The DJIA (+45.68 +0.36% to 12594.03), S&P 500 (+5.49 +0.22% to 1390.84), and NASDAQ Composite (+5.46 +0.22% to 2486.70) closed modestly higher on the day. The Basic Materials (XLB +2.5%) and Energy (XLE +2.1%) were the two outstanding gainers on the day. Accordingly, the Toronto Exchange Composite gained +166.5 (+1.15%) to close at 14688.62.

Inflation and Brazil too go hand in hand. The Bovespa index skyrocketed. The $USD-denominated EWZ ETF jumped +3.6% on the day and five of the top seven of the Cara 100 company stocks were Brazilian: PDA +5.3%, VCP +5.1%, BBD +4.9%, GGB +4.6%, and PBR +4.3%. Also GOL +3.5% was the 10th best performer.

The Cara 100 losers were: GRMN -2.7%, BC -2.4%, KO -2.0% and UBS -1.9%.

The industry groups also reflected the swing to an inflation bias on the day: Chemicals and Paper stocks were up +3.2% and +2.5% respectively, while Banks ($BKX -1.7%) and Airlines ($XAL -1.1%) sank. The banks are concerned that inflation will bring higher interest rates, which reduces earnings and also hurts their real-estate and bond holdings.

On the corporate mergers front, there was a report in the Financial Times that SABMiller would consider a GBP15/share offer from Brazil’s InBev (ABV). New York Times reported that talks between US air carriers United Airlines (UAUA) and US Airways (LCC) were stalled. LCC has fallen from a 52-week high of $36.81 to yesterday’s low of $4.06, closing $4.08. UAUA has plunged from $48.25 in October to a low of $7.36 on Tuesday, closing yesterday at $7.91. Essentially, high fuel costs have bankrupted these companies once again.

On the macro-economic front, there was a report that US orders for durable goods for April declined a smaller than expected -0.5%, which was less than the expected -2.0% decline.

The US 30-year long bond ($USB) lost -0.76% to close at $114.77 as it appears many traders have sold or gone short with the specter of higher interest rates on the horizon. Yields for the 30-year ($TYX), 10-year ($TNX), and 5-year ($FVX) lifted +1.12% to 4.697, +2.24% to 4.009, and +3.54% to 3.334, respectively. The T-Bill is now yielding 1.855.

Yesterday, Gold ($GOLD) dropped -7.80/oz to 905.00 and Crude oil ($WTIC) gained +2.18/bbl to 131.03. This morning, both contracts look weak.

At 7:40am ET, the spot (cash) price of gold was 893.45 (vs 916.10 on Monday morning). Silver was 17.19 (18.02), while platinum was at 1984 (2160), and palladium at 426 (445). Clearly, these prices are softening.

Futures for Crude oil (129.80), Euro (1.5564) and the DJIA (12589) were also weak.

---

Comments & Outlook

When the price of oil starts to come down there will be some relief to the US airlines. I anticipate some form of government intervention before most of the airlines go bankrupt again. The "New" shares will soon be required to become "New New" shares.

From the pockets of US airline employees to those of the Middle East oil sheiks. You'd think somebody other than Texas oil people who are running this Administration and the past one would be able to take control after the government changes hands in January. Rather than taking a unified political stance against Sudan, as they did this week, you'd think the three Presidential candidates might first line up against the urgent problems that exist today in America, which is the food and oil one that is bankrupting the country.

With commodity prices soaring, the commodity-based producers are being forced to raise prices, regardless of what happens to demand, which is likely to fall off. Dow Chemical’s announcement is being followed by many others, including Monsanto, General Foods, Hershey. Cost inflation is the focus today—wage inflation will follow.

Inflation will bring lower demand as well as higher interest rates. The banks simply cannot afford a higher rate structure at this time. That would trigger another round of the housing market crisis and that will worsen the asset-backed securities valuation problem of the banks, leading to more write-downs and hence the need to raise more capital, lay off more staff and also to tighten lending standards. Everybody suffers.

The bottom line is that Stagflation is worsening, and I have never seen such conditions do anything but tear apart the prices of equities and bonds. That too will really hurt the whole financial group, leading to more losses and more staff cut-backs in future.

As I see it, the Bear market has just begun. Unless there is a sudden and sharp pull-back like 1987, the Bear could linger. As long as fuel and food costs stay high and the housing industry remains in shackles, I think the equities Bear could last through 2009.

Traders ought to be able to make money long and short though.

---

Links & Charts

---

International Economics Review

US Economic Calendar.

---

Knobias Cara100 Tables

---

Cara 100 Daily RSI-7 Charts

At least one RSI value >70:

Ticker	Last	RSI-7M	RSI-7W	RSI-7D	Zone
SYT	61.71	86.32	65.04	55.91
ECA	91.68	86.29	67.15	51.48	Sell alert (trig. 4 days ago [on 2008-05-22 at $94.31, -2.79% chg], after a 8 day DZ)
WMT	57.09	82.81	68.95	58.76
GGB	51.02	80.79	83.66	72.75	Distribution Zone (for 1 days)
ABB	32.71	78.07	81.52	62.56	Sell alert (trig. 3 days ago [on 2008-05-23 at $32.76, -0.15% chg], after a 1 day DZ)
COST	73.24	77.67	67.30	61.08	Sell alert (trig. 8 days ago [on 2008-05-16 at $73.27, -0.04% chg], after a 3 day DZ)
SU	69.36	77.36	71.66	61.10	Sell alert (trig. 2 days ago [on 2008-05-27 at $68.73, +0.92% chg], after a 12 day DZ)
ATVI	32.99	77.28	89.92	68.17	Sell alert (trig. 1 days ago [on 2008-05-28 at $32.99, +0.00% chg], after a 12 day DZ)
PBR	73.37	77.09	74.61	64.58	Sell alert (trig. 4 days ago [on 2008-05-22 at $72.02, +1.87% chg], after a 5 day DZ)
RIMM	137.80	77.01	72.27	59.42
EXC	88.82	76.66	71.08	59.14	Sell alert (trig. 1 days ago [on 2008-05-28 at $88.82, +0.00% chg], after a 1 day DZ)
STO	39.17	75.65	76.17	49.92	Sell alert (trig. 2 days ago [on 2008-05-27 at $39.07, +0.26% chg], after a 7 day DZ)
TS	60.68	75.14	75.94	66.00	Sell alert (trig. 2 days ago [on 2008-05-27 at $59.21, +2.48% chg], after a 6 day DZ)
RIO	40.66	73.48	60.77	46.38	Sell alert (trig. 5 days ago [on 2008-05-21 at $41.78, -2.68% chg], after a 3 day DZ)
PDA	64.18	73.26	75.80	72.80	Distribution Zone (for 1 days)
TT	46.47	73.04	69.77	56.51	Sell alert (trig. 6 days ago [on 2008-05-20 at $46.53, -0.13% chg], after a 1 day DZ)
CHRW	63.55	70.75	64.83	46.34
TOT	87.78	70.74	74.42	59.67	Sell alert (trig. 2 days ago [on 2008-05-27 at $87.15, +0.72% chg], after a 6 day DZ)
BHP	88.60	70.47	70.31	47.84	Sell alert (trig. 6 days ago [on 2008-05-20 at $89.69, -1.22% chg], after a 4 day DZ)
CVX	100.42	69.91	73.82	56.75	Sell alert (trig. 3 days ago [on 2008-05-23 at $100.73, -0.31% chg], after a 6 day DZ)
QCOM	48.32	69.51	82.04	71.52	Sell alert (trig. 1 days ago [on 2008-05-28 at $48.32, +0.00% chg], after a 1 day DZ)
ORCL	22.79	65.43	73.99	68.55
MBT	87.88	64.84	68.46	72.09
LLTC	36.35	63.98	80.27	50.95
VIP	36.01	62.82	68.04	71.83
ADBE	42.84	59.89	76.08	71.61
DELL	21.69	41.93	68.43	72.26
SBUX	17.83	28.40	53.54	75.62

At least one RSI value <30:

Ticker	Last	RSI-7M	RSI-7W	RSI-7D	Zone
BC	14.07	11.84	30.34	11.46
UBS	24.90	23.95	23.43	11.89	Accumulation Zone (for 2 days)
GOL	14.80	24.49	36.71	36.92
WFMI	28.69	25.33	27.58	38.73	Buy alert (trig. 1 days ago [on 2008-05-28 at $28.69, +0.00% chg], after a 5 day AZ)
SBUX	17.83	28.40	53.54	75.62
GE	30.55	31.04	31.37	22.05
IBN	38.08	37.83	32.28	21.19
ERJ	36.15	38.41	28.80	13.03
PAYX	34.45	42.28	43.10	29.53
GS	174.83	42.51	43.56	26.61
CHL	73.01	51.23	35.05	16.42
ABV	69.87	51.66	38.43	19.92
JNJ	64.88	55.22	46.59	27.22

---

International Equity Markets Review

Europe

Here is the latest session data for the bourses of Europe.

---

Here is the latest session data for the London stock exchange FTSE.

---

Here is the latest session data for the German DAX.

---

Here is the latest session data for the French CAC 40.

---

Here is the latest session data for the Milan Italy stock exchange MIBTEL.

---

Here is the latest session data for the Swiss market index.

---

Asia-Pacific

Here is the latest session data for the Asia-Pacific stock exchanges.

---

Here is the latest chart for the Japanese Nikkei 225 index.

---

Here is the latest chart for the Singapore index .

---

Here is the latest chart for the Shanghai Composite index .

---

Here is the latest chart for the Hong Kong Hang Seng index .

---

Here is the latest chart for the India BSE 30 index .

---

Here is the latest chart for the Australian All Ordinaries index .

---

US Equity Markets Review

DJIA (interactive) chart

NASDAQ Composite (interactive) chart

Table 14: Dow 30 List

Sorted by 1-Week Price Performance

Symbol	Close	1Day Change	1Day %Change	1W %Change	2W %Change	4W %Change	YTD %Change	3M %Change	6M %Change	12M %Change
IBM	129.54	2.22	1.74%	3.48%	2.34%	5.45%	23.74%	12.41%	20.65%	23.16%
WMT	57.09	0.69	1.22%	2.04%	0.78%	-2.59%	21.73%	12.60%	20.88%	21.70%
KO	57.44	-1.15	-1.96%	0.61%	1.66%	-2.18%	-5.97%	-3.40%	-8.81%	10.70%
T	39.51	0.68	1.75%	0.36%	0.64%	2.38%	-3.63%	9.87%	5.36%	-3.07%
HD	27.43	0.15	0.55%	0.22%	-4.59%	-6.57%	5.06%	-1.01%	-2.97%	-28.53%
HPQ	46.52	0.82	1.79%	0.13%	5.08%	-2.76%	-6.61%	-4.18%	-8.30%	1.97%
VZ	37.77	0.39	1.04%	-0.16%	-0.89%	-1.15%	-12.59%	1.59%	-10.94%	-11.13%
DIS	33.86	0.22	0.65%	-0.67%	-1.37%	3.36%	6.34%	4.06%	3.58%	-6.02%
CAT	83.19	1.69	2.07%	-0.78%	-1.05%	2.06%	17.78%	11.83%	16.86%	9.88%
MMM	76.90	0.73	0.96%	-0.81%	-0.36%	0.05%	-7.02%	-3.63%	-7.80%	-11.96%
PG	64.87	-0.20	-0.31%	-1.50%	-1.31%	-1.56%	-10.29%	-3.14%	-12.23%	3.03%
MCD	58.69	0.58	1.00%	-1.66%	-4.05%	-2.51%	1.02%	7.45%	1.24%	15.30%
JNJ	64.88	-0.27	-0.41%	-1.92%	-2.30%	-3.44%	-1.56%	3.46%	-5.08%	2.67%
JPM	42.86	-0.15	-0.35%	-1.92%	-5.76%	-8.96%	1.64%	0.99%	-2.50%	-17.00%
MSFT	28.18	-0.26	-0.91%	-2.02%	-5.37%	-1.61%	-19.99%	0.90%	-16.38%	-7.55%
C	21.60	-0.06	-0.28%	-2.31%	-6.21%	-17.93%	-25.31%	-13.63%	-33.11%	-60.81%
AXP	46.15	0.25	0.54%	-2.45%	-5.84%	-3.87%	-9.58%	3.89%	-19.61%	-27.47%
INTC	23.47	-0.13	-0.55%	-2.57%	-1.22%	3.76%	-7.42%	14.54%	-10.39%	5.91%
CVX	100.42	0.84	0.84%	-2.59%	2.75%	6.00%	7.45%	12.81%	16.69%	23.78%
DD	47.63	0.63	1.34%	-2.70%	-2.82%	-2.14%	8.89%	0.83%	3.45%	-7.44%
MRK	38.66	0.04	0.10%	-2.72%	-1.30%	4.09%	-32.61%	-14.47%	-35.52%	-28.01%
BA	82.13	-0.74	-0.89%	-3.54%	-3.47%	-3.98%	-5.18%	-3.15%	-12.26%	-16.41%
GE	30.55	0.15	0.49%	-3.69%	-5.51%	-6.92%	-16.89%	-9.75%	-20.57%	-18.66%
PFE	19.30	-0.03	-0.16%	-3.74%	-3.36%	-4.64%	-15.76%	-14.41%	-17.66%	-29.89%
AA	41.57	1.19	2.95%	-3.84%	-1.31%	19.97%	15.06%	6.26%	14.80%	1.64%
BAC	33.87	-0.30	-0.88%