David Fry's Market Outlook for Thursday

by: David Fry

D Fry Market Outlook 24 05 2007
Greenspan, Stock Jockey

Gee, and I thought he was a bond guy. Things were going along pretty smoothly until Greenspan started talking up his short position [who's he kidding!] in Chinese stocks by saying that a "dramatic contraction" could occur. He didn't have much affect on U.S. stocks [maybe a day or two] when he uttered the famous "irrational exuberance" line in 1996. But who knows, maybe he has more influence apart from his previous official role. So it's Greenspan Unplugged.

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We'll see how these comments affect Thursday's markets. Despite it all, the Chinese and U.S. ended their trade talks with some progress. Those looking for the Chinese to cave on their currency manipulation were disappointed. It would have been remarkable for any other outcome. And, it may not be a good thing for the U.S. or China to let the yuan rally too much.

Perhaps more important today was news from the subprime mortgage area that "the worst may be over" as some mortgage related stocks rallied sharply -- ranging from 10-25%.

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Closely associated with mortgage markets is the condition of the 10 year bond. It doesn't look promising but we remain in a trading range.

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Oil supplies were higher, but products rallied on concerns about tight refinery production, Middle East unrest [what else is new?] and the start of hurricane season next week.

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As you may have noticed over the past two weeks we've been keen to follow the progress of both small-caps and tech. Things were going along well until late in the afternoon.

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Greenspan's comments could "torch" the Shanghai markets. [He's not alone in thinking Chinese stocks are overvalued as other pundits have been loudly proclaiming.] Could that create another late February bust? Possibly -- and also to emerging markets in general. But there are other forces clearly affecting U.S. markets.

Some old soldiers should just fade away, but I think the former Chairman wants to make some money in his old age having missed-out [theoretically] on the bull market during his long term.

The quote of the day comes from a line in MarketWatch referring to a proposed promotion by American Express Company (NYSE:AXP): "American Express is set to unveil the first program that allows consumers to charge mortgage payments -- and rack up rewards." I'll have to think about this for awhile, but I'll bet Chucky will love it!

Disclaimer: Among other issues, the ETF Digest maintains long or short positions in: iShares Trust FTSE-Xinhua China 25 Index Fund (NYSEARCA:FXI), iShares MSCI Emerging Markets ETF (NYSEARCA:EEM), streetTRACKS Gold Trust ETF (NYSEARCA:GLD), PowerShares DB Energy Fund (NYSEARCA:DBE), Rydex S&P Equal Weight Energy (NYSEARCA:RYE), Rydex S&P Equal Weight Consumer Discretionary ETF (NYSEARCA:RCD), iShares Russell 2000 Index ETF (NYSEARCA:IWM), NASDAQ 100 Trust Shares ETF (QQQQ) and iShares Goldman Sachs Technology Index Fund (NYSEARCA:IGM).