Stocks Slip; Traders Play Defense

Stocks closed out a volatile week slightly lower on Friday as a late sell-off for financials offset strong buying in defensive stocks.

The Dow Jones Industrial Average slid 14.81 points, or 0.2%, to 8277.32 after American Express and Bank of America declined by 3% each. For the week, the blue-chip average gained 0.1%, its third advance in four weeks.

The Standard & Poor's 500-stock index slipped 1.33, or 0.2%, to 887.00. It was hurt by a 0.7% decline in its financial sector. The consumer-staples and utilities sectors fared best, rising 0.6% and 0.8%, respectively. Consumer-discretionary stocks also gained after some retailers posted better-than-expected earnings.

The broad market gauge rose 0.5% on the week.

Traders noted activity was sparse ahead of the Memorial Day holiday weekend. After an erratic close Thursday that saw the Dow drift nearly 100 points in the last 30 minutes, trading was more sector rotation than broad buying or selling.

"People want to go home flat if at all possible," said Marc Pado, U.S. market strategist for Cantor Fitzgerald, who noted trading appeared to hint at a little short-covering in a few of the sectors that have fallen this week and a little profit taking in what has held up.

All U.S. financial markets will be closed Monday in observance of Memorial Day.

Stocks got off to a strong start this week after signs of life in the housing market and a bullish analyst comment on banks sent the Dow up more than 230 points on Monday. In each subsequent session, however, economic hopes have waned. S&P's warning that it may downgrade the U.K.'s AAA credit rating and the disappointing results of the latest phase of the Federal Reserve's Treasury-purchase program sent the Dow off 129 points on Thursday.

For now, the tone on the economy continues to take center stage in all trading, with little of the activity on a stock-specific basis.

"We haven't seen this high of a correlation in the market since 1987. People are just taking a one-way bet on risk where they seemingly want to be either all risky or all defensive," said Russ Koesterich, head of investment strategy for Barclays Global Investors.

The Nasdaq Composite Index declined 3.24 points, or 0.2%, to 1692.01. For the week, it rose 0.7%.

Trading ended slightly in the red just ahead of the holiday weekend. Consumers were top of mind, as several retailers reported earnings. Sears surprised some with stronger-than-expected profit that sent the stock up 11%, Dave Kansas says.

Sears Holdings paced the retail sector, gaining 10%, after it posted a surprise first-quarter profit amid cost cuts and tighter inventory controls. Gap reported a 14% profit fall, with sales in all four of its divisions falling. Its shares rose 2.6%. Teen retailer Aeropostale reported an 81% profit rise as its first-quarter results set a company record; its shares rose 3.6%.

Outside the stock market, a new wave of selling hit Treasurys, with the long end the hardest hit. The benchmark yield curve pushed to 3.455%, its steepest level since Nov. 18. Investors are girding for a hefty supply of new debt expected next week.

The dollar continued to push lower against the euro and the pound, furthering sharp declines from Thursday on worry that the U.S. could also face a threat to its credit rating. Like the U.K., the U.S. has borrowed heavily to finance its aggressive efforts to turn back the financial crisis.

The dollar hit its lowest level against the euro since Jan. 2, with the euro rising to $1.4004 from $1.3901 late Thursday. The euro has climbed more than six U.S. cents this week from its intraday low on Monday.

Oil prices finished Friday slightly higher, with gasoline eyeing a new seven-month high ahead of the holiday weekend and a fleet of motorists expected on U.S. highways. Crude-oil futures rose 62 cents, or 1.02%, to $61.67, ending with a 8.2% gain on the week. Oil has gained in three of the last four weeks and is up 21% so far this month

Morgan Stanley to Boost Executive Salaries as Bonuses Decline

May 23 (Bloomberg) -- Morgan Stanley, the sixth-biggest U.S. bank by assets, will increase some executive salaries and double Chief Financial Officer Colm Kelleher's pay as bonuses come under scrutiny from the Obama administration and lawmakers.

The majority of executives will get raises, according to a person briefed on the decision. Chief Executive Officer John Mack's base salary is unchanged this year, according to a regulatory filing yesterday.

UBS AG raised banker base pay 50 percent and Bank of America Corp., which bought Merrill Lynch & Co., said in March it might boost salaries as a proportion of total compensation. Treasury Secretary Timothy Geithner is urging an overhaul of compensation practices at financial companies and said the Obama administration's plan to realign pay with performance will be introduced by mid-June.

"I don't think we can go back to the way it was," Geithner said on Bloomberg Television's "Political Capital with Al Hunt," to be broadcast during the weekend. "We're going to need to see very, very substantial change."

Co-presidents James Gorman, 50, and Walid Chammah, 55, will be paid $800,000 and $750,000 respectively, New York-based Morgan Stanley said in the regulatory filing. Kelleher, 51, will make a base of $750,000, more than double his 2008 base salary of $322,903, Bloomberg data show. Mack, 64, will make $800,000 this year, unchanged from 2008. The changes became effective May 1 and don't include bonus or catch-up payments.

Lynch, Nides

Chief Legal Officer Gary Lynch and Chief Administrative Officer Thomas Nides will each be paid a base of $750,000, the filing shows. Each received a salary of $300,000 in 2008, Bloomberg data show.

CEO Mack didn't take a bonus for the second year in a row in 2008 and co-presidents Gorman and Chammah didn't take one.

Morgan Stanley and UBS also have added so-called clawback provisions that set aside portions of workers' bonuses that can be recouped in later years if an employee leaves or is found to have behaved in ways that are harmful to the company.

A new performance-based stock plan will "focus a greater portion of total compensation on long-term results rather than a one-year performance period," according to the filing.

Morgan Stanley spokesman Mark Lake declined to comment beyond the filing.

UBS cut its bonus pool by 78 percent in January after amassing the biggest loss in Swiss corporate history in 2008. The bank came under pressure from government officials to slash variable pay after the Swiss state provided capital to UBS and helped shift hard-to-trade assets off its books.

U.S. Stocks Retreat as Banks, Hewlett-Packard Shares Slump

May 23-- U.S. stocks retreated, erasing gains in the final hour of trading for a second day, as the Federal Reserve predicted a deeper recession and concern grew that credit-card issuers will be hurt by new lending restrictions.

Benchmark indexes slid as minutes from the Fed's April meeting showed policy makers believe they may need to boost purchases of bonds to ensure a stronger economic recovery. Capital One Financial Corp. lost 7.2 percent as American Express Co. said U.S. legislation to curb credit-card fees may reduce lending to "consumers who need it." Hewlett-Packard Co. dropped 5.2 percent on a disappointing sales forecast.

The Standard & Poor's 500 Index slipped 0.5 percent to 903.47 at 4:09 p.m. in New York, reversing a rally of as much as 1.8 percent. The Dow Jones Industrial Average lost 52.81 points, or 0.6 percent, to 8,422.04. The MSCI Asia Pacific Index rose 0.9 percent, while Europe's Dow Jones Stoxx 600 Index added 0.5 percent.

"The Fed governors debating whether or not they would need to purchase additional Treasuries would be a sign the economy remains weak," said Peter Jankovskis, who helps manage $1.2 billion at Oakbrook Investments in Lisle, Illinois. "The American Express story is playing into it as well. If credit card companies are going to start cutting back on the availability of credit, it's going to be difficult to sustain the growth of personal consumption."

Rally Reversed

The market's earlier rally came as higher oil and metal prices boosted commodity shares and Bank of America Corp. raised $13.5 billion in a share sale. U.S. stocks declined yesterday after Moody's Investors Service said commercial property values plunged and the government reported that housing starts slid to a record low. The S&P 500 is still up 33 percent since March 9 on speculation the global recession is easing.

Financial stocks reversed earlier gains today after American Express, the third-largest credit-card network, said growth won't return to levels from before the downturn in the economy. Kenneth Chenault, the company's chief executive officer, said that while U.S. legislation to curb credit-card fees may reduce lending to "consumers who need it," the measure will hurt competitors more than his company.

Capital One, the Virginia-based credit-card lender, slid 7.2 percent to $23.11. American Express lost 3.3 percent to $23.98.

President Barack Obama plans to sign legislation to curb credit-card fees and marketing practices that legislators have called deceptive, White House spokesman Robert Gibbs said. Card companies said the new law may reduce profit, increase costs for customers and reduce perks.

Regions Slumps

Regions Financial Corp. fell 6.7 percent to $4.89. The largest Alabama bank said it began selling $1 billion of common shares and $250 million of new mandatory convertible preferred shares after the government said it needs $2.5 billion to weather a worsening recession.

Bank of America, the biggest U.S. lender by assets, raised money in a stock offering after regulators determined it needed more cash to weather an extended recession. Bank of America issued 1.25 billion shares at an average price of $10.77 each, according to a statement yesterday. The shares climbed 2.1 percent to $11.49.

Financial companies in the S&P 500 fell 2.4 percent for the steepest decline among 10 industries. Still, the group has almost doubled from a 17-year low on March 6 after the largest banks from Citigroup Inc. to Bank of America said they were profitable at the start of the year.

Treasury, Fed

Treasury Secretary Timothy Geithner said he expects a pair of programs to help banks remove their distressed assets will start by early July, policy makers' next step in ending the worst credit crisis in decades. He spoke in prepared testimony to the Senate Banking Committee in Washington.

Fed policy makers in April projected a fourth-quarter U.S. contraction of 1.3 percent to 2 percent from a year earlier, with a jobless rate of 9.2 percent to 9.6 percent during the period. Both are more pessimistic that projections made in January. For 2010, Fed officials in April foresaw economic growth of 2 percent to 3 percent, compared with 2.5 percent to 3.3 percent in January.

Hewlett-Packard dropped 5.2 percent to $34.67 for the steepest loss in the Dow. The computer maker said revenue will decrease 4 percent to 5 percent this year, the lower end of a forecast range given in February. Chief Executive Officer Mark Hurd said he's basing the forecast on the expectation that the economy won't improve in coming months.

Earnings Watch

Net income declined 36 percent at the 452 companies in the S&P 500 that have reported results since April 7, Bloomberg data show. Analysts estimate earnings will fall 35 percent and 23 percent in the second and third quarters before growing 67 percent in the final three months, according to estimates compiled by Bloomberg.

Commodity producers led the market's early gain as crude climbed as much as 4.4 percent to $62.26 a barrel, the highest since November, and copper, gold and silver advanced.

National-Oilwell Varco Inc. posted the top gain among S&P 500 energy companies, rallying 4.2 percent to $36.53. U.S. Steel Corp., the largest U.S.-based steelmaker, rose 4.3 percent to $31.24.

Procter & Gamble Co. rose 2 percent to $54.02. The world's largest household-products maker was raised to "overweight" at Barclays Plc, which cited "the potential for sales and earnings reacceleration."

'False Signals'

The VIX, the benchmark index for U.S. stock options, added 0.8 percent to 29.03 today. The gauge slipped below 30 for the first time in eight months yesterday, as traders paid less for insurance against declines in the S&P 500. The last close below yesterday's VIX level was 25.66 on Sept. 12, the session before Lehman Brothers Holdings Inc. filed for bankruptcy.

"The VIX has not had a very good record recently," Laszlo Birinyi, who spent a decade on the trading desk at Salomon Brothers Inc. and is known for pioneering money-flow analysis, said in an interview with Bloomberg Television. "It gives off too many false signals."

Steve Leuthold, who turned bullish this year after his Grizzly Short Fund returned 74 percent in 2008 amid the S&P 500's steepest annual retreat since 1937, said he may invest almost 70 percent of some funds in stocks as the economy stabilizes.

He's betting that large investment firms, which have cut equity holdings, will put more of their assets in U.S. stocks in an effort to avoid underperforming the S&P 500 as the market continues to rally. Leuthold, who spoke in a Bloomberg Television interview, turned bullish in March, five days before the index sank to the lowest level in 12 years. It has surged 30 percent since then, approaching his prediction of 1,100.

Japan stocks down on strong yen

Japanese stocks fell Friday with exporters under pressure on the back of a strong yen, and sentiment weak amid concerns about a possible downgrade of British government debt that sent Wall Street lower.

The benchmark Nikkei 225 stock average lost 38.34 points, or 0.4 percent, to 9,225.81. The broader Topix index declined 0.6 percent to 875.88.

"Investors sold export-linked shares due to a sharp rise in the yen. Sentiment was already sluggish following overnight losses on Wall Street, and the yen factor added more pressure on the market," said Yutaka Miura, senior analyst Mizuho Securities Co. Ltd.

The yen stood at 94.24 to the dollar in Tokyo Friday afternoon. A strong yen hurts Japanese exporters as it erodes their dollar income from abroad.

Investors were also jittery after credit ratings firm Standard & Poor's said Thursday it has revised Britain's outlook to negative from stable.

The negative outlook means Britain's credit rating may be downgraded if its public finances do not improve and suggests other big economies could face similar warnings.

Toyota Motor Corp. fell 2.2 percent to 3,570 yen. But Honda Motor Co. rose 2.5 percent to 2,710 yen.

Panasonic Corp. slipped 0.6 percent to 1,324 yen. Sony Corp. shed 2.0 percent to 2,450 yen. Japan's top chipmaker Toshiba Corp. was also down 1.2 percent at 338 yen.

In currencies, the euro stood at $1.3916 from $1.3929.

4-Star Stocks Poised to Pop: Adobe

Based on the aggregated intelligence of 130,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, software maker Adobe Systems (Nasdaq: ADBE) has earned a respected four-star ranking.

With that in mind, let's take a closer look at Adobe's business, and see what CAPS investors are saying about the stock right now.

Adobe facts

Headquarters (founded)	San Jose, Calif. (1982)
Market Cap	$13.65 billion
Industry	Application software
Trailing-12-Month Revenue	$3.48 million
Management	CEO Shantanu Narayen (since 2007) CFO Mark Garrett (since 2007)
Return on Equity (average, last three years)	15.9%
Competitors	Apple (Nasdaq: AAPL) Microsoft (Nasdaq: MSFT)
CAPS members bullish on ADBE also bullish on	Google (Nasdaq: GOOG) General Electric (NYSE: GE)
CAPS members bearish on ADBE also bearish on	Amazon.com (Nasdaq: AMZN) Starbucks (Nasdaq: SBUX)

Sources: Capital IQ, a division of Standard & Poor's, and Motley Fool CAPS.

Over on CAPS, 1,607 of the 1,670 members who have rated Adobe -- some 96% -- believe the stock will outperform the S&P 500 going forward. These bulls include All-Star cibient, who is ranked in the top 10% of our community, and ametts1.

In March, cibient tapped Adobe as the multimedia software star:

Great balance sheet and an extremely attractive business model and moat. Not quite like the razor-and-blades physical product model, but they've really enmeshed Flash and PDF across the entire web -- meaning web designers and developers continue to use their Acrobat and Dreamweaver software packages, which are only a few of their software offerings.

In a pitch from one month earlier, ametts1 elaborates on even more of Adobe's franchises:

By controlling ubiquitous technologies like PDF and Flash, emerging new ones like Flex and Air, and a wide range of well-regarded applications like Photoshop, Dreamweaver, and Illustrator, Adobe stands to benefit from any form of technology growth -- whether on Mac or Windows, Desktop, Internet, or Mobile. Expect technology stocks to lead us out of the market doldrums, and [Adobe] should be right there with the best of them when it happens.

Stocks fizzle ahead of holiday

NEW YORK (CNNMoney.com) -- Stocks slumped at the close of Friday's session, ending the week little changed, as investors went into a holiday weekend with lingering concerns about the economy.

The Dow Jones industrial average (INDU) lost 15 points, or 0.18%, to close at 8277.3. It was the Dow's fourth straight loss, but it still managed to end the week with a slight gain.

The S&P 500 (SPX) index slipped 0.15% to 887 but was up 0.5% for the week. The Nasdaq composite (COMP) slid about 0.2%.

Stocks seesawed in early trading before heading higher in the afternoon as concerns about the U.S. credit rating abated. But the market soldoff near the closing bell.

Analysts said the market lacked conviction Friday because many investors were absent ahead of the Memorial Day holiday. U.S. markets will be closed Monday for the observance.

Meanwhile, the dollar fell to its lowest level in five months against a basket of currencies. Bonds slumped, with the yield on the 10-year note climbing to a 6-month high.

Energy stocks showed early strength as oil prices remained solidly above $60 a barrel.

Shares of financial services companies were under pressure after BankUnited FSB went under Thursday, becoming the largest bank failure of the year.

Looking ahead, the sense of economic optimism that lifted the market some 30% over the past few months will be put to the test next week by a number of key indicators.

"The market has been the beneficiary of less bad news in terms of macro economic data and better-than-expected corporate earnings," said Quincy Krosby, chief investment strategist at the Hartford. "In the next phase, investors will have to see a continuation of less bad news evolving into positive data."

A key home price index, durable goods orders and a revision of first-quarter gross domestic product are all on tap for next week.

Additionally, the fate of troubled automaker General Motors will be in focus. GM bondholders face a Tuesday deadline to make concessions under the troubled automaker's restructuring plans. The company could face bankruptcy if it fails to make the turnaround required by the government by the end of the month.

0:00 /1:39Post-Memorial Day game plan

Companies: Sears Holdings (SHLD, Fortune 500) parent company of retailers Sears and Kmart, reported earnings Thursday that beat analysts' expectations and amended its credit facility to provide additional funding. Shares rose 11% Friday.

Gap (GAP, Fortune 500) said Friday it earned 31 cents per share in the first quarter, down from 34 cents a year earlier, but slightly better than the 30-cent profit analysts had expected. Shares rose nearly 3%.

Another apparel retailer, Aeropostale (ARO), reported better-than-expected first-quarter results and issued an upbeat profit forecast. The stock gained about 4%.

Autos: The U.S. government said Thursday it invested $7.5 billion in GMAC, the main source of financing for General Motors (GM, Fortune 500) customers, and the main lender for Chrysler.

0:00 /02:53Remove GM from the Dow

Bonds: Treasury prices fell, raising the yield on the benchmark 10-year note to 3.46% from 3.36% Thursday. Treasury prices and yields move in opposite directions. The 10-year yield has not been this high since late December.

The bond market closed at 2 p.m. ET Friday.

Other markets: Stocks in Asia finished the session in negative territory, dragged lower by economic worries. Major markets in Europe closed higher.

In currency trading, the dollar continued to fall against major international currencies. The euro rose 0.95% against the buck to $1.4022.

Oil for July delivery rose 62 cents to settle at $61.67 a barrel.

COMEX gold for June delivery rose $7.70 to settle at $958.90 an ounce. 

MARKET COMMENT: London Stocks End Down On S&P Outlook Cut

LONDON (Dow Jones)--British stocks fell sharply on Thursday, pulled down by banks and oil producers, as Standard & Poor's cut its credit-rating outlook on the country to negative.

The U.K. FTSE 100 index fell 2.8%, or 122.9 points, to 4,345.47.

Shares trading elsewhere in Europe were also under pressure, while U.S. stocks were also lower.

Stocks sold off on Wall Street on Wednesday, pulled down by a grim view on the U.S. economy from the Federal Reserve.

On the domestic front, Standard & Poor's cut its credit-rating outlook on the U.K. to negative from stable though it affirmed the country's AAA sovereign credit rating.

Mike Lenhoff, chief strategist at brokerage Brewin Dolphin, said that if S&P cut the country's credit rating, investors will demand a premium to hold U.K. financial assets.

"That premium will be reflected, in the case of bond markets, through higher yields. It will be detrimental to the international [equity] investor because they will have to take a hit on the currency with the risk that it will depreciate," he added.

"Having a credit-rating agency pronounce some judgment on the merits of the outlook for the U.K. economy is not a great thing. It's not very helpful and does blemish to some extent the more positive tone of the markets," he added.

Sterling declined 0.15% to $1.5714 against the dollar. Earlier it fell as low as $1.5515. Yields on 10-year U.K. government bonds rose 6 basis points to 3.64% .

The first test of the government's ability to raise cash came only about an hour after the S&P report. It succeeded, as the government was able to sell 5 billion pounds of debt, with the auction covered 2.6 times.

Banks, oil producers drop

Banks and oil producers, the sectors seen as most leveraged to any improvement in the economy, fell on Thursday. Standard Chartered shares were down 4.2% and BP (BP) shares were down 2.9%.

Miners were also weak, with Chinese steel mills reportedly seeking a 45% cut in iron-ore prices from Rio Tinto (RTP), down 7.2%. BHP Billiton (BHP), down 6.3%, secured the same price increase as Rio Tinto last year.

Credit Suisse equity strategists took the mining sector down to market weight from overweight in order move to a more defensive stance in their portfolio.

The noted that growth momentum in China appears to be peaking, inventories are up and valuations look stretched.

Turning to corporate updates and shares of property-investment giant British Land dropped 8.2% after its fiscal-year net loss widened to 3.9 billion pounds from 1.6 billion pounds a year earlier.

Property values fell sharply in the year and the firm said that continuing stress and disruption in the financial sector resulted in a "shocking year" for most markets.

Shares of Cable & Wireless fell 9.6%.

The telecom operator's fiscal-year adjusted operating profit climbed 36% to 822 million pounds ($1.3 billion), just exceeding analyst expectations for an 813 million pound profit. However, revenue of 3.65 billion pounds missed forecasts.

Shares of pub chain Mitchells & Butler fell 9% after its CEO, Tim Clarke, resigned after the company had to incur a 69 million pound loss from an interest-rate swap.

The interest-rate debacle came as the company reported its first half to April 11 results, with the group's loss narrowing to 6 million pounds from 87 million pounds. Adjusted pretax profit dropped 48% to 44 million pounds, while its revenue rose 3% to 1.02 billion pounds.

25 Stocks to Invest in a Cleaner World

You don't have to be a tree hugger to believe that climate change and energy efficiency will be significant investing themes for years to come.

The National Petroleum Council, a U.S. government advisory body, says existing supplies of oil and natural gas may not meet soaring global demand over the next 25 years. A shortfall could be a windfall for companies that can supply cheaper alternatives to fossil fuels.

Meanwhile, the focus on global warming promises to lead to greater regulation of greenhouse-gas emissions. Already, the European Union has instituted a quota for carbon emissions in response to the Kyoto Protocol, a global treaty that went into effect in 2005. The U.S. did not sign the treaty, but a number of states are acting on their own to limit these pollutants. In addition, Congress passed an energy bill in 2005 that offers subsidies for various new energy technologies, and it is considering another bill this year.

Clearly, these trends will produce stock-market winners and losers, but not all of them are obvious. Makers of wind turbines and biofuels will surely benefit. But so will makers of rail cars and auto-emissions controls.

We've sifted through the implications and put together the Kiplinger Green 25, a list of companies we believe will get a big boost from the growing focus on climate change and the move toward alternative fuels. Our picks vary widely in size, and four are based overseas. Some of the stocks may be expensive, and shares of some of the smaller companies may be volatile. But we think all will do well over the long term. In addition, check out our separate profiles of five up-and-comers -- small (with market values of less than $1 billion), more-speculative companies that someday could grow into green giants.

ABB
One obvious solution to the global energy crunch is simply to use less energy. Companies that can help us become more energy-efficient will find their products and services in great demand. Switzerland-based ABB is expected to produce annual earnings gains of 25% over the next few years, largely because of strong sales of power-transmission equipment that reduces energy losses between power plant and end-user, and industrial-automation equipment, such as high-efficiency motors and robotics. The power-transmission business, which accounts for half of ABB's sales, should be particularly strong as emerging countries add new infrastructure and as developed nations, such as the U.S., replace aging, outage-prone systems.

AMERICAN INTERNATIONAL GROUP
A dense thicket of environmental laws and regulations has grown to cover such obvious targets as producers of chemicals and hazardous wastes. The rules now also apply to businesses as varied as commercial real estate developers, biotechnology firms, utilities, railroads and even schools (which may store potentially hazardous materials on campus). AIG, the giant insurer, has been writing policies that protect businesses against environmental claims since the early 1980s. Such policies represented about 3% of the $31 billion in premiums from AIG's U.S. property-and-casualty business last year. But as efforts to curb greenhouse gases grow, businesses will need protection against new types of liabilities that will surely arise. AIG is also a leader in writing insurance that protects participants in the nascent global market for trading carbon credits.

AMERICAN STANDARD
This 78-year-old company is getting a makeover. American Standard spun off its vehicle-control division this summer and will finalize the sale of its bath-and-kitchen business this fall. That will allow the Piscataway, N.J., company to focus on its most lucrative division, which makes heating, ventilation and air-conditioning (HVAC) systems. Selling principally under the Trane brand, American Standard is a leader in energy-efficient air-conditioning and climate-control systems. This will be a hot industry because buildings account for one-third of global energy demand. Any solution to greenhouse-gas emissions must include drastic reductions in energy demand from office buildings, residential towers and other large structures. Warren Buffett appears to like what he sees in the new American Standard; his Berkshire Hathaway has become one of the company's biggest shareholders.

APPLIED MATERIALS
First, this important Silicon Valley technology company overcame stiff Japanese competition to emerge as the world's largest producer of capital equipment for makers of semiconductors, with $10 billion in annual revenues. Then it applied that prowess to make equipment used to manufacture LCD flat-panel displays, a process that requires similar technology. Now, Applied, based in Santa Clara, Cal., is making a strong bid to be the leading manufacturer of equipment needed to produce photovoltaic cells and film -- another process technically akin to making semiconductors. With 85% of revenues generated outside the U.S., Applied, which also makes the tools to fabricate energy-efficient glass, has the world covered.

BURLINGTON NORTHERN SANTA FE
One double-stack train can haul as much freight as 280 trucks while emitting a fraction of the pollutants and burning a fraction of the diesel fuel. As railroads burnish their environmental credentials, Burlington Northern Santa Fe should benefit the most. The Fort Worth company hauls enough low-sulfur (and relatively clean-burning) coal from Wyoming's Powder River Basin to light up 10% of the nation's homes. It also hauls more grain products than any other railroad, including both the corn used to make ethanol and the ethanol itself. In fact, Burlington Northern frequently runs 95-car ethanol trains from the Midwest to California to meet the demand created by the state's strict auto-emissions standards.

COVANTA
An alternative approach to power generation that is already commercially viable is to get it from garbage, and the leader in waste-to-energy facilities is Covanta. The company operates 32 plants that burn trash and municipal waste to make steam and heat for power generation. Trash haulers pay the Fairfield, N.J., company to take the waste off their hands. This form of renewable energy is especially competitive in places such as New England, where landfill space comes at a premium. Besides, while there may be shortages of oil and natural gas, it's hard to imagine that there will ever be a shortage of a superabundant source of renewable energy such as trash.

EXELON
Nuclear power benefits in several ways from the emerging energy picture, says Robert Becker, co-manager of Cohen & Steers Utility fund. Surging fossil-fuel prices make nuclear energy highly competitive. Emissions are low compared with those from power plants that burn coal or oil. In the future, a system of carbon-emission credits and licenses is likely to develop in the U.S., as it has in Europe. "Under any scenario in cap and trade, the clear winners will be the nuclear generators," says Becker. His favorite utility is Exelon, of Chicago, the largest operator of nuclear power plants in the U.S. Exelon generates more than 70% of its power from nuclear fuel.

FPL GROUP
More than just a big Florida utility, FPL produces about 40% of the wind-generated electricity in the U.S. It gets 19% of its power from nuclear plants, and it owns few coal-fired facilities. In the future, if government regulations further cap the amount of pollutants that power plants may emit, the Juno Beach, Fla., company will be sitting pretty. More important, as the government requires other utilities to add more power from renewable sources to their mix, FPL will have a lot of power-hungry customers for its wholesale business, which can charge whatever the market will bear.

GENERAL ELECTRIC
You can't discuss new energy technologies without mentioning General Electric. The giant conglomerate is a major producer of wind turbines and clean-coal technology, not to mention energy-efficient locomotives, jet engines, home appliances and light bulbs. The Fairfield, Conn., company estimates that revenues from its clean-energy businesses were $12 billion last year (out of $163 billion total) and predicts that the figure will rise to $20 billion by 2010. And that doesn't include $1 billion in annual revenues from GE's nuclear-energy business. GE's stock is still one-third below its high mark in August 2000.

HONDA MOTOR
Any serious attempt to reduce greenhouse gases will need to zero in on the auto industry, which is responsible for at least one-third of carbon-dioxide emissions. That's why we like Honda Motor, whose fleet of cars, including the Accord, Civic, Odyssey and Acura names, is the most fuel-efficient of any major carmaker. That means the Japanese firm will benefit from tighter U.S. fuel-economy standards. The Civic Hybrid, for example, gets up to 45 miles per gallon. (Toyota Motors is the leader in hybrid vehicles, but Honda's shares are priced more attractively.) When the U.S. government mandates tighter fuel-economy standards, Honda will be off to the races.

INTERNATIONAL RECTIFIER
Lighting is an energy hog. The International Energy Agency estimates that lighting accounts for 19% of the world's electricity consumption. The best way to address this insatiable demand is to replace the venerable incandescent light bulb with newer, more energy-efficient technologies, such as compact fluorescent bulbs and light-emitting diodes (LEDs), a technology that cuts electricity consumption by more than 80%. International Rectifier makes the semiconductor power-conversion devices, called ballast controllers, for both types of lighting. The El Segundo, Cal., company makes a broad range of energy-conserving power-management chips for cars, appliances, computers, aircraft and factories. Because so much manufacturing has moved abroad, International Rectifier books three-fourths of its sales overseas. (Note: IR is investigating accounting irregularities at one of its foreign units.)

ITRON
Variable rates for home electricity use are coming. A 2005 federal law requires utilities to look into ways to spread out electricity demand (and reduce the need for new generating stations) by charging more for power used during peak hours. A key player in this market is Itron, the leading U.S. supplier of electricity meters (and a leader in gas and water meters as well). Its 50% market share for "smart" electric meters that can be read automatically puts it in a good position to help utilities put time-based pricing in place. Shares of the Liberty Lake, Wash., company have nearly doubled in the past year, but the opportunity is big. Just 5% of the world's electric, water and gas meters use smart meter-reading technology.

JOHNSON CONTROLS
It invented the room thermostat in the 19th century, and Johnson Controls is still going strong. As the leading worldwide supplier of temperature controls to the heating, ventilation and air-conditioning industry, Johnson is still at work making buildings more energy-efficient. It's also a leading supplier of HVAC systems. But the Milwaukee company's largest business is making automotive products. It supplies long-life lithium-ion batteries for hybrid vehicles, such as GM's Saturn Vue Green Line sport utility vehicle.

MCDERMOTT INTERNATIONAL
The U.S. leans on its plentiful but dirty coal reserves for half of its electricity generation. So coal's not going away anytime soon -- far from it. The solution is to clean up the coal. McDermott International's Babcock & Wilcox division has cutting-edge technology for scrubbers that capture harmful coal emissions before they are released into the atmosphere. So McDermott stands to gain as environmental regulations mandate retrofits and upgrades to existing coal-fired plants. This Houston-based engineering-and-construction company is also a leading supplier to the nuclear industry.

 

MEMC ELECTRONIC MATERIALS
One factor restraining the growth of solar power has been the shortage (and soaring prices) of silicon wafers, the key material from which solar cells are fabricated. That's been a boon for MEMC Electronic Materials, the leading U.S. maker of silicon wafers, which has almost tripled its earnings in two years. This hard-to-make substance is the same material used for making semiconductors. But while the chip industry seeks smaller and smaller products, the solar-power industry wants large panels that cover rooftops. Edward Guinness, co-manager of Guinness Atkinson Alternative Energy fund, calculates that it costs MEMC $27 per kilogram to produce silicon wafers, which it sells for $180 to $300 per kilo. Not a bad business.

ORMAT TECHNOLOGIES
Geothermal power is a renewable energy technology that is not dependent on weather (as wind and solar are) and is thus more reliable. The technology uses hot water and steam from deep underground to turn a turbine and generate electricity. Ormat Technologies is the third-largest geothermal firm in the U.S. and the only one of the top three that focuses exclusively on geothermal power. Its shares are pricey, but the Reno, Nev., company stands to benefit from government mandates in California and Nevada (where most of its U.S. plants are located) that require utilities to buy more power from renewable sources.

PHILIPS ELECTRONICS
Philips Electronics of the Netherlands is such a sprawling consumer-electronics giant (2006 sales: $36 billion) that people forget it's the world's leading maker of incandescent light bulbs. But unlike most entrenched industry leaders, Philips isn't averse to jettisoning the old and adopting new technologies. Jens Peers, lead manager of Calvert Global Alternative Energy, says Philips is making an aggressive bid to capture the premier position in new, energy-efficient lighting, such as LED and compact fluorescent bulbs. In pursuit of this goal, Philips has been acquiring lighting companies with advanced technology, such as Color Kinetics, an LED fixture maker in Boston.

ROHM & HAAS
Air pollution can come from some surprising sources, such as house paints, which, years after their application, continue to release low levels of toxins into the air. Philadelphia-based Rohm & Haas, a maker of coatings, sealants and other specialty materials, gets 70% of its revenues from environmentally friendly products, such as water-based paints, formaldehyde-free insulation and lead-free electronics products. "It's a green company in disguise," says Todd Ahlsten, manager of Parnassus Equity Income fund, who holds Rohm & Haas in his fund.

SHAW GROUP
A growing number of people in developing countries now have the means to heat and cool their homes and businesses. That portends a huge increase in spending on power-plant construction -- as much as $5.2 trillion through 2030, according to the International Energy Agency. Shaw Group, an engineering-and-construction firm headquartered in Baton Rouge, La., has a 20% stake in Westinghouse Nuclear and is a major player in both building new coal plants and making older ones burn more cleanly. Bad accounting decisions have plagued the shares recently, but an $11-billion backlog of business, mostly from planned power plants, should lead to a brighter future.

SUNPOWER
The demand for solar cells and panels is booming. The question is whose technology will prevail in the youthful industry. Kevin Landis, manager of Firsthand Technology Value, thinks San Jose, Cal.-based SunPower will be a winner. SunPower makes the solar-power industry's most energy-efficient panels, measured by the conversion of sunlight into electricity (the efficiency of its solar cells is more than 20%, which is 50% higher than that of conventional cells). SunPower, which is 53%-owned by Cypress Semiconductor, derives all of its revenues from solar-related products.

SUNTECH POWER HOLDINGS
The enormous potential of solar energy is no secret, and that's why the stocks of so many firms in this field are expensive. One company that may nevertheless pay off is Suntech Power Holdings. China's largest maker of photovoltaic cells, which convert sunlight to energy, has the scale to produce low-cost, high-profit solar equipment for sale in the international market. The firm is profitable, and earnings should grow 25% to 30% annually over the next few years, says fund manager Guinness.

TENNECO
Over the next eight years, stricter auto-emissions standards will take effect in Brazil, China, India, Japan, Russia, the U.S. and Western Europe. That's good news for auto-parts supplier Tenneco, which gets nearly two-thirds of its revenues from emissions equipment (the rest comes from suspension gear). It is the leading supplier in China and Europe, and it is number two in the U.S. The Lake Forest, Ill., firm is especially well positioned to sell emissions equipment for diesel-powered cars and trucks, which offer better fuel efficiency than gasoline-powered models do.

TRINITY INDUSTRIES
Another way to play the boost in railroads' fortunes is via Trinity Industries, the nation's largest manufacturer of railcars. Demand for covered hopper cars, which carry grain, as well as for coal cars and tank cars for hauling ethanol, contributed to a record order backlog of almost 34,000 cars at the end of the second quarter. The Dallas-based manufacturer is also a backdoor play on wind power, as it is a leading maker of towers for wind-powered turbines. Trinity's energy division, which includes the wind towers and other businesses, makes up only 11% of revenues. But wind-tower revenues, driven by federal tax breaks, could soar to as high as $250 million this year, up from $11 million in 2004.

UNITED TECHNOLOGIES
This splendidly run industrial conglomerate focuses on energy conservation both within the company and with the products it sells. Its Otis elevator and Carrier heating and air-conditioning units are developing more energy-efficient systems. The Hartford, Conn., company also makes fuel cells for buildings, transit buses and the U.S. space program. Also the maker of Pratt & Whitney engines and Sikorsky helicopters, United has been riding the global boom in infrastructure building.

ZOLTEK
These are boom times for makers of carbon fiber, a strong, lightweight material used to make aircraft parts as well as the 175- to 200-foot-long blades that turn wind turbines. Zoltek supplies both markets, and its stock has more than doubled in the past year as demand from both sources has soared. But this may be only the beginning. Zoltek chief executive Zsolt Rumy thinks carbon fiber will soon be used to make lightweight, fuel-efficient cars; precast-concrete structures; and ultra-deep-sea oil-drilling equipment. He expects worldwide carbon-fiber production to more than double by 2010, to $2 billion, and thinks his own company's sales can hit $500 million in 2011, more than five times higher than last year's total.

Time to Re-Think Role of Stocks in Retirement

What role should stocks play in your investment plan for the last years leading to retirement?

The conventional thinking has been to roughly take your age and subtract it from 100. The result is the percentage of stocks in your retirement portfolio.

The rest of your retirement portfolio is primarily bonds and cash. Some would argue for a small portion of real estate and precious metals.

More in Stocks?

However, for most people bonds and cash are the two main asset classes that make up their retirement portfolio.

Stocks are considered too volatile for short-term investors (under five years), which is why for many years retirees were warned off holding a large percentage of stocks.

Several things have changed and it is time to rethink conventional wisdom.

First, people are living much longer and a five-year holding period for stocks after retiring in the mid-60s is not a problem for many of today's healthy retirees.

The greater danger is out living their money.

Inflation Danger

Second, there is a real danger we may be entering an inflationary cycle.

The last cycle of inflation ended some 30 years ago after a two-decade run.

For retirees with most of their assets in fixed return investments (bonds, bank CDs), inflation is a killer.

Rising inflation devastates bonds. As inflation rises interest rates rise also, meaning new bonds pay higher returns. This makes older bonds worth less.

If you have a 10-year Treasury Note paying 4.5 percent and inflation rises to 4 percent, new bonds will pay a premium above the 4 percent to attract new investors.

Rising Costs

This makes your 4 percent bond worth much less. If you hold it until maturity, it will not pay enough to cover the rising cost of inflation and the taxes.

Over time, stocks have proved an effective hedge against inflation. Companies can raise prices to account for the rising costs associated with inflation.

Bonds have little or no flexibility.

In particular, companies that are in non-cyclical businesses will do well in tough markets. These companies make and sell products and services that consumers and businesses continue to buy and use regardless of the economy (think toilet paper).

Inflation Hedge

Real estate has been a historical inflation hedge, however if you invest directly (buy rental houses or commercial property, for example) you may find it difficult to sell the property if you need to cash out.

Real estate investment trusts (REITs) solve the liquidity problem, but can be volatile over the short term. For more information on REITs, see this article.

What is the correct mix of stocks, bonds, and other assets for a person nearing or in retirement?

That will depend on your personal situation and tolerance for risk.

However, given that people are generally living longer and there is a real threat of increased inflation, investors should consider a higher percentage of stocks than 100 minus your age.

Japan Stocks: Fujitsu Business, IHI, JR Central, Ohara, Sumco

May 22 (Bloomberg) -- Japan's Nikkei 225 Stock Average fell 111.18, or 1.2 percent, to 9,152.97 as of 9:30 a.m. in Tokyo. The following are among the most active shares in the Japanese market today. Stock symbols are in parentheses after company names.

Central Japan Railway Co. (9022 JT) added 1.8 percent to 637,000 yen. Japan's largest operator of bullet trains was lifted to "outperform" from "market perform" Ryota Himeno, an analyst at Mitsubishi UFJ Securities Co.

Digitalscape Co. (2430 JX) rose 2 percent to 11,790 yen. Imagica Robot Holdings Inc. (IMRHDZ JP) will buy out the provider of human resource consulting services specializing in IT engineers through a stock swap and turn it into a wholly owned subsidiary. Digitalscape will be delisted on June 22.

Fujitsu Business Systems Ltd. (8092 JT) was poised to jump 9.8 percent from its last close of 1,227 yen, with the latest bid at 1,347 yen. Fujitsu Ltd. (6702 JT), Japan's biggest computer-services provider, will buy all the shares it doesn't already own in Fujitsu Business Systems. The parent will pay 3.5 shares for each share of the network systems provider, the companies said in a statement through the Tokyo Stock Exchange. Fujitsu also said it will buy back as much as 2.13 percent of its outstanding shares for up to 25 billion yen ($266 million) through July 31. Fujitsu dipped 0.4 percent to 492 yen.

IHI Corp. (7013 JT) gained 3.1 percent to 164 yen. Japan's second-largest heavy-machinery maker was raised to "buy" from "underperform" by Takahiro Mori, an analyst at Merrill Lynch & Co. A 12-month price estimate was doubled to 200 yen.

Impress Holdings Inc. (9479 JT) surged 18 percent to 132 yen, heading for the biggest increase since June 2005. The distributor of books, magazines, DVDs and CDs said it will book a 230 million yen gain from the sale of F@N Communications Inc. (2461 JQ) shares. F@N Communications fell 2.9 percent to 122,600 yen.

Kumagai Gumi Co. (1861 JT) tumbled 7.3 percent to 64 yen. The construction company may have made at least 30 million yen in illegal political contributions to 20 lawmakers including former opposition leader Ichiro Ozawa, the Mainichi newspaper reported. The donations were made from 1995 to 2000 through three organizations headed by Kumagai Gumi employees and retired staff, the Mainichi said, citing people with ties to the company.

Laox Co. (8202 JT) rose 3.1 percent to 33 yen. The electronics retailer said its full-year net loss will narrow to 1.3 billion yen from 12.6 billion yen in the year ended March 31.

Nippon Steel Corp. (5401 JT) dropped 2.6 percent to 340 yen. The world's second-largest steelmaker was cut to "reduce" from "hold" by Mizuho Securities Co. analyst Norihide Tsuji.

Ohara Inc. (5218 JT) slumped 8.8 percent to 967 yen. The maker of optical glass reversed its forecast for the year ending Oct. 31 to a net loss of 970 million yen from net income of 1.37 billion yen, as demand plunged after output cuts by clients. The sales outlook was reduced 24 percent to 20 billion yen.

Pasona Tech Inc. (2396 JQ) was bid at 56,200 yen, up 8.1 percent from the last close of 52,000 yen. Pasona Group Inc. (2168 JT), a temp staffing provider, said it plans to offer 88,000 yen a share for the employment agency and turn it into a wholly owned subsidiary. Pasona currently owns a 60.8 percent stake in Pasona Tech. Pasona will spend as much as 1 billion yen for the stake. Pasona rallied 6 percent to 54,500 yen.

Sanki Engineering Co. (1961 JT) plunged 8.7 percent to 634 yen, heading for its sharpest slide since Oct. 27. The engineering company was cut to "underperform" from "buy" by Toshiyuki Anegawa, an analyst at Merrill Lynch & Co. Anegawa reduced a 12-month price estimate to 540 yen from 950 yen.

Sumco Corp. (3436 JT) slumped 4.8 percent to 1,478 yen. The world's second-largest maker of silicon wafers was reduced to "underweight" from "equalweight" by Morgan Stanley analyst Yoshihiro Azuma.

Sumitomo Corp. (8053 JT) dropped 2 percent to 935 yen. The trading house gave up a 550 billion yen contract to build a power generation and water desalination complex in Saudi Arabia after the government decided to handle it, Nikkei English News reported, without saying how it obtained the information.

Sumitomo Heavy Industries Ltd. (6302 JT) sank 4.5 percent to 385 yen. Merrill Lynch & Co. analyst Takahiro Mori lowered his rating on Japan's largest maker of plastic injection-molding gear to "underperform" from "neutral."

Takasago Thermal Engineering Co. (1969 JT) retreated 4.2 percent to 728 yen. The builder of air-conditioning facilities had its rating lowered to "neutral" from "buy" by Toshiyuki Anegawa, an analyst at Merrill Lynch & Co. Anegawa slashed a 12- month price estimate to 820 yen from 1,450 yen.

The Stock Market is Always Right

When the stock market is showing its volatility, whether predominately up or down, it is easy to offer reasons the market is wrong.

A number of pundits and predictors make a decent living telling investors why the market is too high or too low.

They proffer that the market is overbought or oversold for this obvious reason or that less obvious reason.

The impression is these sages can set the market straight and get it on the right track.

They Are Wrong

There's only one problem: These folks are always wrong.

They may have significant data to support their position, including reams of historical charts and comparisons.

Here's the problem with these pontifications restated: The market is always right.

No matter what you or anyone else thinks is should be, the market doesn't really care. The market prices assets every minute of every day the markets are open and it is never wrong.

Here's why: The price of anything, whether stocks, bonds or bananas is what a willing seller and a willing buyer agree on - no more and no less.

Price and Value

It is important to not confuse value and price. A stock may be valued much higher or lower than the price it sells for.

However, that doesn't necessarily change the price.

Value is a subjective term, while price is absolute.

This doesn't mean investors should abandon their determinations of value, in fact, just the opposite.

It's a safe bet that value investors are among the most successful over the long term (think Warren Buffett).

Value investors attempt to identify stocks that are being priced below the company's value. We often say the market is incorrectly pricing these assets, but that is wrong.

Correct Way

The more correct way to describe the activities of value investors is they attempt to find assets trading below the true value of the company.

Their strategy is to buy and hold the asset until market pricing rises to reflect the true value.

This does not mean the market was wrong in pricing the stock lower than what the investor believes is the true value.

It simply means that at that moment and given all the other factors that drive stock prices, this is what a willing seller and willing buyer agreed upon.

As we all know in volatile markets, that price may change second to second.

Investors are not particularly concerned with these fluctuations other than finding a window to jump in and buy.

Influence Price

There are many factors that influence stock prices. As crazy as it seems at times, the market is always right in finding that price where buyer and seller meet.

Indeed, this is the primary function of any market: bringing buyers and sellers together. What price they agree upon is of no concern to the market.

Don't confuse price and value. Traders (people who frequently buy and sell assets are only concerned with price.

However, investors with a long-term perspective are more interested in the value of the asset and if they can buy it at a discount.

The market just went down (or up) X points and here's why … blah, blah, blah. If this sounds like something you heard today or yesterday, it will also sound like something you'll hear tomorrow.

The financial media pays a great deal of attention to prices � what sector or index was up or down and by how much. All sorts of reasons are posed and most of them are valid, although there is still a certain amount of emotion in the market that reacts with no predictable pattern to breaking news.

Price news is of the utmost importance to traders and investors with a short-term window.

Value and Price

Most investors, however, are more interested in value and value and price are not the same thing. A company's value for many investors is its ability to generate a satisfactory return over a long holding period.

A number of things including financial strength, market dominance, growth potential, and so on, determines that value.

The day-to-day price fluctuation of the stock is usually more about volatility than value. Most investors are not overly concerned with stock price fluctuations that are driven by market conditions (inflation reports, oil prices, and so on).

No Affect

While these events may move the stock's price up or down, they usually do not affect the underlying value of the company and its ability to deliver the returns you desire.

Clearly, there are market conditions that may change the value of the company and you must stay on top of those changes to re-evaluate your holdings.

Conclusion

However, listening to the daily din of market chatter can divert your attention from the important goals of investing: focusing on quality companies and not worrying about daily volatility.

Top Online Stock Trading Sites

Online stock trading sites offer investors access to a variety of tools and research that just a few years ago were only available through full service brokerage accounts.

There are many online stock trading sites to choose from, but narrowing down the field may seem time consuming and overwhelming.

Here are thirteen of the top-rated online stock trading sites that continually show up on just about every list of the best.

Ultimately, your choice is a personal one based on a number of factors and how you rank them in importance.

Not every online stock trading site on this list will work for you because some are stronger in one area, while weaker in another.

All of these sites encourage you to browse through their pages, although some parts will be off limits unless you have an account.

Here are online stock trading sites you should consider:

Charles Schwab

Schwab is the granddaddy of discount brokerage and is carrying this tradition to its online offering - although it is looking more like a traditional brokerage all the time. It offers its own research and clients can work with an investment advisor or Schwab will manage their account for them.

E*Trade

E*Trade gets high marks for its range of offerings including banking and mutual funds. The company has absorbed several other brokerage firms and is now a significant player in the online stock trading market. Like its competitors, active traders get lower rates on their trades.

Fidelity

Fidelity shows up at the top or near the top of almost every ranking of online stock trading brokers. They are not the least expensive, but top most lists in customer satisfaction. Fidelity is known for its research and investors can talk to advisors face-to-face at one of the many Fidelity investment centers.

Firstrade

One of the advantages of a brokerage account is consolidating your investment activity in one account cutting down paperwork. Firstrade topped a survey by Kiplinger as the online stock trading broker offering the most no-load mutual funds without a transaction fee.

Muriel Siebert

Muriel Siebert may not have the marketing muscle of other online stock trading sites but it is a solid brokerage house worth your look. The company receives high marks for customer service and research. The fee structure is straightforward and easy to understand.

OptionsXpress

Despite its name, this online stock trading site offers accounts that trade just about any type of security you want including options, stocks, mutual funds, exchange traded funds, futures and more. This site is easy to use and gets to the point. Not the cheapest, but tops in functionality.

Scottrade

Scottrade's claim to fame is superior customer satisfaction as noted in J.D Power and Associates survey of online brokers. Commissions are on the low side and transactions are processed quickly.

TD Ameritrade

TD Ameritrade is another brokerage that is the result of mergers (Ameritrade was one of the merged companies and it has been around for a number of years). The company has a large selection of mutual funds and is noted for its responsiveness to customer inquiries.

Thinkorswim

This is a newcomer to the online stock trading scene, but worth checking out if you're interested in something different. The site is not like any of the others, but Barron's gives it extremely high marks, so despite its quirkiness, there's plenty of substance.

TradeKing

TradeKing is the online stock trading site to checkout for low cost trading. This is their thing and SmartMoney.com, Barron's and Kiplinger all agree. If you are looking for the best prices on trades, this is the place to start.

Vanguard

Vanguard made a name for itself at the low-cost leader in mutual funds. Vanguard is a solid company that excels in providing value to their customers and in consolidating investments in a brokerage account.

WallStreet*E

WallStreet*E combines low commissions with a broad range of web-based services to appeal to investors who want an integrated approach to investing and banking. The company offers a variety of online banking products and other services that will appeal to those who want to see their whole financial picture.

Wells Fargo

The financial services powerhouse Wells Fargo has an online stock trading site that fits it image of comprehensive services. You are offered five different levels of accounts depending on whether you want a strictly independent trading account or a version of their managed accounts. Investors looking for a single place to find all their financial services will find Wells Fargo a good place to start.

Conclusion

Online stock trading sites offer investors a wide range of tools, research and services.

Finding the right one for your style of investing and that meets your needs is a matter of visiting the sites to get a feel for the interface.

Pay attention to the fee structure and how it works with your trading style. If you are an infrequent trader, look for maintenance or inactivity fees.

If you want advice, see how that affects your trading costs.

Many of these sites will let you open a demo account, which will give you an idea how the real thing works.

Oil Prices Are a Concern to Stock Investors

It hasn't gotten much attention, but the price of oil has pushed back above $60 a barrel.

What has received attention is gasoline prices are up about 20 percent in some markets (more in some, less in others).

This is not a surprise. Every year gasoline prices head up as Americans head out on vacations and other summer trips.

More demand means higher prices.

The new gasoline mileage targets announced by the administration (which won't kick in for a couple of years) will reduce the demand for gasoline.

However, what is not clear is whether rising demand in the intervening years will offset the new mileage requirements.

Our struggling economy doesn't need any more resistance, but we should face the fact that until the U.S. has a comprehensive energy program that actually works, we will remain at the mercy of a volatile energy market.

Getting Paid to Invest in Stocks - Part II

(Continued from Page 1)

1. The company's stock stays strong, the option is never exercised, and the expiration date comes and goes. The contracts expire. They are over. They no longer exist. The premium money is mine forever, and in exchange for tying up $28,400 in Treasury bills, I was paid $11,600 in cash. That's a 40.84%+ return on my capital for a little more than a year. Or ...

2. The options are exercised, and I buy 2,000 shares at $20 per share for a total of $40,000. Remember, however, that only $28,400 was my original capital because $11,600 came from the premiums that were paid to me for writing the "insurance". This means that my effective cost basis on each share is only $14.20 each ($20 strike - $5.80 premium = $14.20 net cost per share)! Recall that I was considering buying 1,000 shares of Tiffany & Company outright at $29.10 per share, anyway! Had I done that, I'd now be sitting on massive unrealized losses. Instead, because of the options being exercised, I own 2,000 shares at a net cost of $14.20 per share! Given that I wanted the stock, planned on holding it for ten or twenty years, and would have been in a huge unrealized loss position were it not for the fact that I chose to write the options, I get the joy of a $14.20 cost basis instead of a $29.10 cost basis.

   Either way, I win. Even if the company goes bankrupt (which I do not think is even a remote possibility in the case of Tiffany & Company but, hey, nothing is certain in this world � who'd have thought that the investment banks wouldn't be around today?) I'd be in the same boat as if I'd just bought the stock outright. So, no matter what happens, I win. It really is a case of having your cake and eating it, too. Even if the options are exercised, I'm going to outperform the stock by the sum of the return on the capital tied up in the contract plus the interest earned on the investment in Treasury Bills. An advantage of that kind is very, very substantial. Remember that even small differences in return levels result in vastly different results due to the power of compounding � an investor that gets an extra 3% each year, on average, over 50 years will have 300% more money than his contemporaries.

   These are the types of special operations we've been taking advantage of through the personal accounts of my family, as well as those of my companies, as this volatility has gotten out of control. The risk / reward payoff for some stocks are so stupidly out of whack, in my opinion, that we've been virtually minting money from headquarters, writing contracts on stocks that we are happy to own outright. As we are privately held by a close group of investors, we have no pressure from analysts or reporters. We can simply do what makes sense for us, as owners, regardless of the price fluctuations that may occur in the interim.

   Now, this strategy is not something new investors should even consider. One danger is that a novice becomes intoxicated by the massive sums of cash poured into their account in premium payments, not realizing the total amount they are on the hook for in the event all of their options got exercised. If the account is large enough, there might be a substantial enough margin cushion to buy the shares, anyway, but that could evaporate in the event of another round of widespread panic. If that were to happen, you would find yourself getting margin calls, logging in to see your broker had liquidated your stocks at massive losses, and a huge percentage of your net worth gone � wiped out � with nothing you could do about it. Don't make that mistake.

Getting Paid to Invest in Stocks by Trading Sell to Open Put Options

In my latest blog entry, I told you how we were sitting at headquarters, purchasing as many equities as we could reasonably afford as Wall Street degenerated into a total meltdown. Having seen the greatest slide since the 1933 stock market crash, we were deliriously happy with the bargains we were finding. Throughout the far-flung reaches of my various enterprises, and personal accounts of certain family members, we were acquiring at a furious pace.

Today, I'm going to discuss one strategy that we've been using lately to generate such high levels of profitability that we joke that we are minting money at headquarters. Each morning, I show up and bring in massive sums of cash by simply engaging in transactions that I would have, anyway, due to lower stock prices. This strategy is not for beginners. It is not appropriate for most people. Given the intellectual curiosity that many of my long-time readers have displayed in their comments and emails, I thought it would be cool to give you a glimpse into how we are earning 30%, 40% and higher returns on unleveraged equity in these extremely volatile markets as pricing for risks in some assets has lost all connection to rationality. Put plainly, do not try this at home. It is simply for your own edification and an understanding of how you can sometimes find extreme values by exploiting the knowledge you've built up about various businesses through your years of studying their annual reports, 10k's, and other SEC filings.

An Example of The Sell Open Put Strategy

One of my private corporations is a stockholder of Tiffany & Company. We'll choose them to explain this concept because they are a brand that most people understand, have some experience with in their daily lives, and the business itself is simple.

As of the close of markets on October 14, 2008, shares of Tiffany & Company are selling at $29.09 each, down from a high of $57.32 prior to the crash on Wall Street. Investors are panicked that the retail environment is going to fall apart and that high end jewelry is going to be one of the first things to go because consumers aren't going to buy expensive watches, diamond rings, and housewares when they can't pay their mortgage. Yet, what if you had long wanted to own part of the business, and had been waiting for just such an opportunity? Sure, you realize the stock could very well fall another twenty, thirty, fifty percent or more, but you are looking to profit from your equity ownership of the jewelry store for the next ten or twenty years. Could there be a way to take advantage of the situation and generate higher returns for your portfolio?

You could just call or login to your broker and buy the shares outright, pay cash, and let them sit in your account with dividends reinvesting. Over time, if two hundred years of history has been any guide, you should experience a comparable rate of return to the performance of the underlying business. Thus, if you wanted to buy 1,000 shares, you could take around $29,090 of your own money plus $10 for a commission, and use the $29,100 to buy the stock.

There is a more interesting, and perhaps even more profitable, way to put your capital to work. Using a special type of stock option, you can actually write "insurance" protection for other investors who are panicked that Tiffany & Company will crash.

Sell Open Put Options on Tiffany & Company

Right now, for instance, investors are willing to pay you an "insurance" premium of $5.80 per share if you agree to buy their stock from them at $20.00 per share.

As of today (October 14th, 2008) you could write a "contract" covering 100 shares of Tiffany & Company stock in which you agree to sell another investor the right to force you to buy their shares at $20.00 each any time they choose between now and the close of trading on Friday, January 15th, 2010. In exchange for writing this "insurance" that protects them from a total catastrophe in the price of the jewelry store shares, they are willing to pay you $5.80 per share. This "insurance" premium is yours forever, whether or not the contract is exercised (that is, they force you to buy the stock).

It might be easier to understand giving you an actual scenario. Here's how it would work:

• Imagine that I took the $29,100 that I would have invested in the stock by buying shares outright and instead agreed to "sell open" put options (that is, write insurance for other investors) on Tiffany & Company shares with an expiration date of the close of trading on Friday, January 15th, 2010, at a $20.00 "strike price" (that is the price at which they can force me to buy the stock from them).

• I call my broker and place such a trade for 20 contracts. Recall that each contract includes "insurance" for 100 shares, so I'm covering a total of 2,000 shares of Tiffany & Company stock.

• The moment the trade is executed, $11,600 of cash, less a small commission, will be deposited into my brokerage account. It's my money forever. It represents the premium the other investors paid me to protect them from a drop in Tiffany's stock price.

• If the stock price falls below $20 per share between now and the expiration date, I might be required to purchase 2,000 shares at $20 per share for a total of $40,000. On the upside, I've already received $11,600 in premiums. I can take that money and add it to the cash I was going to invest in Tiffany & Company common stock ($40,000 total potential commitment - $11,600 in cash received from investors = $28,400 potential capital I'll need to come up with to cover the purchase price if the option is exercised. Since I was going to spend $29,100 buying 1,000 shares of Tiffany & Company, that's fine).

• I immediately take the $40,000 and park it in United States Treasury Bills or other cash equivalents of comparable quality that generate interest income. This reserve is there until the end of the option contract.

  Here's how this position could work out for my account (click on the next page to continue reading):

Using LEAPS Instead of Stock to Generate Huge Returns

If you are bullish on a particular company's stock, it is possible to structure your investment with LEAPS so that a rise of, say, 50% could translate into a 300% gain for you without borrowing money on margin. Of course, this strategy is not without risks and the odds are very much stacked against you. Used foolishly, it can wipe out your entire portfolio in a matter of days. Used wisely, however, it can be a powerful tool that allows you to leverage your investment returns without borrowing money on margin.

The strategy is based upon acquiring long-term stock options known as LEAPS, which is short for "Long Term Equity Anticipation Securities". Put simply, a LEAP is any type of stock option with an expiration period longer than one year. It allows you to utilize a smaller degree of capital instead of purchasing stock, and earn outsized returns if you are right on the direction of the shares.

Perhaps it's best to understand how to use LEAPS by way of an example. For now, we'll use shares of General Electric given the enormous size of the company and the fact that virtually everyone in the world is familiar with the firm.

Right now, shares of GE are trading at $14.50. Imagine that you have $20,500 to invest. You are convinced that General Electric is going to be substantially higher within a year or two and want to put your proverbial money where your mouth is. You could, of course, simply buy the stock outright, receiving roughly 1,414 shares of common stock. You could leverage yourself 2-1 by borrowing on margin, bringing your total investment to $41,000 and 2,818 shares of stock with an offsetting debt of $20,500 but if the stock crashes, you could get a margin call and be forced to sell at a loss if you are unable to come up with funds from another source to deposit in your account. You will also have to pay interest, perhaps as much as 9% depending upon your broker, for the privilege of borrowing the money.

Perhaps you are unsatisfied with this level of exposure. Given your conviction (whether it's well founded or not is another story!) you might consider utilizing LEAPS instead of the common stock. You look to the pricing tables published by the Chicago Board Options Exchange and see that you can purchase a call option expiring the third weekend in January of 2011 � nearly 20 months and 3 weeks away � with a strike price of $17.50. Put simply, that means that you have the right to buy the stock at $17.50 per share. For this right, you must pay a fee, or "premium", of $2.06 per share. The call options are sold in "contracts" of 100 shares each.

You decide to take your $20,500 and purchase 100 contracts. Remember that each contract covers 100 shares, so you now have exposure to 10,000 shares of General Electric stock using your LEAPS. For this, you have to pay $2.06 x 10,000 shares = $20,600 (you rounded up to the nearest available figure to your investment goal). However, the stock currently trades at $14.50 per share. You have the right to buy it at $17.50 per share and you paid $2.06 per share for this right. Thus, your breakeven point is $19.56 per share. That is, if General Electric stock is trading below that price when the option expires nearly two years from now, you will suffer a loss of capital. If GE stock is trading below your $17.50 call strike price, you will lose 100% of your invested money. Hence, the position only makes sense if you believe that General Electric will be worth substantially more than the current market price � perhaps $25 or $30 � before your options expire.

Say you are correct and the stock rises to $25. You could call your broker and close out your position. If you chose to exercise your options, you would force someone to sell you the stock for $17.50 and immediately turn around and sell the shares you bought, getting $25 for each share on the NYSE. You pocket the $7.50 difference and back out the $2.06 you paid for the option. Your net profit on the transaction was $5.44 per share on an investment of only $2.06 per share. You turned a 72.4% rise in stock price into a 264% gain by using LEAPS instead of stock. Your risk was certainly increased, but you were compensated for it given the potential for outsized returns. Your gain works out to $54,400 on your $20,600 investment compared to the $14,850 you would have earned.

Had you chosen the margin option you would have earned $29,700 but you would have avoided the potential for wipeout risk because anything above your purchase price of $14.50 would have been gain. You would have received cash dividends during your holding period, but you would be forced to pay interest on the margin you borrowed from your broker. It would also be possible that if the market tanked, you could find yourself subject to a margin call as we warned earlier.

The Temptation of LEAPS

The biggest temptation when utilizing LEAPS is to turn an otherwise shrewd investment move into an outright gamble by selecting options that have unfavorable pricing or would take a near miracle to hit strike. You may also be tempted to take on more time risk by choosing less expensive, shorter-duration options that are no longer considered LEAPS. The temptation is fueled by the few, extraordinarily rare instances where the speculator made an absolute mint. Witness the Wells Fargo June 2009 $20 calls. Had you put $10,000 in them back during the March meltdown, you would have generated an unbelievable return, bringing your position to a market value of more than $1,300,000 in only a few weeks as Wells stock skyrocketed from less than $9 per share to more than $28 a few days ago.

The lesson should be obvious: Using LEAPS is not appropriate for most investors. They should only be used with great caution and by those who enjoy the game, have plenty of excess cash to spare, are willing to lose every penny they put into play, and have a complete portfolio that won't miss a beat by the losses generated in such an aggressive strategy.

Don't delude yourself � using LEAPS is most often a form of outright gambling. As Benjamin Graham said, such practices are neither illegal, nor immoral � but they are certainly not fattening to the wallet.

Small Cap Stocks can Pop

Small cap stocks can deliver a big pop, which can be either the sound of your investment doubling or the sound of your investment blowing up.

Small cap stocks are companies with a market capitalization of $1 billion or less. By way of review, you calculate market capitalization or market cap by taking the number of outstanding shares and multiplying by the current per share price.

Some investors put the mark for small cap stocks at a lower figure, while others put it higher. There is no one figure everyone agrees is correct.

Risky Business

What most experts do agree on is that small cap stocks, especially those with market caps under $500 million are risky investments.

Let me be clear. I am not talking about penny stocks � those micro companies that trade off the Nasdaq for literally pennies per share. I'm referring to the stocks of small companies you can buy and sell on a listed exchange.

Small cap stocks are risky because:

• Big fish eat small fish in a competitive market. You can have a great idea and a great company, but a larger competitor can kill you.
• Market and/or economic reversals can be devastating to smaller companies that often lack the financial resources to hold on through tough times.
• Many small companies are started by people with a great idea, but no business experience. If they fail to learn how to run the business or refuse to turn the business over to professional managers, the company is at risk of failing due to poor management.
• Evaluating small cap companies is sometimes difficult due to the lack of information or historical data. Short operating histories make analysis seem more like guesswork.

What's Good about Small Caps

Despite the risks associated with small cap stocks, there are some good reasons for considering adding them as a modest portion (usually no more than 5% - 10%) of your portfolio.

The first place you can start is the obvious: the most successful companies today started as small companies. Who knows where the next Microsoft is coming from, but it will certainly have started out as a small company.

Here are some other good points about small cap stocks:

• It is easier to double the sales of a company doing $20 million per year than it is to double the sales of a company doing $2 billion in sales. Rapid growth is easier for small cap stocks.
• Smaller companies can "fly under the radar" of intense market attention longer. This keeps the price from being bid up too high or knocked down too low. Most mutual funds, for instance, don't invest in small cap stocks. (The exception, of course, would be funds that specialize in small cap stocks.)
• Small companies tend to be more nimble and react quicker to market and technological conditions. Small companies can exploit opportunities that larger companies can't afford to chase because of their huge overhead.

What to Look For

How do you find a good small cap stock? It requires more work than investing in larger, better-followed companies since there may not be much information available.

Here are some tips:

• Invest in what you know. If you have expert knowledge or extensive experience in a particular industry or technology, this may be a good place to start looking. It is always important to understand what you invest in, but doubly so in small cap stocks.
• Avoid "bleeding edge" technology, because this is so risky on its own, when coupled with small companies becomes a complete gamble.
• Be realistic. The company has to have a chance to succeed, but if it has a huge debt load and no cash, what chance does it have?
• Be patient. Plant your seed and let it grow. Investing in small cap stocks is definitely a "buy and hold" strategy.

You can find small cap stocks using one of several stock screens online. One that I like for this purpose is BusinesWeek Online. It lets you put in a minimum and maximum market cap so you can focus on specific size companies if you wish.

Conclusion

Are small cap stocks for you? If you are risk adverse, probably not. However, if you are up for some volatility and have a small portion of your portfolio you are willing to put at risk for a potential payoff, you may want to give them a careful look.

Stock Sectors - How to Classify Stocks

One of the ways investors classify stocks is by type of business. The idea is to put companies in similar industries together for comparison purposes. Most analysts and financial media call these groupings "sectors" and you will often read or hear about how certain sector stocks are doing.

One of the most common classification breaks the market into 11 different sectors. Investors consider two of there sectors "defensive" and the remaining nine "cyclical." Let's look at these two categories and see what they mean for the individual investor.

Defensive

Defensive stocks include utilities and consumer staples. These companies usually don't suffer as much in a market downturn because people don't stop using energy or eating. They provide a balance to portfolios and offer protection in a falling market.

However, for all their safety, defensive stocks usually fail to climb with a rising market for the opposite reasons they provide protection in a falling market: people don't use significantly more energy or eat more food.

Defensive stocks do exactly what their name implies, assuming they are well run companies. They give you a cushion for a soft landing in a falling market.

Cyclical stocks

Cyclical stocks, on the other hand, cover everything else and tend to react to a variety of market conditions that can send them up or down, however when one sector is going up another may be going down.

Here is a list of the nine sectors considered cyclical:

• Basic Materials
• Capital Goods
• Communications
• Consumer Cyclical
• Energy
• Financial
• Health Care
• Technology
• Transportation

Most of these sectors are self-explanatory. They all involve businesses you can readily identify. Investors call them cyclical because they tend to move up and down in relation to businesses cycles or other influences.

Basic materials, for example, include those items used in making other goods � lumber, for instance. When the housing market is active, the stock of lumber companies will tend to rise. However, high interest rates might put a damper on home building and reduce the demand for lumber.

How to Use

Stocks sectors are helpful sorting and comparison tools. Don't get hung up on using just one organization's set of sectors, though. MorningStar.com uses slightly different sectors in its tools, which let you compare stocks within a sector.

This is extremely helpful, since one of the ways to use sector information is to compare how your stock or a stock you may want to buy, is doing relative to other companies in the same sector.

If all the other stocks are up 11% and your stock is down 8%, you need to find out why. Likewise, if the numbers are reversed, you need to know why your stock is doing so much better than others in the same sector � maybe its business model has changed and it shouldn't be in that sector any longer.

Conclusion

You never want to be making investment decisions in a vacuum. Using sector information, you can see how a stock is doing relative to its peers and that will help you understand whether you have a potential winner or loser.

There'll be mild corrections ahead

The Malaysian bourse is expected undergo further corrections as investors take time to digest the impact of H1N1 flu cases while awaiting the release of manufacturing sales, inflation and foreign reserves numbers this week.


Stocks on the local exchange fell into profit-taking correction last week, dampened by external markets which corrected on weaker-than-expected economic numbers from the US, while locally, new twists and political developments with regard to the Perak state government made potential buyers stay on the sidelines. News of the first case of influenza A (H1N1) in Malaysia that popped up last Friday had a mild impact on the market as well.

The KLCI gave back 12.57 points, or 1.2 per cent, last week to end at 1,014.21, with more than half of the losses contributed by Axiata (-2.3 index points), Genting Bhd (-1.75), Tenaga (-1.57) and Maybank (-1.28). Average daily trading volume and value rose further to 2.8 billion shares worth RM1.94 billion, compared with 2.55 billion shares and RM1.97 billion in the previous week.


The performance of oil and gas companies in the last two months was splendid as the share price and price-to-earnings multiple of almost all players involved in the upstream sector more than doubled along with the rise in crude oil prices that touched US$60 (US$1 = RM3.54) per barrel early last week. Nonetheless, profit-taking activity was visible last Friday as oil prices retreated to U$57 despite a US Energy Department report showing that the US crude supplies dropped for the first time in 10 weeks in the world's largest oil consuming nation. This correction was attributed mainly to the unexpected weakness in the US April retail sales and a surprise increase in the Organisation of Petroleum Exporting Countries' oil supply that exceeded the cartel's target by 967,000 barrels a day.


All eyes will be on Opec's next move when member nations meet on May 28 as the organisation has been targeting US$75 per barrel oil price in early 2010. Although the pickup in oil demand is slow, perhaps an agreement to cut supply further and a resolution to adhere to the output cuts strictly will contribute to this target apart from continued weakness in the US dollar.


Despite the short-term hiccups, the price of this scarce commodity is expected to rise above US$70 per barrel in the first quarter of 2010 as the global economy starts shows showing signs of sustainable recovery by then. Hence, it is worth while to accumulate some growth stocks in this sector during price weakness as the caldendar year 2009 CY09) sector price earnings ratio (PER) of 8x is undemanding versus the KLCI's 14x.


Perisai Petroleum is a clear laggard among them as it is trading at a CY09 PER of 4.8x and the expected migration to the main board next month will be an important catalyst for its share price as it will be within reach of funds that have restriction in buying Mesdaq stocks currently. The company's 5-for-4 bonus issue will go ex-bonus on Wednesday. The company's first quarter 2009 results that will be released this month will add more lustre to the stock as the net profit figure is forecast to exceed its whole year's profit in 2008 due to strong "full quarter" contribution from its newly acquired pipe-laying vessel.


The broader market is expected undergo further corrections as investors take time to digest the impact of H1N1 flu cases in Malaysia while awaiting the release of key economic data like manufacturing sales, Consumer Price Index and foreign reserves numbers this week. Externally, the outcome of US housing starts, building permits and leading indicators will have important influence on global equity market direction this week. Besides oil & gas, weaknesses in the construction and industrial material sectors also should be seen as opportunities to accumulate.

Technical outlook


The local stock market staged a profit-taking correction in line with weaker regional markets in afternoon trade last Monday, but market breadth stayed positive as lower liners managed to post gains on strong volume which totalled 3.85 billion shares, the highest since February 2007. The market reversed earlier losses triggered by the overnight fall on Wall Street the next day, as buyers returned to prop up lower liners in line with a rebound in the region from morning lows.


On Wednesday, while blue chips consolidate, lower liners remained resilient as profit-taking was offset by renewed buying momentum in laggards, led by oil & gas and steel related stocks which enjoyed strong gains. However, stocks fell the next day, depressed by the overnight correction in US stocks due to the unexpected fall in April retail sales which raised concern that a recovery from the global recession will be anaemic.


The rebound on Friday failed to gather steam, as profit-taking and forced selling on contra positions by retailers caused the broader market to weaken with market breadth rather bearish ahead of the weekend.


The KLCI peaked at high of 1,034.37 early Monday and sold off to close at an intra-week low of 1,011.99 on Thursday for a narrower 22.38-point range before ending near the lower range last Friday as sellers overcame buyers.


Among the other indices, the FBM-EMAS Index was off by 83.64 points, or 1.2 per cent, to close at 6,764, while the FBM-Small Cap Index tumbled 233.08 points, or 2.7 per cent to 8,421.91.


The daily slow stochastics indicator for the KLCI has dipped into the oversold region as of last Friday (Chart 1), but the weekly indicator flashed a fresh sell signal at the highly overbought area to suggest further correction ahead. The 14-day Relative Strength Index (RSI) has been neutralised with a reading of 67.62, while the 14-week RSI re-hooked down for a reading of 62.58.


A sell signal was triggered on the daily Moving Average Convergence Divergence (MACD) indicator on Thursday, but the weekly MACD signal line extended higher above to the zero line. The 14-day Directional Movement Index (DMI) trend indicator still showed the uptrend is intact, with the ADX line holding significantly above the 25-point threshold which indicates the local market remains in uptrend mode.


Conclusion


Except for the weekly slow stochastics and daily MACD indicators for the KLCI which triggered sell signals last week, other technical momentum indicators are still friendly to suggest that the current uptrend remained intact. Moreover, the oversold situation on the daily slow stochastics calls for technical rebound potential this week. Longer-term trend indicators also reinforce medium-term upside potential.


While blue chips are expected to extend low-volume consolidation, the present two-tier market suggests that lower liners may still stage strong comeback if robust buying momentum returns. The construction, oil & gas and steel sectors may bounce back once the indigestion from recent high volume peaks has been neutralised by sharp profit-taking pullbacks.


As for the KLCI, look for the retracement levels of the most recent pivot low of 952 ( April 29) to the 1,037 peak (May 7) at 1,005 (38.2 per cent), 995 (50 per cent) and 985 (61.8 per cent) for support formation. More solid support platforms are at the 30-day SMA (975) and the 200-day SMA (949). On the flipside, immediate upside hurdle is seen at 1,020, next at 1,027, and higher up at the recent peak of 1,037.81.


The subject expressed above is based purely on technical analysis and opinions of the writer. It is not a solicitation to buy or sell.