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D Fry Market Outlook 05 01 2007

The collapse in various commodity markets and ETFs associated with those sectors sends a lousy economic message—hint, a serious economic slowdown. But with so much liquidity still in the hands of hedge funds and trading desks they'll chase any money-making opportunity. Today it was go for tech and sell hard assets.

We've been pointing-out over the past few weeks that it was important for copper to hold support around $3, and recently noted that when it broke it could prove serious. This price action will probably result in some trouble for some fund managers and we'll no doubt be reading about it soon. Copper is a primary metal for industry. A sharp fall means there isn't much demand and economic conditions are weakening.

[The following chart is the active contract and reflects this sharp break with immediate support looming at $2.5]

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[Below is the active crude oil contract for February and you can see how warm weather "plus" the possibility of slower economic conditions can negatively impact demand. Included is a negative psychological spillover from the decline in copper and other commodities and a "get me out" of the sector mentality.]

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Sometimes you just have to step aside and wait patiently for a better opportunity.

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The beneficiary of today's action was tech and safer income sectors. The latter I understand while the former was a herd mentality sparked by an upgrade in INTC early in the day by BofA Securities. Who are we to argue? But, it sure seems ludicrous on the surface.

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Well, I could go on, but you get the idea. This has been a pretty messy affair this week. Tomorrow we get the jobs data and notwithstanding other issues, it should be a market moving affair. Complacency and a willingness to shrug-off bad news when loaded with cash have been the hallmark of the 2003-2006 bull market. No one knows if this will continue.

Source: David Fry's Daily Market Outlook