the launch of its hi-tech city spread over 2,500 acres adjoining Greater Noida.(Mint)
Commerce ministry examining possibilities of stripping RPL refinery of its 100% export oriented unit status. (ET)
Healthcare services provider Max India board approves its JV with UK-based Bupa Finance Plc for setting up a health insurance company.(FE)
Siemens India secures order from Tata BlueScope Steel to supply equipments to the company’s new processing lines at Jamshedpur.(DNA)
Maytas Properties to develop three IT SEZs.(BL)
Drug maker Abbott India to buy back shares at Rs630 each.(BL)
Reliance Industries, Essar Oil, GAIL, Videocon may bid for five exploration blocks in Australia.(ET)
ONGC Videsh in talks to form an alliance with UK based Imperial Energy with oil producing assets in Western Siberia.(TOI)
M&M reduces ownership interest in subsidiary companies by 6-7%, brings forgings unit under Mahindra Forgings.(ET)
Spice Energy plans a GDR issue of US$300mn by August; proceeds to be used to set up 1,000MW thermal power plant in Tamil Nadu.(DNA)
ICICI, HDFC AMCs among 20 companies in race for managing Employees Provident Fund Organization’s funds.(ET)
Reliance Logistics looking to acquire mid-sized logistics firm operating in third party logistics field. (DNA)
Phoenix Mills, Adlabs in pact for India’s largest multiplex cinema. (ET)
Economic Front Page
Government may cut duty on major petrochemical feedstock building blocks. (ET)
Benchmark ten year bond yield rises to seven year high of 9.55% on rising inflation.(BS)
DoT dilutes the proposed pricing of excess spectrum held beyond contracted limit by mobile operators.(Mint)
Service Sector growth slips from 14.7% to 10.5% in Q4 2008. (ET)
TRAI proposes to raise the base price for operators participating in the auction for 3G and broadband wireless spectrum (BL)
Domestic airlines witnessed a 17% decline in passenger traffic in June as compared to earlier month.(FE)
Kingfisher-Deccan may be dragged to Supreme Court by government.(Mint)
Civil aviation minister directs Bangalore International Airport Limited to increase its capacity to handle passengers.(BS)
Exchange traded currency futures likely to be launched by mid August.(BL)
Government planning to raise FDI ceiling in defense production to 49% from the current 26%. (ET)
RBI eases rules governing external commercial borrowing. (ET)
National Bio-fuel policy may be unveiled by September.(DNA)
Prices of plastic products have become costlier by 35% according to its manufacturers.(BL)
Mining minister approaches Prime minister for the review of iron ore export duty. (ET)
Be afraid ! Inflation may rise to 17%
Global investment banker Barclays Capital has projected that inflation may surge to 17 percent by September on back of another round of hike in fuel prices in the same month.
"We believe WPI inflation will remain in double-digit territory until May 2009. We expect WPI inflation of 17 percent by September 2008," the report said.
For the week-ended June 28, wholesale prices-based inflation touched a new 13-year high of 11.89 percent much higher than the Reserve Bank's tolerance limit of 5.5 percent for the current fiscal.
According to the report, the government is likely to hike fuel prices between 10 and 20 percent again as early as September to limit fiscal risks.
Rise in the price of the Indian crude oil basket to USD 145-150 per barrel from the current USD 132 per barrel could be the trigger for another round of increase in fuel prices, it said.
The government last revised retail petroleum prices with effect from June 5, when petrol prices was increased by Rs 5 a litre, diesel by Rs 3 per litre and cooking gas by Rs 50 per cylinder.
This resulted in inflation touching a double-digit figure of 11.05 percent for the week ended June 7.
Last week, even Finance Minister P Chidambaram's adviser Shubhashis Gangopadhyay predicted that double digit inflation will continue throughout the year 2008 and could impact the economic growth negatively.
Gold rises as crude rises
Missile tests by Iran and surging crude price makes gold a bet for safe haven
The weak US dollar and the rising oil price pushed bullion metals higher on Friday, 11 July, 2008. Prices rose as tension once again mounted at Middle East and the also rose on reports of more missile tests by Iran. Gold is typically seen as a safe-haven investment and its appeal increases during times of heightened geopolitical tensions. The increase in energy costs also generally increase demand for the precious metal as a hedge against inflation. Silver prices gained for the day.
Generally, a stronger dollar pressures demand for dollar-denominated commodities, such as crude oil and gold, which become more expensive for holders of other currencies. On the other hand, a lower dollar pushes up precious metal prices as their demand lessens as it becomes cheaper for traders holding other currencies.
Comex Gold for August delivery rose $18.6 (1.97%) to close at $960.6 ounce on the New York Mercantile Exchange. Prices climbed to a high of $967 during intra day trading. For the week, it ended higher by $27 (2.8%). On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce. But prices have dropped since then.
It was reported on Friday that Iran test fired more missiles on Thursday, after testing missiles the day before that could reach Israel. Iran is the world's fourth-largest exporter of crude oil.
At the currency markets on Friday, the dollar lost ground against other major currencies on rising geopolitical risk and renewed credit worries. The dollar index which tracks the greenback against a basket of major currencies, fell 0.6% to stand lately at 72.03.
In the crude market on Friday, prices fell initially amid a rising dollar but leaped right back on speculation that Israel may be nearer to launching an attack on Iran and on worries that supplies in Nigeria and Brazil may be disrupted. Crude for August delivery closed up $3.43 or 2.4%, at $145.08 a barrel on the New York Mercantile Exchange.
The weakening dollar and higher global demand for raw materials have led to records this year for commodities including gold. Gold has traditionally been used as a safe-haven asset against rising inflation. Investor sentiments are boosted by the fact that gold and silver are alternate sources of good investment in the face of declining dollar and rising energy prices.
Gold prices ended June, 2008 with a gain of 4.1%. The yellow metal ended second quarter with a marginal gain of 0.7%. In May, it ended with a gain of higher by $22.5 (2.5%). Before May, for April, prices closed lower by 6.3%.
This year, gold prices have gained 13.5% till date against a 5.6% drop for the dollar against the euro. For first quarter prices gained 10.7%. In January, prices gained 11%, the highest monthly gain since April 2006. For February, it gained 6%. But in March, prices succumbed and fell by 5.5%.
On Friday, Comex silver futures for September delivery gained 50 cents (2.7%) to $18.82 an ounce. Silver has gained 25% in 2008 till date. For the second quarter, it gained a paltry 1.4%.
Silver prices ended the month of May 2008 with a gain of 2.7%. For April, it closed lower by 5.5%. Silver had gained 16% in Q1. In January this year itself, prices climbed 14%. In February, it gained another 15%. For March, it ended lower by 13%. The metal had climbed 16% in FY 2007. The metal also has gained for seven straight years.
Crude rises on middle east concerns
CRUDE OIL
Middle East tension pushes crude higher
Prices end marginally higher for the week
Geo political tensions in Iran and Nigeria and a lower dollar pushed up crude prices on Friday, Friday, 11 July, 2008. Israel launching an attack on Iran and worries that supplies in Nigeria and Brazil may be disrupted, sent crude prices soaring. Traders also continued to worry about slowing demand and continued selling despite a sharp drop in U.S. inventories. Prices nevertheless ended the volatile week with marginal gains.
Crude-oil futures for light sweet crude for August delivery today closed at $145.08/barrel (higher by $3.43/barrel or 2.4%) on the New York Mercantile Exchange. For the week, prices gained $0.21 (0.2%). A day earlier, on Thursday, 10 July, crude rose by almost $6 at one shot today in the final hour of trading after trading around $2 higher in the previous hours.
Crude prices gained 38% in the second quarter of this year. It was the biggest quarterly increase in nine years. It ended June 2008 higher by 9.9%. Prices are 105% higher than a year ago. For the year, crude is up by 44% till date.
It was reported on Friday that Iran test fired more missiles on Thursday, after testing missiles the day before that could reach Israel. Iran is the world's fourth-largest exporter of crude oil.
At the currency markets on Friday, the dollar lost ground against other major currencies on rising geopolitical risk and renewed credit worries. The dollar index which tracks the greenback against a basket of major currencies, fell 0.6% to stand lately at 72.03.
EIA reported earlier during the week that crude inventories fell 5.9 million barrels in the week ended 4 July to stand at 293.9 million barrels. Daily crude imports averaged 9.5 million barrels last week, down 621,000 barrels from the previous week. U.S. refineries operated at 89.2% of their operable capacity last week, unchanged from the previous week.
EIA also reported that U.S. gasoline supplies rose by 900,000 barrels in the latest week, while distillates rose by 1.8 million barrels.
Against this backdrop, August reformulated gasoline rose 5.23 cents, or 1.5%, to $3.56 a gallon and August heating oil added 3.92 cents, or 1%, to $4.08 a gallon. Natural gas for August delivery, however, reversed earlier gains and fell 40 cents, or 3.3%, to $11.90 per million British thermal units.
Executive Summary
Crude prices showed immense volatility during the week that ended on Friday, 11 July, 2008. Prices gave up more than $9 during the first two days of the week. But then, it touched a all time high price of $147/barrel. It also gained $9.03 during the last two days of the week. For the week, it ended higher by a marginal 21 cents.
Prices fell during the first part of the week due to the strong dollar. But then, it gained back all of its losses after Middle East tensions cropped up between Iran and Israel and also on weekly inventory report from the Energy department.
The Paris based International Energy Agency (IEA) said during the week that it expects 2009 global energy demand to rise 1% from 2008 levels. Robust growth in developing economies will more than offset demand contractions in developed countries.
The IEA also said that the bunching of new projects and Saudi Arabia's pledge for 250,000 barrels a day in additional production should lead to an increase in spare capacity for crude oil next year. But it said current high prices are not just about tight crude supplies, pointing to refinery capacity as another major contributor.
US Markets end with modest losses
Dow sinks below the 11,000 level for the first time in two years
US Market ended the week on Friday, 11 July with moderate losses. But it was the financial sector and the rising crude price that played the role of major villains for the indices registering losses. Upbeat announcement from a major retailer and encouraging economic data were the major reasons as to why the losses were restricted to modest levels.
The Dow Jones Industrial Average lost 188 points for the week to end at 11,100. Tech - heavy Nasdaq lost 6.3 points at 2,239. S&P 500 shed 23.4 points to end at 1,239. In percentage terms, Dow, S&P 500 and Nasdaq lost 1.7%, 1.9% and 0.3% respectively. The Dow fell below the 11,000 level for the first time in two years.
The financial sector came under severe pressure after Fannie Mae and Freddie Mac were two notable laggards in the sector. The two stocks encountered selling pressure throughout the week on news that accounting changes could force the companies to bring off-balance sheet assets on to their books, thus requiring large capital raises. In fact things worsened on reports that the executive branch has been discussing a plan for the government to take over either one or both of them if conditions worsened. It was only during the end of the week when a Reuters source indicated the two lenders would have access to the Fed’s discount window did the stocks rally into the green.
Crude prices showed immense volatility during the week. Prices gave up more than $9 during the first two days of the week. But then, it touched an all time high price of $147/barrel. It also gained $9.03 during the last two days of the week. For the week, it ended higher by a marginal 21 cents and ended around $145/barrel.
Crude prices fell during the first part of the week due to the strong dollar. But then, it gained back all of its losses after Middle East tensions cropped up between Iran and Israel and also on weekly inventory report from the Energy department.
Dow component Alcoa marked the start of second quarter earnings season. The aluminum company reported a drop in earnings due to high energy costs, but the results met Wall Street's forecast. GE also reported earnings in line with expectations.
Wal-Mart reported during the week that June same-store sales were up 5.8% thanks to bargain-hunting consumers. In turn, Wal-Mart raised its second quarter earnings outlook also. This gave the bulls a good reason to come to the forefront during the middle of the week.
In other economic news, the National Association of Realtors reported that May pending home sales fell 4.7%, which is slightly more than the expected decline of 2.8%. However, April was revised higher to a gain of 7.1% from a rise of 6.3%. The data indicated that that the home sales market is still weak, but is not deteriorating at the same rate as in 2007.
Separately, weekly initial claims dropped 58K to 346K, well below the consensus estimate of 395K. The two-week average of 375K put claims at a level that was witnessed in mid-March, so it can be said the claims level is fairly stable.
Cisco Systems weighed heavily on the technology sector during the week after the stock fell to a new 52 week low after UBS said that Cisco faces challenges due to slowing sales in the U.S. and Europe.
Among interesting corporate news, Microsoft is reported to be willing to enter discussions with Yahoo! if Yahoo replaces its board of directors. Next, General Electric's NBC Universal is joining Blackstone Group and Bain Capital to purchase The Weather Channel for $3.5 billion. Also, Merrill Lynch might be planning to sell its stakes in holdings like Bloomberg and BlackRock soon which would generate cash to help offset potential write-downs and adjustments.
In the M&A arena, Dow Chemical announced its intent to acquire Rohm & Haas for $78 per share in cash. That price marked a 74% premium for ROH shareholders based on the stock's closing price the day before the deal was announced.
Executive Summary
For the week, indices registered modest losses. In percentage terms, Dow and Nasdaq lost 1.7% and 0.3% respectively. S&P 500 lost 1.9%. It was the battered financial sector and the rising crude price that played the pranks with the market. Government sponsored Freddie Mac and Fannie Mae were reported to be in distressed condition and this worried the investors. On Friday, 11 July, the Dow sank below the 11,000 level during intra day trading for the first time in two years.
For the year, Dow, Nasdaq and S&P 500 are down by 16.3%, 15.6% and 15.6% respectively.
The coming week as a host of important reports both on economic and earnings front. The earnings reporting will kick up several notches with reports from a number of major financial and technology companies. The minutes from the 25 June Federal Open Market Committee (FOMC) meeting will be released and Fed Chairman Bernanke is slated to present his semi-annual testimony before Senate and House committees. Also, on the dock are key inflation reports in the form of the PPI and CPI Indexes, as well as the latest data on retail sales, housing starts and industrial production.
Today's Pick - Alstom Projects
We recommend a sell in Alstom Projects from a short-term perspective. From the charts of Alstom Projects we note that the stock has been on long-term downtrend from its January 2008 high of Rs 1,085 level, forming lower peaks and lower troughs since then.
However, recently the stock found support at Rs 310 level and witnessed a minor corrective up move to Rs 450 level.
The twin resistance at this level (a key resistance level and the long-term down trendline) halted the up trend. Subsequently the stock declined sharply by 6 per cent on July 11.
The daily momentum indicator is falling in the neutral region and the weekly indicator is featuring in the bearish zone.
Considering that the long-term down trendline is intact we are bearish on this stock in the short-term. We expect the stock to decline until it hits our price target of Rs 365 in the forthcoming trading sessions.
Traders with short-term perspective can sell the stock while maintaining stop-loss at Rs 426.
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