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D Fry Market Outlook 21 06 2007
"Big Wednesday" Point Panic, Oahu

When a summertime swell hits the south shore of Oahu off Kakaako's famous Point Panic, you can get some spectacular rides. Oh to be young again! In the above image, this body surfer caught some big air. Is this a good segway to today's stock market ride? Well, maybe -- and I liked the picture.

Again, the big story today was 'headline' concern about bond markets, energy prices -- but not too much about continuing liquidity.

Today's bond market selloff only undid "some" of yesterday's rally, but still provided the spark to put bulls on the run. It was strange to sell stocks severely, although optimists had put their money on the-worst-is-over scenario for interest rates. Based on the chart of iShares Lehman 7-10 Yr Treasury Bond ETF (NYSEARCA:IEF) below, that scenario may still be the case -- since the previous low wasn't taken out. Bears may hope that oversold conditions have now eased, and they can jump more comfortably on the short side.

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Interest rate concerns also pressed financials [sans our trading-desk friends at Morgan Stanley], consumers [Chucky], and real estate sectors.

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There was the promised volatility caused by energy market inventories that proved bearish. The picture for energy was mixed, since while oil inventories grew, refiners were producing gasoline at a slower pace. While there seems to be plenty of oil, if you can't refine it, what good is it? Weather and geopolitical tensions should keep prices higher than supplies indicate.

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Moving away from currencies, commodities and interest rates -- everyone wants a view of stocks.

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And then there are the overseas markets which have been on a tear. We looked at the BRIC-K [Brazil, Russia, India, China and Korea], and we might as well review them again.

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"Big Wednesday" indeed! I usually reserve that for up days, but they are about wild rides no matter the direction.

Sounding like a broken record about "waiting the week out" must seem tiresome. But doing so has been the right discipline over the past few weeks. Just as things were looking very shaky last week, the cavalry charged and took markets sharply higher on Thursday and Friday. Can the bulls mount another attack? Based on Treasury injections outlined yesterday [$37 billion] to Wall Street trading desks, the firepower is there. Will they use it?

Disclaimer: Among other issues, the ETF Digest maintains long or short positions in: iShares Dow Jones US Real Estate ETF (NYSEARCA:IYR), United States Oil Fund ETF (NYSEARCA:USO), PowerShares DB Energy Fund (NYSEARCA:DBE), streetTRACKS Gold Trust ETF (NYSEARCA:GLD), PowerShares DB US Dollar Index Bearish (NYSEARCA:UDN), PowerShares DB Commodity Index Tracking Fund (NYSEARCA:DBC), S&P 500 Index (NYSEARCA:SPY), MidCap SPDRs ETF (NYSEARCA:MDY), iShares Russell 2000 Index ETF (NYSEARCA:IWM), iShares Goldman Sachs Technology Index Fund (NYSEARCA:IGM), iPath MSCI India ETN (NYSEARCA:INP), iShares Trust FTSE-Xinhua China 25 Index Fund (NYSEARCA:FXI), iShares MSCI South Korea Index Fund ETF (NYSEARCA:EWY), iShares MSCI Canada Index ETF (NYSEARCA:EWC), iShares MSCI Australia Index Fund (NYSEARCA:EWA), iShares S&P Europe 350 (NYSEARCA:IEV).

Source: David Fry's Market Outlook for Thursday