Unstructured Finance

SENSEX – Bumping on support. Gold – Hitting resistance

image003.gifFor more regular technical updates please see my website www.reutersindia.net
The SENSEX moved up off longer term support at 14,097 to bump up against resistance at 14,645 on Friday. You can see these levels marked on the two charts on the left the first is short-term, the second longer-term. The short-term trend indicators we have had are marked with arrows on the first chart and the latest ones on the Parabolic-SAR and MACD studies are now bearish as you can see. The Alpha Beta trend is now neutral from bullish. So, the near-term indicators are pointing down and we need to keep a close eye on these supports carefully as it might mean this small downtrend we are currently seeing may be short-lived. So far, they are holding well.
image005.gifThe second chart shows the longer term chart support being the 38.2 pct Fibonacci retracement of the entire SENSEX upmove. We are on very significant support and this is why the market is holding up despite the bearish indicators.

While the SENSEX decoupled quite nicely from the other Asian markets following the government victory at the vote of confidence and the associated politics. It was clear investors took this outcome positively and bullish for economic reforms. However, given the inflation and growth backdrop at least some of this enthusiasm has evaporated and the negativity elsewhere on the Asian stock markets has begun dragging on the SENSEX again.
That said, at 12.40 percent inflation number for mid-August was lower than expected by the market and indeed moderated slightly and the 7.9 percent GDP number was taken calmly by the market despite being slightly lower than anticipated.
image009.gifThe third chart is a correlation chart of the SENSEX versus the MSCI Asia stocks index ex-Japan which shows the India market decoupled form the Asia markets since the beginning of the month but you can see the line is turning less negative so the Asia market are starting to have more influence and the SENSEX moving less under its own steam. The correlation index is still negative as per the sub-chart but less so in the past few days. It seems the drag of the Asian markets is starting to exert more influence over the SENSEX.

image007.gifWATCH THE RUPEE
The fourth chart has the 10-day correlation study of the SENSEX vs INR and this is turning down quite sharply so the link is clearly breaking down now. A very high correlation between the two has existed for around a month and the SENSEX moving in lockstep with the INR. If you watch one, you must watch the other.

And finally a look at gold. Gold has seen an excellent bounce off the strong 785 support level, a level that has been evident on the chart for weeks now. It was very strong support in Q4 last year.
But, 835 is the big resistance level and as you can see from the chart is providing a solid barrier to further gains. All the recent closes have been below and US trading on Friday did not break the pattern. One to watch for sure, and a break above would set up a move to the next two resistance points as marked on the chart at 850 and 859. But 835 is the key overhead resistance level being around the peaks reached in 2007.
The Commodity Channel index has broken up through the negative 100 line which is a bullish signal. The Parabolic-SAR has also switched to bullish and the MACD lines have crossed.
But the signals are not that strong and we should continue to not yet be looking too much to the upside and there is need for caution. The start of the bearish move is marked with the latest set of black arrows the MACD and P-SAR flagged it very well.
image0091.gif. Gold’s negative correlation to the USD. As we all know the dollar movements affect the gold price but at the moment this negative correlation is strong and risingThe last chart is a very long-term chart of the gold price versus the oil price.

image012.gif This is a long 100-day correlation and as you can see historically the linkage goes from positive to negative with slightly more bias to the positive. At the moment the correlation is very high. If you watch gold you currently have to keep a close eye on oil.

“Fashion Foreclosure” and the case for the Maxi dress

maxi11.jpgHow to stop shoppers from “fashion foreclosure?” Give them what they need, make it fun, and provide them with an element of escape, argues The Doneger Group’s David Wolfe.

Wolfe‘s presentation on current fashion trends in womens’ wear attracted a large crowd of buyers earlier this week at the Magic Marketplace apparel trade show in Las Vegas, the largest such show in the United States.

To counteract what Wolfe called “a seismic shift in spending patterns” by the American consumer in light of the weak economy, Wolfe pointed to new twists on classics and a return to more tailored dressing.

Check Out Line: Wal-Mart cuts prices in Canada

walmart-milk.jpgCheck Out Wal-Mart’s price cuts for eggs, milk, butter and bread in Ontario, Canada.

If you are counting pennies but still want that morning coffee and omelet, you can now buy one- and two-liter milk cartons for $1.77 and $2.97 respectively or a dozen large eggs for $1.97, if you shop at Wal-Mart’s Ontario stores.

The world’s top discount retailer said that besides cutting prices for those staple food items in its Ontario stores, it will also slash prices on hundreds of products across Canada in September, after a round of different price cuts in August.

Getting online in Europe

A man browses web at an Internet cafe in MadridWith tens of billions in the bank collecting dust since its failed bid for Yahoo, and the elusive promise of the Internet still beckoning, Microsoft returned to the market for Internet search businesses with a $486 million purchase of Greenfield Online, the U.S.-listed owner of European price comparison website ciao.com. The buy is meant to help lift Microsoft out of fifth place in the European search market by giving a boost to its Live Search platform. Google‘s monster lead in the search market is a whopping 62 percent and 79 percent in Europe, according to the most recent data published by Web usage tracker ComScore. Microsoft has a 2 percent market share in Europe and 9 percent worldwide, behind both Google and Yahoo. In Europe, Microsoft is also outranked by online auction site eBay and Russia’s Yandex.

Four large hedge funds, all Huntsman shareholders, have proposed a plan to finance at least $500 million of the $6.5 billion buyout of the chemical company by a unit of Apollo Global Management. Hedge funds Citadel Investment Group, D.E. Shaw & Co, MatlinPatterson Global Advisers and Pentwater Growth Fund, and as of this morning, the Huntsman family, have agreed to team up on the financing plan, but Apollo’s Hexion Specialty Chemicals unit rejected the plan last night, saying Huntsman’s increased debt and decreased earnings since the deal was struck in July 2007 would no longer make a combined company solvent. “We are not seeking to renegotiate this transaction,” Hexion responded in a statement. “We are seeking to terminate it, and obtain judicial confirmation that Hexion has no obligation to pursue the acquisition or to pay Huntsman a termination fee.”

Allianz is set to sell Dresdner Bank to Commerzbank, sources with direct knowledge of the matter say, in a deal that will fuse Germany’s second- and third-biggest lenders. The deal, to be announced as soon as this weekend, will see Commerzbank take a 51 percent stake in Dresdner and buy the rest later, the sources said. Taking over Dresdner, which analysts estimate to be worth about 9 billion euros ($13 billion), will create a group to rival flagship lender Deutsche Bank and change the face of banking in Germany, Europe’s biggest economy. It will give Commerzbank a badly needed leg up in its home market, which is dominated by state not-for-profit lenders and allow Allianz to end an unhappy marriage that unsuccessfully tried to match investment bankers with insurance salesmen. The deal is likely to result in heavy job cuts, which would have been avoided had Allianz chosen to sell to another would-be buyer, China Development Bank.

World’s most 100 most powerful women include finance queens

sheilabiar.jpgForbes Magazine has released its list of the 100 most powerful women in the world today. Making the ranks?



And a number of women in finance. Women at banks. Women at the core of dealmaking.

Ranking #2 on the list is Sheila Bair: the head of the embattled FDIC, who has been trying to reassure an edgy American public that the country’s financial institutions are sound even as six banks have failed this year. Bair’s domain is the last stop for capital-starved banks (and their insured customers) before going under.

Private equity pros if Romney picked?

mitt.jpgMitt Romney left private equity firm Bain Capital nearly a decade ago. But if the former Massachusetts Gov. is chosen as McCain’s running mate it could push the industry back into the public spotlight anyway. Romney left the firm in 1999 to take over the Salt Lake City Winter Olympics, but he built his reputation — and his fortune — during his 15 years at the buyout firm.

Michael Holland, chairman of private investment firm Holland & Co and a former partner at rival buyout firm Blackstone thinks it would only be good news if Romney is picked.

“The facts are pretty straightforward — he was successful there (at Bain). The businesses they invested in were successful. Taken on the face of it, if you don’t have any political ax to grind in this, it is probably something that should be at least somewhat favorable for the (private equity) industry.

Bove: Lehman saga ending soon

lehmanbrospic.jpegRichard Bove is really hammering home a point about Lehman Brothers: The investment bank has big problems that it better deal with it soon.

The Ladenburg Thalmann analyst put out a new research note — the second such note in a week –saying Lehman’s management will have to address its issues rather than just “toughing it out,” or it could face a hostile takeover bid.

What does the investment bank need to do? Says Bove: Lehman must more aggressively write down some of its real estate portfolio and hedge fund investments, raise new capital and rebuild relationships with key employees hurt by the stock’s nosedive.

The tequila sunrise could soon set

agave.jpgInvestors — and drinkers — got sobering news on Thursday when Brown-Forman described how agricultural difficulties rocking Mexican farmers hurt the bottom line of the company, which is based in Louisville, Kentucky.

Brown-Forman saw a big part of its first-quarter profit guzzled by a $22 million charge it had to take to deal with an abnormal number of dead or dying agave plants, which it uses to make its Herradura and el Jimador tequilas.

According to Brown-Forman executives, there had been a glut of blue agave cacti in Mexico, which led prices to collapse. That has caused farmers to abandon their fields in favor of more profitable crops like corn. The neglected agave plants became more susceptible to diseases, and Brown-Forman said it recently noticed that about 25 percent of its agave crop is unusable.

The first stage: denial

ostrich.jpgAfter the pummeling U.S. banks have been taking from the credit crunch, you’d think British bankers would try to learn from the mistakes of their U.S. counterparts. Not so, writes the New York Times’ DealBook. A majority claim they have made no changes to their strategy, according to a survey to come out next week. That might be par for the course as British banks face turmoil: denial is the first of the Kuebler-Ross stages of coping with grief.

Print media companies are trying find buyers this summer, but PE Hub asks who would invest in companies with declining business model, pointing to the Newark Star-Ledger‘s goal to sell itself. One area in traditional media that is looking up is radio.

Asia is becoming a growing hub for currency trading, with French bank Crédit Agricole moving its head of forex strategy to Hong Kong from London, according to the Wall Street Journal’s DealJournal.

Other deals of the day:

Check Out Line: Mixed messages from retailers

Check out retailers’ profits and forecasts.

A discerning shopper, or investor for that matter, could browse the aisles of the retail financial world and come away with very different messages on the strength of the U.S. economy depending on which company’s results they chose.

default-2.jpgOn the plus side,  upscale jeweler Tiffany posted a better-than-expected profit and raised its full-year outlook, although that was driven by strong sales overseas. Tiffany expects U.S. same-store sales to return to growth in the fourth quarter. Shoe and hat retailer Genesco, and home-appliance and consumer-electronics retailer Conn’s also topped Wall Street’s views and boosted their forecasts.

For the pessimists out there, Williams-Sonoma saw its profit fall and it cut its forecast, while Sears Holdings also fell short of expectations amid the weak housing market.