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D Fry Market Outlook 01 03 2007

Sometimes I have to reach back to 35 years of Hawaiian vocabulary to sum-up current conditions. Kapukahi [Kah-pooh-KAH-hee] comes to mind, which means roughly what the headline reads. Anyway, things are pretty screwed-up in any language, and investors will just have to let the dust settle before reaching for their wallets again.

Mr. Market usually has a pretty good handle on conditions, and following his path and interpreting his message is usually a manageable activity. But, yesterday even he got blindsided by not just the usual suspects [China and Greenspan], but the unusual, incompetent, fraudulent, unethical unprofessional [I gotta settle on some printable term] manner in which trades were executed by the NYSE yesterday. Mr. Market can't deal with 200 points in a few minutes of disorderly activity.

Yesterday's trading disaster will be reviewed by many, and apologies will be issued by authorities. But, trust me, heads probably won't roll or at least very far. The bottom line is the numbers will stick even if they're located in a [ahem] dark place.

So it's bye-bye February. After several months of putting one foot in front of the other as markets marched higher, most gains were obliterated in one day. And most market sectors will score a loss for the month. So what next? That's at the forefront of everyone's mind. Guess what? I don't know and no one else does either. But the technical damage done won't heal in a few days. As I said yesterday, the best one could hope for now is some sideways movement. This may take weeks or months. Perhaps we'll just have a repeat of the past few years where markets decline through the summer only to find their sea-legs and rally in the fall.

Gold and other precious metals seem pretty screwed-up too frankly. Remember, over the past few weeks investors have been pushing gold higher based on rising energy prices. I said then that would prove ephemeral, and it did in an odd sort of way. Gold generally moves higher historically with a declining dollar, higher inflation, rising geopolitical tensions and financial market distress. We have most of that presently, yet gold prices have dropped. Why? Most hot money investors have weak hands, and when a panic ensues, they'll sell anything and everything to lock-in gains.

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Meanwhile stock markets at least went sideways for the most part today. Some bargain hunters appeared to snap-up some oversold sectors and names, but frankly the upside action wasn't all that inspiring.

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Well, we could outline many more markets but you get the idea in general. Are markets now quickly oversold at least on a short-term basis? Sure. Is a bounce unexpected? No. Is it a dead cat's bounce? It's too soon to say.

Are we a little more than steamed at the manner in which the supposedly reliable exchanges dealt with trading activity yesterday? You bet. Will anything be done about it beyond soothing words? No.

So like many others I'll just be muttering kapukahi for awhile. How long that will last is hard to say.

Disclaimer: Among other issues, the ETF Digest maintains positions in: streetTRACKS Gold Trust ETF (NYSEARCA:GLD), iShares Silver Trust (NYSEARCA:SLV), PowerShares DB Precious Metals Fund (NYSEARCA:DBP), PowerShares DB Energy Fund (NYSEARCA:DBE), PowerShares DB Agriculture Fund (NYSEARCA:DBA), PowerShares DB Commodity Index Tracking Fund (NYSEARCA:DBC), S&P 500 Index (NYSEARCA:SPY), iShares Russell 2000 Index ETF (NYSEARCA:IWM), MidCap SPDRs ETF (NYSEARCA:MDY), NASDAQ 100 Trust Shares ETF (QQQQ), First Trust DJ Internet Index ETF (NYSEARCA:FDN) and iShares Goldman Sachs Network Index Fund (NYSEARCA:IGN).

Source: David Fry's Daily Market Outlook