Comtex SmarTrend(R) Morning Call -- September 18, 2008

Sep 18, 2008 (SmarTrend via COMTEX) -- WFC | Quote | Chart | News | PowerRating -- Fear of illiquidity drove the market indices to new lows, as the DJIA declined to 10,600. The downtrend slope of the DJIA has steepened irrationally, and a bounce up today is likely. Most SmarTrend(R) indicators are wallowing in oversold territory, but the DJIA is likely to touch down at 10,200 before a stock market rally can ensue late next week.

History has taught that illiquidity can cause a recession to turn into a depression, so the Fed and U.S. Treasury, now joined with central banks in Asia and Europe, are acting to ensure there is financial liquidity. These banks can do this because the depth of their pockets is bottomless due their money-printing capacities. In other words, inflating the world economy out of the housing-mess hole may be the surest and fastest way to recovery. In the process, pain is going to be felt in many corners, and financial institutions are going to change their business models from high leverage-high risk, to low leverage-low risk. High-earning Wall Street firms are going to disappear into the less earnings glamorous world of commercial banks. Thus the value of stocks in the financial sector has declined 50% over the past year. The decline in value of other sector stocks is premised mainly on the fear that reorganization in the financial sector may lead to inaccessibility of capital in the non-financial sectors. Overall the stock market continuously assesses this likelihood and thus the long-term downtrend persists to date. The intermediate-term trend is struggling due to downward pressure from the SmarTrend(R) uptrends to downtrends, again negative yesterday at 18:128. The IBDI declined, and the Trend Ratio dropped to 35. However, on an intraday basis the DJIA decline was over reactive to fear; the trade-term trend became oversold, and should cause the DJIA to rebound this morning. That may not be enough to cause the near-term trend indicators to emerge from their oversold zones, which is expected to take several more days. The downtrend in the market is thus expected to pause briefly, but the DJIA appears ready to decline to its October 2005 low of 10,200 over the following few days before finding a bottom from which to rally.

Fear is contagious, and the news reports due out today and tomorrow will influence investor sentiment. Those issues are discussed below. For a list of the stocks changing trends in the last week, please click on http://www.mysmartrend.

"What's in your wallet?"...No matter, no one will believe you.

The last time the US T-bill dipped below 0 was in January, 1940, but it happened yesterday, as fears that counterparty risk pushed banks to liquidity-hoarding measures, freezing financial markets, and sending investors to their mattresses as a result. The TED spread marked defensive postures taken by lenders as a spike in Libor and a fall in 3-month Treasuries widened the most since 1987. After defying calls for transparency, firms suffered from their own creation of veils of secrecy, as traders became convinced of the worst, believing little that was said by CEOs. Strains on interbank lending resulted in global central banks' action to inject extra funds into markets, providing the primary source of solace to investors. The Fed added $180 billion extra funding into overnight and long-term money markets. European Central Bank, Bank of Japan, Bank of England, Bank of Canada and Swiss National Bank all pledged further measures to "address ongoing pressures" as needed. And this morning the Fed quadrupled the dollars central banks can auction globally to $247 billion. Furthermore, the SEC issued new short selling rules to curtail "naked" short selling. Still, $3.5 trillion stood idle in money market funds.

In short, equity prices suffered across the board yesterday as the S&P 500 plummeted almost 5% for the second day this week, down 7.2% so far on the week, and once again led by financial sector weakness, off 9.6%. The DJIA, 449 points lower, approached a three-year low, off 4.1%. And the Nasdaq, 4.9% lower, suffered its first three-digit-down day since the aftermath of 9/11. Safety became the market king, with gold posting its biggest-ever, one-day dollar advance, up $70 to $850.50 per ounce. With almost one-fifth of US fuel production shuttered by Gustav and Ike, gasoline inventories plunged to their lowest levels ever recorded, generating 6.6% gains in crude prices, a $6.01 rise to $97.16 per barrel. Commodity prices strengthened, with the DJ-AIG Commodity Index up 3.5%.

All DJIA components fell, led by the 45.3% plunge in AIG (NYSE:AIG), and attended by 12.2% drops in JP Morgan (NYSE:JPM), 10.9% in Citigroup (NYSE:C), and 8.4% in American Express (NYSE:AXP) and General Motors (NYSE:GM). S&P sector performances demonstrated the best showings from health care, off 1.6% and material shares, down 1.9%. Financials posted lower, led by the drop in AIG (NYSE:AIG), as well as 24.2% in Morgan Stanley (NYSE:MS), 20.8% in Wachovia (NYSE:WB), 16.9% in Sovereign Bancorp (NYSE:SOV) and 16% in MBIA (NYSE:MBI). Worsening global demand mentions by Nortel (NYSE:NT) and Dell (NYSE:DELL) hit the tech sector, which fell 5.6%. Unisys (NYSE:UIS) declined 14.7%, Sprint Nextel (NYSE:S) 11.9%, LSI (NYSE:LSI) 9.9% MasterCard (NYSE:MA) 8.8% and Apple (NASDAQ:AAPL) 8.6%.

Global deleveraging continued to wreak havoc on finance costs and banking earnings models, imposing similar constructs of failure on various financial entities: rising expenses for protection against defaults on debt, precipitously fallen share prices, followed by difficulty raising needed capital to remain solvent. The umbrella of Fannie (NYSE:FNM) and Freddie (NYSE:FRE), Lehman (NYSE:LEH), Merrill (NYSE:MER) and AIG (NYSE:AIG) reached out to include Washington Mutual (NYSE:WM), who has reportedly put itself up for auction with Wells Fargo (NYSE:WFC), JP Morgan (NYSE:JPM), HSBC (NYSE:HBC) and Citigroup (NYSE:C) said to be interested. Morgan Stanley (NYSE:MS) is reportedly in talks with China Investment Corp, already a 9.9% owner, as well as said to be considering a merger with Wachovia (NYSE:WB). Lloyds Bank purchased rival HBOS Plc, the UK's largest home loan lender, for $22.2 billion. Many companies chose to deny exposure from the Lehman (NYSE:LEH) meltdown. UBS (NYSE:UBS) found it necessary to report its exposure a manageable $300 million; Wells Fargo (NYSE:WFC) reported a non-cash charge likely in its third quarter on $199 million exposure. Dynegy (NYSE:DYN) believes no material effect likely.

Yesterday's housing news was also ugly. Building permits in August fell to 854K from 937K prior, and off estimates of 925K. Housing starts were their slowest since January 1991, falling to 895K from a downward-revised 954K prior and estimates of 950K. Today's calendar includes a look at labor markets with weekly initial jobless claims, expected at 440K, instead up 10K to 455K, as claimants in Louisiana sought support following Hurricane Gustav. At 10:00 ET the US Philly Fed for September is slated for release, expected at -10.3, as well as the Conference Board's leading indicators for September, expected to drop 0.2%. Chicago Fed President Evans is due to speak on the economic outlook at 7:00 ET.

In the corporate corner, General Electric (NYSE:GE) received a downgrade from JP Morgan (NYSE:JPM) on the exposure of its financial unit to "unforgiving markets"... The world's largest steel-maker, ArcelorMittal (NYSE:MT), off 11.9% yesterday, cautioned that suppliers are having difficulty meeting demand. US Steel (NYSE:X) shares fell 11%, and Nucor (NYSE:NUE) dropped 7%... Goldman Sachs (NYSE:GS) cut its Sony (NYSE:SNY) ratings a day after JP Morgan (NYSE:JPM) cut theirs on concerns regarding the outlook for flat TVs, mobile phone and digital camera businesses... Today's earnings calendar includes results from Carnival (NYSE:CCL), expected to post at $1.58, ConAgra (NYSE:CAG), estimated at 24 cents, Oracle (NASDAQ:ORCL), estimated at 27 cents, Cintas (NASDAQ:CTAS) expected at 52 cents... Economic bellwether FedEx (NYSE:FDX) noted its express delivery operations were hurt by increased fuel costs and a cooling economy, causing fiscal first quarter results to fall to $1.23, inline with Street estimates. The company maintained full year guidance ...

By Chip Brian, Editor-in-Chief, Comtex news Network

www.Comtex.com -- editor@mysmartrend.com

The following equities mentioned above include:

Comtex SmarTrend Alert ---------------------------------------------- Ticker Last Close Trend Direction Trend Price Trend Date ---------------------------------------------------------------------- AAPL 127.83 Downtrend 165.18 9/4/2008 ADS 53.34 Downtrend 58.24 9/17/2008 AIG 2.49 Downtrend 15.40 9/11/2008 AXP 33.04 Downtrend 35.02 9/16/2008 C 14.03 Downtrend 16.60 9/15/2008 CAG 19.16 Downtrend 19.81 9/3/2008 CTAS 31.72 Uptrend 27.88 7/21/2008 DELL 16.19 Downtrend 20.82 9/3/2008 DYN 3.20 Downtrend 8.57 6/27/2008 SNE 31.92 Downtrend 48.64 6/11/2008 FRE 0.27 Downtrend 6.14 8/7/2008 FNM 0.43 Downtrend 8.93 8/8/2008 GE 23.39 Downtrend 27.12 9/12/2008 GS 114.50 Downtrend 146.56 9/15/2008 GM 9.93 Uptrend 13.17 9/12/2008 HBC 72.87 Downtrend 77.02 8/19/2008 JPM 35.77 Uptrend 41.83 9/8/2008 LSI 5.38 Downtrend 6.58 9/3/2008 LEH 0.13 Downtrend 17.04 7/28/2008 MA 196.00 Downtrend 248.24 7/31/2008 MER 19.36 Downtrend 20.48 9/11/2008 MBI 9.71 Downtrend 11.45 9/15/2008 MS 21.75 Downtrend 33.68 9/15/2008 MT 55.28 Downtrend 79.25 7/18/2008 NT 2.68 Downtrend 8.46 6/27/2008 NUE 44.02 Downtrend 69.29 7/2/2008 ORCL 18.10 Downtrend 21.19 9/3/2008 S 5.79 Downtrend 7.72 6/24/2008 SNE 31.92 Downtrend 48.64 6/11/2008 SOV 7.32 Downtrend 8.36 8/21/2008 UBS 13.14 Downtrend 18.87 7/29/2008 UIS 3.03 Downtrend 3.99 6/27/2008 WB 9.12 Downtrend 12.90 9/15/2008 WM 2.01 Downtrend 3.70 8/25/2008 WFC 33.43 Uptrend 27.14 7/17/2008 X 90.20 Downtrend 143.17 8/5/2008

INX -- S&P 500: 1,156 Lo: 1,156 Hi: 1,210 Change: -57.20

http://www.mysmartrend.com/images/INX20080918.jpg

INDU -- DOW JONES: 10,610 Lo: 10,596 Hi: 11,057 Change: -449.36

http://www.mysmartrend.com/images/INDU20080918.jpg

QQQQ -- NASDAQ: 2,099 Lo: 2,099 Hi: 2,183 Change: -109.05

http://www.mysmartrend.com/images/QQQQ20080918.jpg

This report is divided into three sections. The first deals with our 5 proprietary market indicators, the second section examines important economic and business happenings which are expected to affect U.S. Stock market movements and the third section describes specific company announcement and earnings releases. Experience demonstrates that when these 5 indicators reach extremes they can shortly be expected to change direction and move in the opposite direction. When such happens in all or most of the 5 indicators, on or about the same time, followed by a move from below an extreme (oversold) to above that extreme (or vice versa for overbought), a change in market direction is very probable. The near term market moves are measured to identify the best possible returns for traders/investors. Daily price/volume examinations provide the best data upon which to base such forecasts. In this report though, intraday indicators are examined to improve the point of entry timing for the expected move.

Comtex News Network, Inc. is not a registered investment advisor and does not provide investment advice. Investors bear complete responsibility for their own investment research and decisions and should seek the advice of a qualified investment professional prior to making investment decisions. SmarTrend is a registered trademark of Comtex News Network, Inc. Copyright, Comtex News Network, Inc. 2008

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