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Market barometer: Caution rules as more share indices show patterns suggesting major trend changes

Friday 26th May 2000

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Dow Jones composite bond index

Rising interest rates have yet to kill off sharemarkets. The 6.5% set by the US Federal Reserve on its federal funds rate does not seem to have frightened equity investors into a selloff but there must be more hesitancy about buying emerging.

Sooner or later interest rates threaten to slow the US economy sufficiently to hamper profit growth and dividend increase. Investors will be trying to guesstimate when.

The Dow Jones composite bond index (illustrated) continues its slide as US interest rates move up.

Many share indices show patterns suggesting major trend change is coming. Caution rules the day so far, with indices hovering close to established support levels.

The Dow Jones industrial index is moving at about 10,500 points, whereas the Dow Jones transportation index has slipped below former support at 2800.

The Standard & Poor's 500 index is lodged at about its old 1400 mark and the NYSE composite is doing the same at 640. The Nasdaq composite is wavering at the 3500 area, still a creditable 1000 points above where it was before it started its bubble run last October. London's FTSE-100 is not as flash, having taken a sharp dive towards 6000. Australia's all ordinaries index is soft as well, with support at 3000 capped overhead by resistance at 3100.

The New Zealand indices are a tad bolder, probably because they have already been sold down hard.

The NZSE smaller companies capital index has clicked up from its previous lows to the 4900 area. The NZSE top 40 capital index is flat at 2000.

Of major listings, dominant Telecom is feeble, testing 800cps. Independent News and linked company Sky TV are steady at around 400cps. The market's theme seems to be mergers and takeovers where foreign shareholders exploit the low kiwi dollar.

Norske Skog's bid for Fletcher Paper looks smart in the light of the low kiwi dollar as do moves by CanWest's on Radioworks, Lion Nathan's on Montana Wines and BRL Hardy's on Nobilo Wines.

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