Week in Review
A look back at the week that was...
The bull/bear battle intensified this week with the bears having the upper hand heading into the weekend. The bulls were able to regain some momentum as markets worked their way higher following Tuesday's FOMC announcement which carried a softer tune than normal.
However, this 3-day rally quickly stalled as credit market turmoil resurfaced. Volatility (VIX) hit a multi-year high Friday after central bankers injected over $100bln into the banking system to ensure liquidity in the illiquid mortgage-backed security (MBS) market. Bonds which had been sold prior in the week after the FOMC announcement, rallied as investors sought a safe haven during these turbulent times.
Significant damage has been done to the tape. For the bulls to regain the upper hand they must successfully defend 1430 and retake its 200 day moving average while working back to its late July breakdown area (1490). Given the high volume selling pressure which has occurred, the bulls will certainly have their hands full as we continue to discount the deterioration in the credit markets.
The "Four Sisters" Performance
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After their meeting this week, the FOMC decided to keep interest rates at 5.25% for the ninth consecutive time. Their statement declared that despite recent volatility in the credit market, economic growth is expected over the next few quarters supported by growth in employment, income and a healthy global market. (8/7)
Home-Depot (HD) continued discussions with private equity firms this week on the purchase of its HD supply segment. Due to current market conditions, the company plans on lowering the offer price. This reduction resulted in a 5.3% drop in share prices on Thursday. (8/9)
Credit worries and market volatility continued this week as AIG reported that their residential mortgage delinquencies and defaults are on the rise. Also French Banking group BNP reported that it has suspended three funds after stating they are unable to value the funds due to a complete loss in liquidity caused by the credit markets. (8/9)
Countrywide Financial (CFC) share plummeted 17% in early trading Friday after reporting the recent disruptions in the mortgage market may adversely affect their current financial condition. (8/10)
Cisco (CSCO) soared this week after the company reported record fourth quarter and fiscal year income. The company credits its recent turnaround to their ability to collaborate and adapt to new technologies. (8/7)
American International Group (AIG) reported an increase of 34% in their second quarter net income. Despite strong numbers, share prices were down 5% on fears of its struggling mortgage unit. (8/8)
News Corp. (NWS) reported record fiscal year income of $4.45 bln, an increase of 15% from fiscal year 2006. These results were supported by impressive growth in its cable programming, magazine, satellite and film segments. (8/8)
Foster Wheeler (FWLT) reported a net second quarter income of $71.9 mln, up from $41.1 mln a year ago. Increases in demand in their Global Engineering & Construction and Global Power Groups fueled the earnings increase. (8/8)
Market Movers: Winners & Sinners
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