David Fry's Market Outlook for Friday

Includes: BZH, GLD, MTH, PHM, RYL, XHB
by: David Fry

D Fry Market Outlook 27 04 2007

It's impressive that you could see even small gains in equities Thursday following Wednesday's big rally. Declines still led advances into the close -- but not by much on heavy volume.

D Fry Market Outlook 27 04 2007_001

We posted nearly 50 charts yesterday, so today we're just going to focus on more significant market movers and news today.

We've been discussing the inverse relationship between the dollar and gold for many months. Usually gold "follows" the dollar, but this week it seems gold tentativeness reversed the relationship leading the dollar higher. This is unusual, but as mentioned yesterday it just appeared that so-called "hot money" was looking to move from gold to more active sectors like stocks. Friday we have more market-moving economic data that can shake things up.

D Fry Market Outlook 27 04 2007_002

D Fry Market Outlook 27 04 2007_003

The other story that continues to interest me was the increasingly enigmatic homebuilders. According to a story today in MarketWatch, Beazer Homes (NYSE:BZH) reported a loss and withdrew guidance as CEO Ian McCarthy stated in a press release: "...so far this spring selling season has yet to see any meaningful evidence of a sustainable recovery in the housing market, and we expect current conditions will continue to put pressure on home builder's operating results." Pretty crummy news -- right? Wrong. JPM analyst stated that BZH's order drop "was much better than his estimate". [Oh my! I smell a buying opportunity.] Meanwhile lawsuits against the company's mortgage origination business continue apace. The stock rose [gulp] nearly 5%.

Pulte Homes (NYSE:PHM) also reported poor earnings and cancelled providing any guidance with CEO Richard Dugas stated: "Demand for new homes continued to be significantly lower and cancellation rates are still above industry norms." PHM was up 3.3%.

Ryland Group (NYSE:RYL) said it would miss estimates and CEO Chad Dreier stated: "The sales environment remains challenging in most of our markets. High inventory levels, aggressive pricing from competitors and cautious buyers resulted in a lackluster early spring selling season." RYL was up over 4%.

Meritage Homes (NYSE:MTH) took the cake. CEO Steven Hilton stated: "We anticipate that margins will continue to be under pressure due to competition in 2007, and would expect some modest improvement in demand during 2008, but are not relying on a rebound in 2007 to achieve our projections." The stock was up [double gulp] 13.5%!

The Homebuilder ETF (NYSEARCA:XHB) powered ahead on this great news day by nearly by 3.31%.

D Fry Market Outlook 27 04 2007_004

Tech and big caps are still leading the market higher. Microsoft Corp. (NASDAQ:MSFT) reported much better than expected earnings and revenues and the stock is powering higher [up 4%] in after hours trading. That positive report should spill over to software sector ETFs Friday barring other intervening developments.

D Fry Market Outlook 27 04 2007_005

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In scanning overseas markets that we're interested in, there wasn't a lot to report that was different than yesterday. With yesterday's record chart posting, we'll just leave things at that.

Meaningful to my view was the unique gold/dollar action. Was the relative weakness in gold the "tell" that Bucky would rally from its oversold state? Or, are "hot money" gold investors just looking to move from gold, which hadn't been doing much, and buying some tech or other stocks. They can be an antsy crowd.

The Treasury has been pumping the markets with temporary loans from the record tax receipts making the news. These funds go to the primary dealer network and then perhaps to trading desks to play with. So far in April outstanding temporary loans exceed $54 billion. That's some trading loot!

As far as the weird world of homebuilders, just remember Wall Street can move in mysterious ways.

Friday wraps up a great week for stocks.

Have a pleasant weekend.

Disclaimer: Among other issues, the ETF Digest is long or short positions in: streetTRACKS Gold Trust ETF (NYSEARCA:GLD), PowerShares Dynamic Software (NYSEARCA:PSJ) and iShares Goldman Sachs Software Index Fund (NYSEARCA:IGV).

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