Dow Jones Rally Will Lift Local Stocks

After Wall Street’s deplorable results last Friday, the question for ST Index today is not a matter of battering but how much collateral damage we will be seeing.

An oversold rebound for the Dow Jones is in order here, could be early this week. How often do we see a 400 Dow Jones drop in a single day? To be sure, traders with enterprise could move into the market now and made short term profits.

Between now till the American Presidential election, there should be a feel-good sentiment. A lot of antagonism towards George Bush will be swept away as Americans look forward to better days with a new man in charge.

Change – the main theme of Obama’s campaign who won candidacy for Democrats last week, is needed to right the wrongs of the Bush administration. Obama is young and I believe he has the drive and panache for doing that.

To help the stock rally, oil shed more than $4 off the price of a barrel Monday after a Saudi Minister called for an international dialog on prices. Light, sweet crude for July delivery fell $4.19 to settle at $134.35 a barrel on the New York Mercantile Exchange. However, no new decisions on oil production will be made by OPEC until its Sept. 9 meeting.

On the real estate front, the Pending Home Sales Index from the National Association of Realtors (NAR) rose up 6.3% in April, its highest since October. This signifies more homes under contract to be sold instead of a projected fall of 1% by analysts.

Certainly, bargain hunters are back to testing the waters, especially in areas of double-digit price declines. Though the figures do not tell us whether the renewed interest is from speculators or genuine home-buyers, at least there are signs that the lackluster real estate sector is picking itself up.

The massive losses at Lehman Brothers does not paint a bleaker picture of the subprime crisis than at the start of the year. Rather than worry about a bottomless pit from a bank which conceals its problems with creative accounting, I rather see all the write-offs and losses. Investors can then look forward and made accurate valuations of the stock.

In the coming weeks, if there is a strong downtrend, I believe the support level of March lows will hold up. Once the Dow Jones plunge to that level, I fully expect a strong rally for the index to reach the 12800 level.

As for ST Index, it can be propped by positive events in China. Specifically, the trend in Shanghai’s and Hang Seng’s indices will be closely watched, given that the Chinese had a day off on Monday.

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