The X'mas rally that we've all been waiting for finally arrived during the last few trading sessions. I wish all of you a Merry X'mas & a great new trading year in 2008, bagging loads of cash like this Santa!
This will be a light trading week, with only a few economic data on Thurs & Fri.
Thurs: Durable Orders, Consumer Confidence
Fri: Chicago PMI, New Home Sales
I'll be taking these few days to reflect upon 2007 and see how I can improve and make things work better in 2008. You should do the same too!
Big Banks Results This Week Will Determine The Swing
The markets are now sitting at the edge and its a make or break week. The S&P 500 is sandwiched between the 200 MA and 20MA. The 20MA acts as a support and if the index breaks the prior swing low (1460), then we'll see more gloomy days ahead. Aside from technicals, this week is also critical as we see 3 big banks (GS, MS, BSC) announcing their earnings results and what they say about their subprime exposure, will in my opinion, largely determine the direction of swing for the year end. Mon: NY Empire State Index Notable earnings: ADBE
Tue: Building Permits and Housing Starts Notable earnings: BBY, GS, HOV
Wed: Notable earnings: ACN, CMC, MS, JOYG, NKE, KMX, PAYX Thurs: GDP, Leading Indicators, Phil Fed Notable earnings: BSC, FDX, COGN, JBL, RIMM Fri: Personal Income, Personal Spending, Core PCE Inflation, Michigan Sentiment Notable earnings: CC, WAG
Do you think the credit crisis that has rocked the financial sector these few months has finally seen some light?
UBS AG (NYSE: UBS) writes down another $10B, BUT receives $11.5B injection from outside investors, of which my government (yes, The Government of Singapore Investment Corporation - GIC) made its single largest investment ever. The GIC expresses confidence in the long term prospects of the bank and GIC's managing director commented that this move is a marked departure for GIC, whose practice has been to take relatively small public equity stakes for portfolio diversification.
In my opinion, UBS is smart to announce the write-down TOGETHER with news of capital injection, hence preventing a hit in its stock price. Next, for the also very smart and usually cautious GIC to have made such a bold move says alot about this deal.
While many may argued that these banks must be in dire states to resort to selling it self (ok, or more positively, get capital injection), there is always another side to the coin. Put in this way: The investors who provide these huge capital are not stupid. They must have seen value in these business and feel the price is right before taking the plunge.
While this doesn't mean that we won't see more write-downs to come (as I'm writing this, we've got Washington Mutual, Inc.(NYSE:WM) taking a $1.6B write down, I think we are starting to see some light at the end of the tunnel.
Oh and a lesson to be reminded to all companies out there who plan to announce write downs: Be sure to have an announcement ready about capital injection from who-&-who, if you want to protect your stock price.
The bulls staged a huge rally last week and while the volume was not very impressive, it appears that the S&P 500 has formed a bull flag on even lower volume last Monday-Tuesday. Based on the technicals of bull flag and a measured move, it is possible the index may rally to 1550 level soon.
Markets are now waiting for the Fed rate announcement on Tue. As of last Friday, the 30 day Fed Funds rate are pricing in a 59% chance of 0.25% cut and a 41% chance of 0.5% cut. Will the Fed announcement be the catalyst for the S&P 500 to rally to 1550 or otherwise? We'll see...