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Despite the upbeat headline index advances, the advance/decline data sucked. The only conclusion? Distribution is still a happening thing.

Click to enlarge
A vs D 26 07 2007

D Fry Market Outlook 26 07 2007_009

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The other big news is the collapse of the Chrysler (DCX) deal debt structure. This is an important event because of the banks unwillingness to take on the leveraged debt necessary. This could be the first sign that the private equity/LBO binge, one of the important props to this bull market run, is over.

Both Cerberus Capital and Daimler Chrysler said they intend to see the deal through, which must be what caused the common stock to rally nearly 4%.

As the DJIA moved higher today, only six components were up more than 1% [BA, IBM, KO, MRK, T and XOM]. And, volume on the NYSE was heavy at 4 billion shares.

D Fry Market Outlook 26 07 2007_005

The other newsworthy items were a rally in the dollar, a sell-off in gold, a continuing rally in Treasury bonds and a big jump in energy.

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D Fry Market Outlook 26 07 2007_009

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D Fry Market Outlook 26 07 2007_011

Despite the crummy news from the housing sector, good earnings are still driving stock prices higher. But it's a very company specific affair.

Early, BA's good earnings drove prices higher by 3%. And AAPL reported excellent earnings [up 3% in after-hours trading], and Chinese internet company Baidu.com (NASDAQ:BIDU) reported excellent earnings [up 18% in after-hours trading]. So earnings rule, but selectively.

Other markets of note:

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Let's move to global markets.

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Aside from normal Fed activity, the Treasury Department is adding funds in what seems a well-timed cavalry charge. Maybe they'll take the Chrysler debt that the banks won't now take, ya think?

Two days -- $16.5 billion direct to the primary dealers and their trading desks.

D Fry Market Outlook 26 07 2007_027

D Fry Market Outlook 26 07 2007_028

Is it just us so focused on distribution and the obvious divergence between negative breadth and higher index headlines? A good dose of liquidity from the Treasury helps traders bid stocks higher. And good earnings can relieve what ails breadth data ultimately. But can half a dozen stocks make the difference? We'll see.

Disclaimer: Among other issues the ETF Digest maintains long or short positions in: SPY, UDN, GLD, USO, DBE, QQQQ, XLF, IYR, RCD, EEM, EWZ, RSX, INP, FXI, EWY and TKF.

Source: David Fry's Market Outlook for Thursday