Stocks end lower as concerns about bailout weigh

NEW YORK - Stocks fell on Tuesday on fear that congressional wrangling could delay a proposed US$700 billion plan to rescue the financial sector, increasing worries about the struggling US economy.

Downgrades also hurt the shares of Bank of America, off 2.5 per cent, while energy company shares weakened with the price of oil.

The main focus, though, was on the government's rescue plan, which involves mopping up bad mortgage debt from bank balance sheets in an effort to get them lending again.

Federal Reserve Chairman Ben Bernanke on Tuesday urged Congress to approve the plan quickly, warning a delay would put the economy at risk, but lawmakers pushed back, saying it still lacked detail.

The Dow Jones industrial average was down 161.52 points, or 1.47 per cent, at 10,854.17. The Standard & Poor's 500 Index was down 18.87 points,1 or 1.56 per cent, at 1,188.22. The Nasdaq Composite Index was down 25.64 points, or 1.18 per cent, at 2,153.34.

Mr Bernanke told the Senate Banking Committee that 'action by Congress is urgently required to stabilise the situation and avert what could otherwise be very serious consequences for our financial markets and our economy.'

But doubts about the bailout plan took centre stage by late afternoon, and some traders said that even a swift passage of the bill would not lead to the end of the credit crisis or necessarily bolster the slumping US housing market.

Source: Singapore Business Times - 24 Sep 2008

SGX ENHANCES TRANSPARENCY AND DETERS FAILED SHARE DELIVERY

22 Sept 2008 - Despite current market turbulence and global financial uncertainties, trading of securities listed on Singapore Exchange (SGX) has been orderly and settlement has been timely. Nevertheless, SGX would like to enhance existing transparency in the market and to deter failed deliveries.

Information about naked short positions which result in failure of delivery to CDP would be useful to market participants. Furthermore, cumulative short-selling of individual share securities without the discipline of borrowing to cover delivery obligations, may threaten the orderliness of our market with implications for the integrity of the clearing system. In Singapore, naked short selling which results in failed delivery to CDP are closed-out by buying-in from the market. Buying-in takes place from 11.30am every day.

With immediate effect, SGX will publish the list of buying-in securities and the volume of shares sought, at 11am every day.

After completion of buying-in, SGX will publish the list of securities bought-in (which includes individual counters), the volume and dollar-value at 8:30 am the following business day.

In addition to the current processing fee for buying-in of $30 per contract, there will be a penalty of 5% of the value of the failed trade subject to a minimum of $1,000. This penalty will take effect for trades executed from Thursday 25 September 2008 onwards. The fee will be reviewed from time to time to assess its effectiveness.

Market participants must not short-sell in the buying-in market as it runs counter to the objective of buying-in. Accordingly, any failure to deliver shares in the buying-in market may be liable to penalty of $50,000 and/or disbarment from participating in the buying-in market. This will take effect from Thursday, 25 September 2008.

The measures introduced today will be reviewed after a month. SGX remains vigilant in maintaining the orderly functioning of the market and safe efficient clearing.

SGX initiates buy-in for shares against short-seller who fails to cover his position

SOMEONE out there is licking his wounds after taking an almost $1 million hit after a naked short-selling adventure that went badly wrong.

The Singapore Exchange (SGX) yesterday initiated a buy-in for a huge chunk of China Hongxing shares against a short-seller who had dumped the stock last Friday but failed to cover his position before the close of the session.

In all, the SGX yesterday bought-in some 13 million shares of the mainboard-listed Chinese sports shoes and accessories maker at around 35.5 cents per share.

This was to cover the short sale of an equal amount of shares at around 25 to 27 cents per share during last Friday's session.

Besides taking a loss on the price difference, the short-seller also took a hit on the transaction fee of $40 per block transacted, and a higher brokerage rate of 0.75 per cent on the deal.

Market insiders reckon the loss could stack up to around $1 million.

No one whom BT contacted could say who Friday's short-seller was, but speculation centres on hedge funds.

Intra-day short-selling is quite common on the SGX, and institutions which do overnight short-selling avail themselves of scrip borrowing-lending (SBL) facilities earlier. OCBC Securities has the largest SBL account facility here.

What also baffled many market insiders was the fact that the short-selling was done at a historic low price for the stock - something which would have immediately raised eyebrows and attention.

China Hongxing, which a year ago was trading at around $1.40, has been on a seemingly inexorable decline over the past 12 months, in tandem with the market. It closed at 33.5 cents yesterday, a two-cent gain, on a volume of 60.4 million.

Bailout uncertainty sinks Wall Street

NEW YORK - Stocks tumbled on Monday as investors worried a US$700 billion bailout for the financial sector may not resuscitate a slumping economy, while a record spike in oil prices renewed concern about consumer spending.

Banks, home builders and big manufacturers were among the biggest decliners as negotiations over the government's rescue plan to mop up bad mortgage debt on banks' balance sheets heated up in Washington.

A Wall Street analyst downgrade hit shares of JPMorgan Chase, the No 3 US bank, which fell 13.3 per cent, making it the top drag on both the Dow and the S&P 500. Wells Fargo dropped 11.6 per cent.

The S&P financial index shed 8.5 per cent, while an index of airline stocks fell 9.4 per cent.

Monday's market swoon wiped out nearly all the gains seen on Friday when the bailout announcement sparked Wall Street's best one-day advance since 1987. Only 2 of the Nasdaq 100 stocks end higher.

Investors cited uncertainties about the rescue plan's details and concern about whether it would provide a lift for the US economy, which many fear is already in recession.

The Dow Jones industrial average dropped 372.75 points, or 3.27 per cent, to 11,015.69. The Standard & Poor's 500 Index slid 47.99 points, or 3.82 per cent, to 1,207.09. The Nasdaq Composite Index fell 94.92 points, or 4.17 per cent, to 2,178.98.

The Bush administration is pressing Congress to approve one of the costliest US bailouts for financial companies since the Great Depression, but debate about the particulars of the plan continues on Capitol Hill.

Source: Singapore Business Times - 23 Sep 2008

Short-selling ban stuns hedge funds
Many lose a fortune and could fold up in the coming months

HEDGE fund short sellers, caught in Friday's bear squeeze, are believed to have lost fortunes. Many of them are expected to close down in coming months, analysts say.

Although a minority of hedge funds and traders made fortunes when Wall Street, London and other global markets soared, bears were caught unawares by the dual action of the US Securities and Exchange Commission (SEC) and the UK's Financial Services Authority (FSA). Both regulators, followed by Ireland and other European countries, clamped down on short selling.

Hedge funds, investment proprietary traders and other speculators had borrowed shares and sold them, aiming to profit from further price declines. Futures, options and other derivatives were also used to profit from a further market slide.

Instead, the short-selling ban caused an acute bear squeeze, forcing hedge funds and other bears to buy back shares.

Prices opened sharply higher as selling dried up and the bears scrambled to cover their short positions. Banks, insurance companies and other financial shares rose between 30 per cent and 60 per cent at one point, before falling back when the market began to settle down.

The bear squeeze and exceedingly volatile markets in recent weeks have now placed a question mark on the viability of some hedge fund businesses.

George Ball, chairman of Sanders Morris Harris Group, a large American asset manager, is predicting that 1,000 hedge funds will fail in the coming 12 months. This follows 350 failures in the first half of the year. The regulatory restrictions will crimp the flexibility of hedge fund managers, he says.

Hedge funds are likely to be under severe pressure for several reasons:

First, performance has been poor. In the year to Sept 18, before the huge rally on Friday, Hedge Fund Research's HFRX daily global hedge fund index was already down 9.7 per cent.

Relative value hedge fund strategies had fallen by 17 per cent while the HFRX long short hedge funds had declined by 11.6 per cent. Macro hedge funds, that trade all the markets, were still up by 4.6 per cent because of a good first half.

Second, withdrawals are accelerating and risk-averse investors have reportedly given hedge funds notice that they intend redeeming their investments by the end of the year.

Third, short-selling restrictions, tighter regulation and deleveraging are limiting hedge fund manager flexibility and trading.

Fourth, banks and prime brokers are expected to reduce loans to hedge funds. The borrowing and consequent leverage helped them profit in dull markets.

The regulatory moves to curb short selling received praise from companies and the expected criticism from AIMA, the hedge fund industry body. The regulators were accused of creating false markets in banking shares, but they countered that in the current crisis something had to be done to underpin faltering banks.

'The Commission is committed to using every weapon in its arsenal to combat market manipulation that threatens investors and capital markets,' said SEC chairman Christopher Cox.

The SEC said it had banned short selling in 799 financial companies until Oct 2, while Britain's FSA has placed 33 companies on its banned list.

Ireland also outlawed short selling of its biggest banks but said the ban would be kept under 'continuous review'.

The Committee of European Securities Regulators warned further short-selling restrictions could be imposed across its 27 member states.

Source: Singapore Business Times - 22 Sep 2008

Refering to Singapore’s Straits Times Index (STI), after 2746 was broken down on 19/8/2008, it was indeed "all hell break loose" as anticipated. That is the fantastic side of Technical Analysis because IT WORKS!

Looking at the current weekly chart, STI merely dropped by 11.6 points for the week. But on the daily chart, it presents a very volatile week, having plunged to as low as 2308, before closing at 2559. The week high and week low is a whopping 268 points difference.

The Candlestick bullish hammer seems to suggest in the short term, there may be some upsides. But the upsides are likely to be capped by the overall down trend of the STI chart. STI will likely be caught in between the Fibonacci 38.20% retracement of 2900 and 2278 range in the medium term.

It is still too early to determine if STI has bottomed out because its medium-term down trend is basically still intact. However, last week’s low at 2308 is a possible bottom to watch out for if it can be maintained, breaking down of which the down trend will zoom down like Formula One’s speed.

More daily bars are required before the direction of STI can be ascertained.

In the meantime, there is still some fast money to be made, but the trading horizon must be kept short with strict stop loss order.

CLOSING MARKET REPORT
Extraordinary rescue effort spurs Wall Street rally

* Financial stocks lead on US plans to stabilise markets
* SEC imposes temporary ban on short sales
* US Treasury to back money market mutual funds
* Dow up 3.4%, S&P up 4%, Nasdaq up 3.4%

NEW YORK - Sweeping government measures to rescue the financial system and restore confidence in shaky markets spurred a huge relief rally in US stocks on Friday, ending a week when the financial landscape underwent the most dramatic reshaping since the Great Depression.

The benchmark S&P 500 index had its biggest two-day rally since October 21, 1987, two days after the 1987 stock market crash.

Led by US Treasury secretary Henry Paulson, officials are working on a solution to mop up hundreds of billions of dollars worth of bad mortgage debt.

In another extraordinary action, the United States joined the United Kingdom in temporarily banning bets that financial stocks will fall, while the Federal Reserve said it will use US$50 billion to back money-market mutual funds.

The moves came at the end of an agonizing week for Wall Street, in which Lehman Brothers filed for bankruptcy, insurer American International Group was bailed out by the government and Merrill Lynch was forced into a shotgun marriage with Bank of America. Investors had worried that the confluence of crises severely threatened the stability of the US economy.

But even with the furious two-day rally, stocks still ended essentially flat in a week marked by extreme volatility - with the Dow plummeting more than 500 points on Monday, only to rise on Tuesday and drop again on Wednesday.

An S&P index of financial stocks jumped 11.1 per cent.

Short sellers, who profit when stocks fall, have been blamed for contributing to the demise of Lehman Brothers and the steep declines in other financial stocks this year.

The Dow Jones industrial average closed up 368.75 points, or 3.35 per cent, at 11,388.44. The Standard & Poor's 500 Index advanced 48.56 points, or 4.03 per cent, to 1,255.07. The Nasdaq Composite Index shot up 74.80 points, or 3.40 per cent, to 2,273.90.

Shares of Washington Mutual surged 42.1 per cent to US$4.25 after the Wall Street Journal reported that Citigroup was considering making a bid for the US savings and loan.

Citigroup shares leaped 22.7 per cent to US$20.65 on the New York Stock Exchange (NYSE).

Shares of Morgan Stanley, punished earlier this week as investors fretted about the outlook for the last two remaining US investment banks, jumped 20.7 per cent to US$27.21. Shares of rival Goldman Sachs climbed 20.2 per cent to US$129.80.

Morgan Stanley's talks with Wachovia Corp, China Investment Corp and other institutions continue, a person familiar with the matter said, though the rebound in its securities gives the investment bank more time to consider its options. Wachovia's stock surged 29.3 per cent to US$18.75.

Trading was heavy on the NYSE, with about three billion shares changing hands, far above last year's estimated daily average of roughly 1.9 billion, while on Nasdaq, about 3.8 billion shares traded, also trouncing last year's daily average of 2.17 billion.

Source: Singapore Business Times - 20 Sep 2008

CLOSING MARKET REPORT
Wall Street rallies on crisis solution hopes

* Treasury mulling RTC-type solution to crisis: source
* Three major indexes jump the most since October 2002
* Dow up 3.9%, S&P up 4.3%, Nasdaq up 4.8%

NEW YORK - Wall Street had its best day in six years on Thursday as news the government is considering a more comprehensive solution to the financial crisis than the current piecemeal approach spurred a furious late rally.

Responding to the week's gut-wrenching upheaval of the financial system, US Treasury Secretary Henry Paulson has been shopping around a proposal to congressional lawmakers that would create an entity to deal with the billions of dollars of bad debt still clogging the financial system, a congressional aide said.

The idea has been compared to the Resolution Trust Corp formed in 1989 to fix the savings and loan industry collapse.

An index of beaten-down S&P financial stocks soared 11.7 per cent while economic bellwethers such as General Electric and Caterpillar also posted sharp gains.

The rally came on the back of steep declines after a frantic four days in which American International Group was bailed out, Lehman Brothers went bankrupt and Merrill Lynch was forced into a shotgun marriage with Bank of America.

The Dow Jones industrial average jumped 410.03 points, or 3.86 per cent, to 11,019.69, while the Standard & Poor's 500 Index climbed 50.12 points, or 4.33 per cent, to 1,206.51.

The Nasdaq Composite Index shot up 100.25 points, or 4.78 per cent, to 2,199.10.

For all three indexes, it was the biggest one-day percentage gain since October 2002 - when the last bull market was born.

Also helping the market were a flurry of headlines that seemed to point to a concerted global effort to clamp down on short sellers, who place bets that stocks will fall.

The latest developments came on the first day that the US Securities and Exchange Commission's new rules aimed against abusive short selling of stock in all publicly traded companies took effect.

Britain's Financial Services Authority said investors will be temporarily barred from taking new short positions in financial stocks from midnight on Thursday, Sept 18, which analysts said raised the possibility of a similar action in the United States.

Source: Singapore Business Times - 19 Sep 2008