David Fry's Market Outlook for Friday

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 |  Includes: FXI, IBB, IEF, IEV, IGM, PSI, QQQ, XHB, XLF
by: David Fry

D Fry Market Outlook 22 06 2007

Our ghost editor Harvey got the “segway” versus “segue” deal wrong. This error has led to emails noting “his” error. He apologizes and I’ll monitor him closely.

But you’re here to see about markets so let’s segue to that shall we?

I thought Wednesday's action was odd frankly. All eyes were supposedly on bond yields rising "slightly" and that caused markets to sell-off. But that made little sense given the anemic yield movements. Thursday, bond yields rose further but stocks rose.

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There must have been something else bothering investors Wednesday, and it's difficult to put your finger on what the problems were. But no doubt about it, something was troubling Mr. Market. I noted that investors needed to wait the week out to see, if like last week, bulls could take markets higher today and Friday. Given all the "firepower" from Treasury injections [documented here on Monday] to Wall Street trading desks, it's a factor too large to ignore.

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We've also noted the recent outperformance of tech relative to other sectors. If the economy is expanding, earnings could become more positive to tech than higher interest rates are negative. Strong earnings results can outpace higher rates.

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Let's look at some other sectors including financials, homebuilders, consumers, currency and commodity markets.

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I might as well stick with the BRIC "K" [Brazil, Russia, India, China and Korea] theme that we've gone over all week.

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Nothing really surprises me about markets after 37 years of dealing with them. Friday is especially interesting, as just about anything can happen to close out this week. Last week featured a powerful Thursday/Friday rally after a dreadful early part of the week and a repeat is possible. Trading desks are loaded with dough and can prop prices well into the end of the month which, hard to believe, is only a week away.

But something was bothering markets Wednesday. I can't put my finger on it, and neither could headline writers. It may have something to do with a sense of a financial accident about to happen. That would come from subprime troubles that are plaguing some firms like Bear Stearns. Or, it could be high energy prices, since markets rallied in the afternoon today after oil prices started to fade. Then there are our terrorist friends. When trouble comes, and someday it will, it will hit hard. Until then, enjoy your long positions.

Have a pleasant weekend!

Disclaimer: Among other issues, the ETF Digest maintains positions in: S&P 500 Index (NYSEARCA:SPY), NASDAQ 100 Trust Shares ETF (QQQQ), iShares Goldman Sachs Technology Index Fund (NYSEARCA:IGM), First Trust DJ Internet Index ETF (NYSEARCA:FDN), iShares Goldman Sachs Network Index Fund (NYSEARCA:IGN), PowerShares Dynamic Semiconductor (NYSEARCA:PSI), iShares Goldman Sachs Software Index Fund (NYSEARCA:IGV), iShares NASDAQ Biotechnology Index ETF (NASDAQ:IBB), PowerShares DB US Dollar Index Bearish (NYSEARCA:UDN), streetTRACKS Gold Trust ETF (NYSEARCA:GLD), PowerShares DB Commodity Index Tracking Fund (NYSEARCA:DBC), iShares MSCI Brazil Index ETF (NYSEARCA:EWZ), 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 Australia Index Fund (NYSEARCA:EWA), and iShares S&P Europe 350 (NYSEARCA:IEV).