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D Fry Market Outlook 21 03 2007

Michael Malone, trading analyst at Cowen & Co., opined Tuesday that deal making is returning after a few weeks of absence signifying, "a sign that confidence is returning to the marketplace." Really? I'd say its more like investors took some kind of memory drain medication to make them forget the previous focus on and abhorrence of risk. We're back to risk-taking as if the previous concerns were just so much hooey. So the previous method of isolating all problems, setting them aside as a nuisance, and putting cash to work are quickly [in a New York minute] are back in style. Why? Because there's plenty of cash burning a hole in money managers' pockets, and it's nearing the end of the quarter when bonuses are paid.

Here's something of interest regarding the appetite for risk. According to the NYSE margin debt hit a record high in February at $295.87 billion, versus January's record of $285.60 billion. Now we don't have March's figures yet, but clearly the appetite for risk was pretty high then, and it will be interesting to see how it changed if at all.

Another up day on light volume which is still goes in the books as an up day.

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Now I should really point out that the NYSE has a new link for its program trading data per this press release. Why they haven't transferred it to the previous link is beyond my ability to know. But, they do seem to love the round number of 32.0% don't you think?

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Folks must be pretty convinced that not only will the Fed not do anything at their meeting, which ends Wednesday, but some expect some soothing language as to how they stand ready to rescue markets from any mortgage difficulty. There were also rumors Tuesday that the Fed will cut in June.

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Now cynical theory goes like this: This ramp higher we're seeing could be just some smart money pumping markets higher so they can suck you in and sell you stock.

But it's silly of me to think anything like that. The Fed will meet tomorrow, and a lot of soothing "everything's fine" talk will take place. No doubt that's already been priced in. We have three more trading days in the week, and another five before the end of the quarter. I wouldn't be betting against window-dressing bulls flush with cash.

Have a pleasant evening.

Disclaimer: Among other positions, the ETF Digest maintains positions in: iShares Lehman 7-10 Yr Treasury Bond ETF (NYSEARCA:IEF), streetTRACKS Gold Trust ETF (NYSEARCA:GLD), PowerShares DB Precious Metals Fund (NYSEARCA:DBP), iShares MSCI Japan Index ETF (NYSEARCA:EWJ) and iShares MSCI Australia Index Fund (NYSEARCA:EWA).

Source: David Fry's Market Outlook for Wednesday