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D Fry Market Outlook 01 12 2006

"I know what you're thinkin' punk! Should I hold those shorts or not? Go ahead, make my day!"

Just when shorting opportunities seem ripe, Mr. Market and his program trading pals take major indexes back higher. But, wait! Markets closed basically flat, so short-sellers' dreams may live for another day.

There was plenty of two-way action with bears taking charge early, but wouldn't you know it, just as volume started drying-up "Robo-Trader" appeared throwing some massive buy orders to squeeze some shorts. Yesterday we mentioned end-of-month "window dressing" was likely since May have featured this action. The headline at MarketWatch:

"NASDAQ CLOSES NOVEMBER WITH 2.7% GAIN; DOW AND S&P RISE 1.2 AND 1.6%"

D Fry Market Outlook 01 12 2006

Like I've said all week, "patience will be required throughout the week." And, let me add tomorrow starts a new month but is also the end of the week. We may see some trouble as the month begins, since the action into the close of trading was deceiving and weak.

D Fry Market Outlook 01 12 2006

The big story continues to be the dollar, precious metals and energy.

D Fry Market Outlook 01 12 2006

D Fry Market Outlook 01 12 2006

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D Fry Market Outlook 01 12 2006

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D Fry Market Outlook 01 12 2006

Elsewhere in U.S. markets, the focus remains on interest rate sensitive sectors.

D Fry Market Outlook 01 12 2006

D Fry Market Outlook 01 12 2006

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D Fry Market Outlook 01 12 2006

Okay then, a brief look at more volatile and higher beta markets looks like this.

D Fry Market Outlook 01 12 2006

D Fry Market Outlook 01 12 2006

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D Fry Market Outlook 01 12 2006

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D Fry Market Outlook 01 12 2006

D Fry Market Outlook 01 12 2006

Well, they were able to rescue stocks late in the trading day after another data driven "smackdown." But don't-mess-with-shorting has been the rule of thumb with the world awash in liquidity and momentum strong. Dirty Harry will get ya!

The standout issues that send a chill down my spine are the action in the dollar, precious metals and energy. At the same time, dormant Middle East issues may be coming to a head with the disclosure today of Iranian arms and Hezbollah trained fighters in Iraq. If correct, this is an act of war against U.S. troops and the Commander in Chief is obliged to defend them. There's no other way to interpret it. Is that the message, intensification of war risk, from the weak dollar, rising precious metals and energy? It has been in the past.

Tomorrow Bernanke is speaking with more soothing language and we start a new trading month.

I have a bad feeling about it.

Disclaimer: Among other securities, ETF Digest maintains positions in: S&P 500 Index (NYSEARCA:SPY), Euro Currency Trust ETF (NYSEARCA:FXE), CurrencyShares Swiss Franc ETF (NYSEARCA:FXF), CurrencyShares British Pound ETF (NYSEARCA:FXB), streetTRACKS Gold Trust ETF (NYSEARCA:GLD), iShares Silver Trust (NYSEARCA:SLV), Market Vectors Gold Miners ETF (NYSEARCA:GDX), Central Fund of Canada (NYSEMKT:CEF), iShares Lehman 7-10 Yr Treasury Bond ETF (NYSEARCA:IEF), Utilities SPDR ETF (NYSEARCA:XLU), iShares Dow Jones Select Dividend ETF (NYSEARCA:DVY), PowerShares WilderHill Clean Energy ETF (NYSEARCA:PBW), iShares MSCI Brazil Index ETF (NYSEARCA:EWZ), iShares S&P Latin America 40 Index (NYSEARCA:ILF), iShares S&P Europe 350 Index (NYSEARCA:IEV), Internet HOLDRS (NYSE:HHH), India Fund Inc. (NYSE:IFN), BSE INDEX, Templeton Russia & Eastern Europe Fund CEF (NYSE:TRF), iShares MSCI Malaysia Index (NYSEARCA:EWM), iShares FTSE/Xinhua China 25 Index (NYSEARCA:FXI) and iShares MSCI Australia Index (NYSEARCA:EWA).

Source: David Fry's Daily Market Outlook