David Fry's Market Outlook for Friday

Let's get ahead of things shall we? Soon, if not already, talking heads will be prognosticating 15,000 for the DJIA. Why not? That's only another 7% or so away.

It seems bears only get one day whenever bad news rears its ugly head. Mostly these have been subprime related. They savor the moment, thinking the contagion will spread rapidly. But they only get squeezed and stampeded by bulls the very next day.

We're just glad to go with the flow, despite whatever our emotions and intuition argue. That's technical analysis 101.

To the above chart I'd note that Monday, Tuesday and most of Wednesday the market experienced a reasonable amount of selling or distribution. No doubt short sellers were active. But, as soon as they were done they got squeezed again badly.

How about something a little different? Here are a few other sectors that interest me.

Bears definitely don't like the subprime fiasco, despite fears being brushed-off by bulls. But there are other worries too. [Aren't there always?]

Also ignored is the rise in crude oil prices which either herald some dangers ahead geopolitically, or may just signify that long-term global demand is increasing a-la China et al.

A trip around the world reflects global economic growth and mostly positive investment sentiment. The move higher has been characterized by shifting global market leadership; one period favoring Latin America, then Europe, Asia and the States.

Okay, the Fryguy has bounced off the mat from sickbay. It's no fun having an intestinal bug.

Speaking of fun, DJIA 15,000? Well, I just want to be first with that. Will it get there someday? Probably. In my lifetime? Well...

Friday brings with it options expiration. This should create even more volatility, and perhaps some weird action.

Have a pleasant weekend.

Disclaimer: Among other positions the ETF Digest maintains long or short positions in: S&P 500 Index (SPY), Rydex S&P 500 Equal Weight (RSP), MidCap SPDRs ETF (MDY), iShares Russell 2000 Index ETF (IWM), NASDAQ 100 Trust Shares ETF (QQQQ), iShares Goldman Sachs Technology Index Fund (IGM), First Trust DJ Internet Index ETF (FDN), iShares Goldman Sachs Network Index Fund (IGN), PowerShares Dynamic Semiconductor (PSI), Rydex S&P Equal Weight Materials (RTM), PowerShares WilderHill Progressive Energy ETF (PUW), PowerShares Cleantech Portfolio (PZD), PowerShares FTSE RAFI US 1000 (PRF), iShares Dow Jones US Real Estate ETF (IYR), PowerShares DB US Dollar Index Bearish (UDN), United States Oil Fund ETF (USO), PowerShares DB Energy Fund (DBE), PowerShares DB Commodity Index Tracking Fund (DBC), iShares MSCI EAFE Index Fund ETF (EFA), iShares MSCI Emerging Markets ETF (EEM), iShares MSCI Brazil Index ETF (EWZ), Market Vector Russia ETF Trust (RSX), iPath MSCI India ETN (INP), iShares Trust FTSE-Xinhua China 25 Index Fund (FXI), iShares MSCI Hong Kong (EWH), iShares MSCI South Korea Index Fund ETF (EWY), iShares MSCI Australia Index Fund (EWA), iShares MSCI Canada Index ETF (EWC), iShares MSCI Japan Index ETF (EWJ) and Turkish Investment Fund Inc. (TKF).

Comments

[mavericks]

I don't know if you have noticed but the CEF market is collapsing. All the CEF's I follow, equity and bond are at bear market discounts and yet many are at 52-week high NAV's, particularily on the equity side. Any idea what's going on?

[gordon]

If I understand your question, I got out of equity leveraged CEFs, ie: IGD looks like a global equity CEF paying 9%, but you could see the charts breaking down (look at RMH) the reason is most are leveraged 30-40% using CDOs or interest-rate swaps, I use etfconnect.com to see what their bonds are and how much leverage, almost all those have leverage hidden in there in the fine print, and will likely cut dividends, if not already.

[Frank Li]

Excellent, as usual -- thank you.

Re. your comment on basic materials and demand from China -- how do you square what's going on in demand for materials with Caterpillar's earnings miss?

Totally agree with your comment about REIT ETFs and their low yields.

[David Fry]

DJ........CEFs are just being avoided in favor of ETFs. Makes sense wouldn't you agree? We use CEFs when there is no ETF alternative. We did that IFN and then TRF for example. When an ETF was issued the premiums disappeared. We're involved with TKF but also understand an ETF is in registration. When it's issued, we'll switch most likely.

Frank.... China's economy grew at 11.9% in last period so it doesn't take much rocket science to make that judgment. Add to that India et al and you've got some healthy demand for raw materials. As to CAT, that doesn't figure in directly to "materials". Construction is slower in the States and, despite the weak dollar, the yen is also weak so maybe Asian buying for equipment is from Japan. Am I misunderstanding your question?