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D Fry Market Outlook 04 04 2007

The consensus view was that should the hostage crisis ease, oil prices would drop and stocks would rally. Doesn't seem like brilliant logic, but that's the deal. The hostage crisis didn't seem to have too much of a negative effect on stock markets generally, even when tensions were high.

What could have caused such a blasé attitude? Money, man... money.

• This week mutual funds get to reinvest dividends and folks are funding their retirement accounts before next week.
• The Fed is pumping more money into the system.
• M&A deals have been headline grabbing.

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The other thing that was supposed to happen and didn't really was a sharp drop in gold prices. Some gold pundits argue that gold is following a rally in base metals like copper. That seems like a weak argument, but I'm not a miner.

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The dollar rallied some today encouraged by the supposedly strong pending home sales data.

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Overall today stock indexes were around 1% higher and trading volume increased. Are there reasons to be optimistic? Not many frankly, since real estate despite today's data was weak, the subprime mess lingers, economic growth is supposed to be slowing and so are corporate profits. Bulls argue that there will be a P/E expansion, which would have to happen if earnings are declining. But stock prices are rising or even staying the same. The bottom line is the tape is strong, fed by continued liquidity from funds and the "yen carry trades" which seems back in business.

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Let's look around the horn further.

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The above is a fairly representative picture of the variety of action. Is there anything to like fundamentally about stocks? Not that I can see. However, technically tape action is dominant and positive. You can't fight that. Further the amount of money available for investing, and speculation has never been greater. "Money Money Money???" You bet! The emerging "risk aversion" argument of just a few weeks ago is rapidly becoming a distant memory. Its crazy isn't it? Sure, but that's why we play the game!

Have a pleasant evening.

Disclaimer: Among other issues, the ETF Digest maintains long or short positions in: streetTRACKS Gold Trust ETF (NYSEARCA:GLD), PowerShares DB US Dollar Index Bearish (NYSEARCA:UDN), streetTRACKS SPDR Homebuilders ETF (NYSEARCA:XHB), streetTRACKS KBW Bank (NYSEARCA:KBE), iShares Lehman 7-10 Yr Treasury Bond ETF (NYSEARCA:IEF), MidCap SPDRs ETF (NYSEARCA:MDY), iShares Goldman Sachs Semiconductor Index Fund (IGW), Utilities SPDR ETF (NYSEARCA:XLU), Rydex S&P Equal Weight Materials (NYSEARCA:RTM), Telecom HOLDRS ETF (NYSEARCA:TTH), iShares MSCI EAFE Index Fund ETF (NYSEARCA:EFA), iShares MSCI Emerging Markets ETF (NYSEARCA:EEM), iShares S&P Latin America 40 Index Fund (NYSEARCA:ILF), iShares MSCI Japan Index ETF (NYSEARCA:EWJ), iShares MSCI Australia Index Fund (NYSEARCA:EWA), iShares MSCI Netherlands (NYSEARCA:EWN), iShares MSCI Austria Index Fund (NYSEARCA:EWO), iShares MSCI South Korea Index Fund ETF (NYSEARCA:EWY) and iShares MSCI Canada Index ETF (NYSEARCA:EWC).

Source: David Fry's Daily Market Outlook for Wednesday