David Fry's Daily Market Outlook

Includes: IEF, SHY, XHB, XLY
by: David Fry

Better get out of the way since the big boy’s about to run you over. Why would anyone, including myself, think with the markets so dominated by trading desks and hedge funds, there wouldn’t be some end-of-quarter/month window dressing “again”? How silly!

Bad news (homebuilder Lennar Corp. (NYSE:LEN) reports worse-than-expected earnings and Lowe's Companies Inc. (NYSE:LOW) “warns”) in the housing sector is viewed as so much “old news,” and streetTRACKS SPDR Homebuilders ETF (NYSEARCA:XHB) is bid higher past previously noted resistance. Why rally? Because evidently XHB is perceived to be “washed-out,” and buyers believe lower interest rates and better consumer confidence data will allow excess inventories to be worked-off. And, then there’s the “value” players who’s “systems” track down stocks where low price to book and P/E’s are attractive. (A soft landing for real estate.) But, what if earnings continue to slide while debt builds? That’s their risk. Further, there are plenty of technicians looking for stocks to buy fitting this type of “cup and handle” formation. (You’ll be able to note the formation as a cup with the latter week’s activity as a handle followed by a breakout to new recent highs.)

Consumer confidence was reported better than expected as consumers were theoretically buoyed by lower gas prices. But a look inside the numbers revealed consumers still weren’t planning to increase spending. That didn’t slow bulls as they bid stocks higher immediately after the report:

Lower short-term rates should force the dollar lower and push gold higher, but that argument has yet to take hold:

As we’ve said for the past three weeks, “the ball is in the bulls' court." While it seems odd sometimes how markets behave, eventually it will all make sense. The amount of liquidity injected to the markets by the Treasury in the past two weeks coincident to the drop in commodity prices and interest rates that we outlined previously is being put to work just before the end of the quarter. There’s plenty of more economic data to come throughout the week, making for more volatility. But you should respect the power of the big money deployed to make everything terrific by week’s end.

Disclaimer: The ETF Digest has positions in iShares Lehman 7-10 Yr Treasury Bond ETF (NYSEARCA:IEF), S&P 500 Index (NYSEARCA:SPY), Market Vectors Gold Miners ETF (NYSEARCA:GDX) and Templeton Russia & Eastern Europe Fund CEF (NYSE:TRF).