Stock Preacher

Goldman Sachs and JPMorgan Chase Co. have emerged two bellwethers of the US finance sector in the post-bailout Wall Street, leading the surge of optimism with their strong profits in the Y 2009 Q-2. Six major US banks have reported their second-quarter profits in the past two weeks, vastly beating analyst predictions. The business of Goldman has little to do with common consumers, its quarterly earnings of more than US$3.4B posted were buoyed by record results in its trading and underwriting business. According to the quarterly report, the Wall Street giant generated a record US$6.8B in revenue from fixed income, currency and commodities trading during the quarter. Revenue from equity underwriting jumped to US$736M form UD$ 48M in the first quarter compared with US$616M last year. JP Morgan Chase, the largest US bank by market value, posted a US$2.72B earnings, and made its profits mainly from investment-banking services including bond and equity trading, and underwriting debt to help companies issue shares and bonds, not commercial loans and consumption credit.

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Gold may target a record $1,250 an ounce as a continuation head-and-shoulders pattern may be forming within a longer-term trend, Standard Bank Group Ltd. said, citing trading patterns. A break and close above $1,050.40 “provides warning that an important breakout” has occurred, Darran Grabham, the bank’s technical analyst, wrote in a note yesterday. A head-and- shoulders pattern is formed when a commodity makes three consecutive peaks, with the middle being the highest. It forms during a series of increases over time. “The positive implications are substantial, with the minimum objective situated at US$1,250,” Grabham wrote. “On the downside, gold weakness through $864 turns the outlook bearish, and the weaker trend could then continue towards US$802.”

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A key factor is preventing huge panic selling of shares and augurs for an equities rebound is the piecemeal nature of government attempts to rescue banks and the economy, according to analyst , Sitaraman Shankar. “We need to see an index falling 7 or 8 percent intraday in high volumes and then ending up nearly flat on the day as the buyers come back in,” said Philippe Gijsels, strategist at Fortis in Brussels. “What we’re getting instead is Chinese water torture, and no massive cleanout. Governments and central banks are tending to watch stock markets and giving investors small glimmers of hope, not enough to take markets higher, but enough to prevent a sell-off.” So for capitulation to happen, markets will have to be hit by a big, negative news event, and for the rebound to be sustainable, the overall environment would have to improve. “We need to see an event that would shock everybody, a big US bank failure, or a country in Europe going broke,” said Mark Bon, fund manager at Canada Life. Bon said positive factors that would need to be in place for any strong rebound included an improvement in consumer or business confidence indicators, some merger and acquisition activity, successful rights issues and a belief among investors that company profits had bottomed out. “We would have a sharp sell-off triggered by an event, and then a turnaround as people reversed their short positions and bought into a rally,” he said. The MSCI world index .MIWD00000PUS hit its lowest point since April 2003 last week. The index fell more than 43% last year, punctured by a credit market crisis with its origins in collapsed subprime U.S. mortgages, and is already down 16%this year. Between November 2008 and January 2009, there was a 27% rally driven by investor relief that governments were acting firmly to deal with the crisis. Since January 2009 global equities have slipped steadily as it became clear that the government moves were not enough to stave off a sharp recession in top economies. NO CAPITULATION = SMALLER FALLS, WEAKER RALLIES

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