Saturday, May 23, 2009

Weekly Stockmarket Report

Top News For The Week

*President Barack Obama warned overeager shoppers and greedy credit card companies alike on Friday to act responsibly as he signed into law a bill designed to protect debt-ridden consumers from surprise charges.

*Ford Motor Co. said it is giving its hourly workers five more weeks to decide whether they want to accept the company's buyout and early retirement offers.

*Federal regulators on Friday adopted a new system of special fees paid by U.S. financial institutions that will shift more of the burden to bigger banks to help replenish the deposit insurance fund.

*A federal appeals court on Friday agreed with the major elements of a 2006 landmark ruling that found the top U.S. tobacco companies guilty of racketeering and fraud for deceiving the public about the dangers of smoking.

*The U.S. government could eventually own a majority stake in GMAC Financial Services following its latest $7.5 billion aid package to the ailing auto financing company.

*In the U.S. shareholders have yet to vote down a single executive pay plan at U.S. companies and only a handful of corporate directors have lost investor backing. Support for corporate management and executive pay is still the status quo.

*In the U.S. the number of people who are continuing to receive jobless benefits rose to nearly 6.7 million from about 6.6 million, the Labor Department said. That's the highest total on records dating to 1967 and the 16th straight weekly record.

*The Federal Reserve expects the economy to improve in coming months, even as policymakers downgraded their outlook for all of 2009 and said the unemployment rate could approach 10 percent.

*President Barack Obama is asking consumers to put their money -- up to $1,300 per new vehicle by 2016 -- behind his plan for higher efficiency standards for cars and trucks and tougher rules on their greenhouse gas emissions.

Drivers would make up the higher cost of more fuel-efficient, cleaner vehicles by buying less gas at the pump. It would take just three years to pay off the investment and would, over the life of a vehicle, save about $2,800 though better gas mileage, the president said.

*The justices of the U.S. Supremem Court said Monday they will consider a constitutional challenge to the 2002 Sarbanes-Oxley law from pro-business conservatives, who complained that the board established to oversee the accounting industry violates the constitutionally mandated separation of powers.

Market Analysis

This is a chart of the CBOE Volatility Index or VIX which is often referred to as the fear index, as it represents one measure of stock investors' expectation of volatility over the next 30 day period. A high value for VIX represents higher volatility in the market and vice versa.

VIX has been falling since October last year which means that the market sentiment has somewhat stabilised although economic fundamentals are still weak. Stock investors seem to feel that the economy will recover even though it is currently still in a recession.

VIX is currently at 32.63 which is at the higher end of its historical trading range of 20 to 30. Recently it has shown some strength with three consecutive days of finishing higher than open.

The MACD has finished above its trigger which is a bullish signal, however, from now on it will be interesting to see whether, it will continue to move upwards (meaning that investors expect higher market volatility), or it was simply a temporary move upwards and resume its downward trend.

Next take a look at the chart of S&P 500 Index above.

The index has moved below its 20 day moving average which is bearish, however it is still above its 40 day moving average.

The MACD or blue line, has moved below its trigger or the red line and this is bearish. However it is still above 0.

Also the Slow Stochastic has moved below its trigger which is bearish and it is nearing the low end of its range.

So the S&P 500 Index is showing indications of a bearish phase in the market at the moment. However, it is not sure yet whether the market is at the beginning of a strong downtrend to reverse the rally experienced over the past two months or is just undergoing a temporary correction.

However, despite negative company earnings and weak economic fundamentals, overall, the stockmarket has been quite resilient and as the VIX shows, investors seem to be quite hopeful that eventually the U.S. and world economy will recover out of the current recession.

To learn more about trading, have a look at this book (click image):

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To appreciate beauty; to find the best in others; to leave the world a bit better whether by a healthy child, a garden patch or a redeemed social condition; to know even one life has breathed easier because you have lived. This is to have succeeded.

Ralph Waldo Emerson