David Fry's Market Outlook for Thursday

 |  Includes: DBA, FXI, GLD, IEF, QQQ, SHY, TLT, USO, XHB, XLF
by: David Fry

Like I was saying, “when subprime/credit/mortgage/housing issues are quiet, stocks rally.” Those negative issues came back to the forefront and stocks fell sharply on somewhat higher volume.

The National Assn. of Realtors reported that existing home sales fell 12.2% in July, and one would assume August data will be even worse as lending standards have been tightened. Also ADP reported job data that was the weakest in four years making Friday’s jobs report that much more important.

And from credit crunch central Bloomberg reported, “Moody’s Investors Services downgraded or placed on review for downgrade $14 billion of bonds sold by funds that rely on commercial paper market for borrowing.” The negative implications from this story are potentially huge as SIVs [Structured Investment Vehicles] are a part of funds which sell short-term commercial paper and with the proceeds purchased mortgaged backed debt. No one is buying this product and as the article suggests some funds consisting of these products may be in trouble.

Libor rates [the rates for lending between US banks] hit 5.70% today the highest since 2001. The chart below tells the tale and is courtesy of Black Swan Trading:

Volatility is still high as measured by the VIX [Volatility Indicator] as put buyers are still active.

Besides all the above, what impressed me the most today?

A review of US equity ETFs follows:

Lastly let’s look at the popular BRIC sectors:

The credit crunch is back in the news and with it stocks decline. What we had Tuesday was typical beginning of the month reinvestment activity from mutual funds. Wednesday was another reminder of the woes surrounding financial markets. If you’re a day-trader, this is a pretty good market. For the average investor the news, uncertainty and volatility are a bit much to deal with.

There’s nothing wrong being in cash [“safe” cash that is] sometimes waiting for issues to become clear. Either we’re going down hard or this is a helluva buying opportunity. I don’t think its safe to say either way now.

Friday’s employment data looms large.

Disclaimer: Among other positions the ETF Digest maintains long or short positions in: iShares Lehman 1-3 Year Treasury Bond ETF (NYSEARCA:SHY), iShares Lehman 7-10 Yr Treasury Bond ETF (NYSEARCA:IEF), iShares Lehman 20+ Year Treasury Bond ETF (NYSEARCA:TLT), PowerShares DB US Dollar Index Bearish (NYSEARCA:UDN) and streetTRACKS Gold Trust ETF (NYSEARCA:GLD).