David Fry's Daily Market Outlook

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Includes: DBE, EWJ, FXI, GLD, IEF, IYT, KBE, SPY, XLF
by: David Fry

D Fry Market Outlook 07 03 2007
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Markets were severely oversold coming into today and a rally was likely.

Have we seen the bottom then?

It's really hard to say since the news hasn't changed much. In fact, much of the economic news today was lousy -- declining factory orders, poor productivity and employment costs and Bernanke comments that portfolios held by Fannie Mae and Freddie Mac "continue to represent a potentially significant source of systemic risk." These negative news items were brushed aside in a buying panic.

I commented over the weekend that declines such as we're now seeing, including the major sell-off in April 2000, were followed by major rallies higher that, while dynamic, didn’t last. Further, there's still a lot of liquidity in the system. And unlike during the decline in 2000, authorities aren't tightening -- they're still in a money printing mode.

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The McClellan Oscillator also neared minus 100 which also reflects much oversold conditions.

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Let's just view a few more charts today and then take a break, since the week still holds plenty of news including the Fed Beige Book tomorrow and Friday's all important employment data.

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After over a week of sharp losses the equity markets were much oversold, and a countertrend rally was clearly in the cards. It occurred because markets that caused all the trouble to begin with [in Asia particularly] rallied. Furthermore, the crummy economic news of the day was completely ignored. This is what happens when markets get oversold and momentum builds directionally.

And, for those thinking of shorting, remember one thing: There's a bullish empire and army loaded with plenty of cash arrayed against you.

May the force be with you.

Have a pleasant evening.

Disclaimer: Among other issues, the ETF Digest maintains positions in: streetTRACKS Gold Trust ETF (NYSEARCA:GLD), PowerShares DB Commodity Index Tracking Fund (NYSEARCA:DBC), PowerShares DB Energy Fund (NYSEARCA:DBE), iShares Lehman 7-10 Yr Treasury Bond ETF (NYSEARCA:IEF), iShares MSCI Emerging Markets ETF (NYSEARCA:EEM) and iShares MSCI Japan Index ETF (NYSEARCA:EWJ).