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D Fry Market Outlook 31 07 2007

Over the weekend the industry trotted-out their talking heads to promote stocks. It worked today. A Bloomberg headline proclaimed stocks now cheaper than at any time since 1991 based on forward-looking earnings. Jim Cramer, I’m told, raged at the stock market decline as driven by program trading. It didn’t seem to bother him when this was working in his favor. And every business TV show featured bullish pundits from financial services firms who don’t want to see fee income walking out the door.

Markets were severely oversold short-term, so a bounce should have been expected. Add to that month-end window dressing, and a rally followed.

It also didn’t hurt that the Treasury kicked-in an additional $10 billion to the primary dealers.

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Volume was once again “super-sized,” and breadth was positive, at least on the NYSE, and more modest on the NASDAQ.

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Markets rallied from steeply oversold conditions. Note the depth of these conditions from the McClellan Oscillator as indicated in the circle. You’ll observe we were as oversold Friday as last summer.

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The positive news for bears is that markets are relieving their oversold conditions. Bears should be able to add more comfortably to their positions should that be their intent.

How long-lasting this pop will be will probably be known after the month ends tomorrow and window-dressing ends. We enter the dog days of summer when volume usually lightens. But based on last week’s action, I wouldn’t count on it.

Disclaimer: Among other positions the ETF Digest maintains long or short positions in: iShares Dow Jones US Real Estate ETF (NYSEARCA:IYR), streetTRACKS KBW Bank (NYSEARCA:KBE), United States Oil Fund ETF (NYSEARCA:USO), PowerShares DB Energy Fund (NYSEARCA:DBE), PowerShares DB US Dollar Index Bearish (NYSEARCA:UDN), iPath MSCI India ETN (NYSEARCA:INP), iShares Trust FTSE-Xinhua China 25 Index Fund (NYSEARCA:FXI).

Source: David Fry's Market Outlook for Tuesday