PSEi WEEKLY MARKET SUMMARY 08.12.2011

TRENDS
Weekly Chart. The longer 2 year trendline continues to be in force though momentum appears to be weakening. A MACD price divergence becomes apparent when the 2 year index high of 4563 is matched with the MACD lines' at a lower level than the MACD peak of 2010 when the index was at 4413.

Daily Chart. On a shorter term, the 5 month uptrend, viewed as a primary wave of the longer 2 year trendline, failed this week. The index proceeded to test the previous support level at 4100 thereabouts and found buying support. It has recovered since and encountered selling pressure at 4400, a significant resistance area during May to June 2011. For the short term, I expect the PSEi to move sideways between 4100 and 4500.

MARKET OUTLOOK
The 2 year uptrend remains in force but is weakening. The short term reversal may be the leading edge of a major reversal but for now that's only a possibility. Expect the index to move between 4100 and 4500 in the short term. We continue to look for a break in any direction to trigger a reevaluation of this market outlook.

DJIA Weekly Market Review 08.12.2011

TRENDS AND PRICE TARGETS

The last 2 weeks brought about the break of the rising trendline that started early 2009.

From the May 2011 high of 12876, a downtrend emerges with a lower high in Jul 2011 and a break below the recent support of 11862.

This new trend may be characterized in a number of ways:

(1) It may be viewed as a temporary pullback of the Jun 2010 to May 2011 uptrend from 9614 to 12876. Fibonacci price targets suggest potential support levels from 10879 to 11642. Those that subscribe to this characterization believe that this week's daily 500 point moves and reversals are signs of a major capitulation and that the 2 year uptrend may have already found a new base to mount a new primary advance. Personally, I think it is premature to make this conclusion.

(2) On a longer term view, this retreat could be deemed a countertrend of the Mar 2009 to May 2011 uptrend from 6469 to 12876. The Fibonacci retracement level of the more than 2 year advance points to a steeper drop somewhere between 9000 and 10500. It is not unreasonable to expect this downtrend to find significant support at the 2010 bottom of 9614.

(3) A significant move below 9000 makes the characterization as a technical correction unlikely and will open the door to a possible retest of the 2009 low of 6469.

MARKET OUTLOOK

Momentum indicators appear to rule out this week's move as a capitulation of the new downtrend. This reversal will continue with intermittent snap backs until it finds significant buying support somewhere in the range of 9000 to 10500.

LIST OF THE DOW'S BIGGEST SINGLE DAY DROPS

Here's an interesting bit of stock market history compiled by the Associated Press...

A look at the Dow's worst drops since 1899
A look at the Dow Jones industrial average's worst days since 1899

Associated Press

The Dow Jones industrial average plunged 634 points, or 5.6 percent, to 10,810 on Monday.

Here's a look at the Dow's 10 worst days since 1899:

By percent decline:

-- Oct. 19, 1987: 22.6 percent, or 508 points

-- Oct. 28, 1929: 12.8 percent, or 38.33 points

-- Oct. 29, 1929: 11.7 percent, or 30.57 points

-- Nov. 6, 1929: 9.9 percent, or 25.55 points

-- Dec. 18, 1899: 8.7 percent, or 5.57 points

-- Aug. 12, 1932: 8.4 percent, or 5.79 points

-- March 14, 1907: 8.3 percent, or 6.89 points

-- Oct. 26, 1987: 8 percent, or 156.83 points

-- Oct. 15, 2008: 7.9 percent, or 733.08 points

-- July 21, 1933: 7.8 percent, or 7.55 points

By points:

-- Sept. 29, 2008: 777.68 points, or 7 percent

-- Oct. 15, 2008: 733.08 points, or 7.9 percent

-- Sept. 17, 2001: 684.81 points, or 7.1 percent

-- Dec. 1, 2008: 679.95 points, or 7.7 percent

-- Oct. 9, 2008: 678.92 points, or 7.3 percent

-- Aug. 8, 2011: 634.76 points, or 5.6 percent

-- April 14, 2000: 617.78 points, or 5.7 percent

-- Oct. 27, 1997: 554.26 points, or 7.2 percent

-- Oct. 22, 2008: 514.45 points, or 5.7 percent

-- Aug. 4, 2011: 512.61 points, or 4.3 percent

-- Aug. 31, 1998: 512.61 points, or 6.4 percent

Source: Dow Jones Indexes, a division of CME Group Inc.

DJIA, POST S&P DOWNGRADE - PANIC RULES THE MARKETS

The first trading day after S&P downgrades the U.S. credit rating from AAA to AA+ the Dow falls 5.5% (635 pts). Real ugly...

Q+A: S&P's downgrade of the United States

Here's a good read of an insightful view of what the US credit ratings downgrade by S&P means.

Q+A: S&P's downgrade of the United States
NEW YORK | Sun Aug 7, 2011 2:25am EDT

NEW YORK (Reuters) - The United States lost its top-tier AAA credit rating from Standard & Poor's on Friday, a move that will affect the country's borrowing costs and investor opinion of U.S. assets. Here is a Q+A on what the downgrade means for investors, consumers and to the country.

WHAT IS A DOWNGRADE?

Standard & Poor's, one of the three major credit rating agencies that assign scores to debt issued by institutions, municipalities, and governments, said there is a heightened degree of risk in holding debt issued by the United States. So it lowered its rating from the AAA, the highest possible level, by one notch to AA+. It also said the outlook is negative.

WHY DID IT LOWER THE RATING? The credit rating agency believes the outstanding debt of $14.3 trillion and projected deficits for coming years in the United States no longer warrant the top-tier rating that it had assigned to the United States since 1941. It also said that the political environment does not build confidence that the United States can agree on how to lower the deficit in a meaningful way any time soon.

DOES THIS MEAN THAT U.S. DEBT IS NO LONGER SAFE?

No. At AA+, the U.S. is still considered to have a "strong" ability to meet its obligations. In fact, only a handful of countries now have the AAA rating -- among them Canada, Germany, France and the United Kingdom. In addition, Treasuries have rallied this week, driving the yield on the benchmark 10-year note to 2.34 percent, its lowest level in about 10 months. This suggests people still view the U.S. as a safe place to invest.

BUT WASN'T A DEBT DEAL JUST SIGNED IN CONGRESS?

Yes, but the savings from this are projected at $2.1 trillion. S&P has said that a larger level of savings is needed -- at least $4 trillion either through spending reductions or tax increases - are needed in order to start lowering U.S. deficits in coming years.

WHAT IMPACT DOES THE DOWNGRADE HAVE?

Over time, a lower rating will cause investors who buy U.S. government debt to demand a higher interest rate to hold that debt to reward them for the risk. If that is the case, benchmark long-term interest rates will rise. Most major rates, including the debt of corporations, mortgages purchased by investors, and other types of loans, are priced in relation to the U.S. Treasury benchmark. That means borrowing costs across a number of spectrums over time will rise, making loans and bonds more expensive. The more an individual or company is devoting to interest payments, the less they have for other activities.

SO WHAT WILL IT COST?

The downgrade could add up to 0.7 of a percentage point to U.S. Treasuries' yields, increasing funding costs for public debt by some $100 billion, according to SIFMA, a U.S. securities industry trade group.

WHO OWNS U.S. DEBT?

Other than the U.S. Federal Reserve, the most recent data from the U.S. Treasury shows that China, with $1.16 trillion in U.S. Treasury securities, is the biggest holder of our debt. China has repeatedly warned of the unsustainable trend of U.S. deficits and has talked of diversifying its holdings to other economies. But because China maintains the value of its currency through buying of U.S. dollars, it is likely to continue to be a major holder of Treasury securities for some years ahead.

WILL MY MONEY MARKET FUND HAVE TO SELL ITS TREASURY DEBT?

Not likely. The credit rating change affects long-term debt

--

the short-term credit rating of the U.S. is A-1+, the highest short-term rating. Money market funds with short-term debt are unlikely to be affected.

WILL INVESTORS PREFER DEBT FROM HIGHER RATED COUNTRIES?

This is possible. Some large investors, such as William Gross of PIMCO, have said other markets such as Canada offer more value. But the U.S. market retains significant appeal because its bond market was more than $35 trillion at the end of March 2011, according to SIFMA. No other bond market is close to that size.

NOW THIS HAS HAPPENED, IS U.S. SAFE FROM OTHER DOWNGRADES?

No. To begin with Standard & Poor's has assigned a "negative" outlook to the US long-term credit rating. That means another downgrade was possible in the next 12 to 18 months if it does not see an improvement in debt reduction. The other ratings agencies, Moody's and Fitch, currently still have a AAA rating on U.S. debt, which they just affirmed. But both of those agencies have suggested the U.S. could also be downgraded if projected government deficits are not reined in. Moody's currently has U.S. debt on review for possible downgrade.

HOW LONG HAS THE U.S. HAD AN AAA RATING?

S&P has maintained a AAA rating on the U.S. since 1941. Moody's has had an Aaa rating on the U.S. since 1917; Fitch's top-tier AAA rating dates to 1994.

(Editing by Eric Walsh)

(Editing by Michael Roddy)

(This story is corrected in the third response to note more than four countries still have triple-A ratings)

Breaking News: US CREDIT RATING DOWNGRADED

Breaking news from Reuters, MSNBC and the Associated Press announce S&P downgrades US credit rating.

S&P DOWNGRADES US CREDIT RATING FROM AAA
S&P issues unprecedented downgrade of US credit rating, saying debt package falls short

Associated Press (AP)
Martin Crutsinger, AP Economics Writer, On Friday August 5, 2011, 8:42 pm

WASHINGTON (AP) -- Credit rating agency Standard & Poor's says it has downgraded the United States' credit rating for the first time in the history of the ratings.

The credit rating agency says that it is cutting the country's top AAA rating by one notch to AA-plus. The credit agency said late Friday that it is making the move because the deficit reduction plan passed by Congress on Tuesday did not go far enough to stabilize the country's debt situation.

A source familiar with the discussions said that the Obama administration believes S&P's analysis contained "deep and fundamental flaws."

-------------------------------------------

US GOVERNMENT LOSES TRIPLE-A CREDIT RATING
S&P had warned government of action; US debt now rated lower than European countries'

Reuters and CNBC contributed to this report.

WASHINGTON — The United States lost its top-notch AAA credit rating from Standard & Poor's Friday, in a dramatic reversal of fortune for the world's largest economy.

S&P cut the long-term U.S. credit rating by one notch to AA-plus on concerns about growing budget deficits.

U.S. Treasuries, once undisputedly seen as the safest investment in the world, are now rated lower than bonds issued by countries such as the United Kingdom, Germany, France or Canada.

The outlook on the new U.S. credit rating is negative, S&P said in a statement, a sign that another downgrade is possible in the next 12 to 18 months.

U.S. government officials had been bracing for a downgrade.

CNBC's John Harwood reported that S&P told the federal government at 1:30 p.m. ET Friday that it was preparing to downgrade the country's rating. But Harwood reported that after U.S. officials pointed out an error in how S&P computed the ratio of U.S. debt to the gross domestic product, S&P decided to reconsider.

A source said S&P's calculations were off by "trillions," CNBC reported.

The earlier reports said the main reasons likely to be cited for a U.S. downgrade by S&P included political confusion surrounding the process of hiking the debt limit and doubt that agreement would be reached on more deficit reductions.

On July 14, S&P put the government on a credit watch with negative implications, meaning there was at least a one in two chance the U.S.’s long-term debt would be downgraded within 90 days.

After Congress reached a deal this week on budget cuts valued at about $2.1 trillion over 10 years, the other two main rating agencies reaffirmed the nation's top credit rating status for now although said they would continue to evaluate the situation. S&P never issued a comment. still has not commented.

Moody's assigned a negative outlook for U.S. sovereign debt, meaning it could still downgrade the securities, although probably not anytime soon. Moody's said there would be a risk of downgrade if there is "a weakening in fiscal discipline, a deterioration in the economic outlook or if Congress fails to adopt more deficit-reduction measures in 2013.

Another major agency, Fitch, said it would complete its review of the nation's sovereign debt rating by the end of August and did not rule out a downgrade.

Standard & Poor's had warned that the nation's credit rating would be subject to a downgrade without a credible deficit-reduction package worth $4 trillion over 10 years. The package agreed to by congressional negotiators falls well short of that mark.

A downgrade could result in higher market interest rates and could force some fund managers to sell Treasury securities. But it is unclear what the result would be if only one of the major agencies issued a downgrade.

The rating agencies have been under fire since the financial meltdown of 2008 because they often gave high ratings to bundles of mortgage-related securities that were risky and ultimately failed.

LC and ZHI, After Market Notes

LC and ZHI... A bloody market did not prevent today's accumulation of these 2 stocks... both ended way above their gap down opening prices while ZHI managed to close around 19% higher... volume and value traded were nothing to sneeze at either...

PSEi, 08/05/2011 - Weekly Market Review

This week's downturn signals a reversal of the 2-month uptrend that started Jun-2011. It will most likely start a new short term downtrend that is not inconsistent with the medium term uptrend. The MACD lines and histogram affirms the momentum of this new short term direction. The 6-month medium uptrend that commenced late Feb-2011 continues to be valid for now and the new short term downtrend may be reasonably expected to encounter resistance at the medium term trendline. The primary uptrend that started late 2009 remains in force. A breach of the medium term trendline will warrant a re-evaluation of this outlook.

DJIA - 8/4/2011, Big Dow Selloff Today

Price Action
A failure pattern occurred in Jul 2011 when the Dow failed to breach the May 2011 resistance of 12876. The trend change is confirmed this week when the index broke below two major support levels established in May 2011-11555 and Jun 2011-11882.

Indicators
The RSI has gone into the lower band and the MACD lines and histograms are in negative territory both affirming the downtrend.

Price Targets
Previous major resistance - 11258
Previous major support - 9644
Fibonacci (Jun 2010-May 2011) - 10827

Market Outlook
The index has exhibited a 3 month cycle since Sep 2010 suggesting that the index could continue this downturn until mid-Sep 2011 before finding significant support potentially between 11258 and 9644.

PSEi 7/8/2011

Market Outlook.
Positive. For now, the index may be reasonably expected to overcome the recent failure pattern and continue the 2009 rising trendline. A break below the 2009 trendline should trigger a re-evaluation of this outlook.

Daily Chart.
The index is trending up since Mar 2011. A bearish rounding top pattern from Apr to Jun 2011 failed to complete successfully when the composite found support and broke a major resistance level in early Jul 2011. For now the average appears to be on a short term correction within the Mar 2011 rising trendline.

Weekly Chart.
The 2009 uptrend continues to be unbroken, although a failure pattern presented itself during 2Q 2011 when the index failed to breach the 2010 high. Failure patterns usually signify a weakening of the current trend, but if viewed within the context of a recent breakout in the daily chart, momentum appears to side with the bullish view.

DJIA 10/2/2009

* Affirms the secondary uptrend in a pullback. Buying pressure is expected to appear anywhere between 9300 and 8900 level.


* The Jul09 uptrend remains intact but the shift in the slope of the trendlines betray its weakening. A breach below 9252 ends the advance and signals a potential retracement.
* Buying support could appear between 9218 and 8785 which is the fibonacci retracement of the Jul09 to Sep09 advance.
* The prior broken resistance that could serve as new support is 8877.


* Shows the index in a primary downtrend and the dow failing to breach the cloud of resistance.
* This could signal the end of the 6mo countertrend rally and could signal the resumption of the primary downtrend.


* For now, 9917 seemingly appears as the peak of the current 4 month cycle and the right translation suggests that likelihood of a higher trough that is anticipated to appear sometime Nov09.


* The index has retraced more than 38.2% of its oct08 to mar09 decline.
* It is customary for a major trend to resume its direction after a retracement of this magnitude.

------

PRIMARY DOWNTREND - Oct08 to present
* Currently in a countertrend advance
* Support (prior) 6469 | Resistance (prior) 14198
* Potential resistance levels: Fibo retracement levels 9422-11246 | Ichimoku cloud 7750-9900
* Momentum shifts against the downtrend

INTERMEDIATE UPTREND - Mar09 to present
* Support (prior) 8250 | Resistance (prior) 8750 broken jul09
* Potential resistance 9917
* Potential support 8877 (prev broken resistance Jun09)
* Momentum supports the uptrend

SHORT TERM UPTREND - Jul09 to present
* Currently is a countertrend retreat
* Support (prior) 9252 | Resistance (prior) 9917
* Potential support: Ichimoku cloud 8900-9300 | Fibo retracement level 8785-9218 | Previously broken resistance of 8877

TECHNICAL ANALYSIS
The intermediate uptrend is on a collision course with the bigger primary downtrend. It is premature to say if the recent resistance of 9917 is the next lower peak of the big trend. A near term break below 8250 will increase such a likelihood. To get things into perspective, the primary downtrend can mark a new peak as high as 11245 and still remain in a healthy downtrend.

With that as a caution, there is no evidence to support the view that the intermediate uptrend is over. Even with the current downleg, the index can afford to register a near term trough of as low as 8800 and still be considered in a healthy uptrend. Technically, should that actually occur, and the Dow successfully breaks beyond 11245, the bullish argument that the Mar09 to present runup is the first upleg of a bull market is marginally strengthened.

The short term remains in an uptrend but momentum is clearly weakening evidenced by the shifting slopes of the up trendlines and the stark divergence of the MACD from the price peaks from Aug09 to present. It is likely that this current retreat is the start of a correction of the intermediate downtrend.

MARKET SENTIMENT
Aware of the countless possibilities of how this recent decline could play out, I choose to view it as the likely start of an intermediate correction as insinuated by its weakening momentum. Further, due to the bullish right translation of the current 4mo cycle, I expect buying support to appear between 9218 and 8785 thereabouts at which point the index reverses and resumes the intermediate uptrend.

DJIA, 9/28/09

Primary downtrend: Oct07 - Mar09
* Prior support/resistance: 6469/14198
* Potential resistance: 11000 (Fibo)

Secondary uptrend: Mar09 - present
* Prior support/resistance: 8087/8877(broken)
* Price objective of this countertrend: 11000

Short term uptrend: Jul09 - present
* Prior support/resistance: 9252/9917
* Momentum is weakening. Declining MACD peaks in Aug09 and Sep09 diverge from the rising price peaks in the same period
* Today's higher close could potentially be the start of a new upleg of the short term trend.
* For now price objective to the upside is 10000.

It is my view that the market is due for a correction of the intermediate uptrend potentially bringing the Dow to the 9000 level. This medium term trend is on a collision course with the bigger primary downtrend. If the uptrend continues to assert itself, then the next critical level is 11000 at which point we should look for signs that will define whether we should continue to view the secondary uptrend as a countertrend to the primary downtrend. The short term trend continues to be valid but the weakening momentum suggests caution. It is reasonable to expect selling pressure to appear at the 10000 level.