MARKET COMMENT

October 8, 2009

GETTING SOME ALTITUDE SICKNESS YET?

Follow through buying on Alcoa, “better than expected” Jobless Claims and Chain Store sales got bulls pumped-up early. But perhaps bulls aren’t getting enough oxygen from news and earnings season. In the meantime other trends, perhaps less welcomed, continue for commodities like gold and oil while the dollar is still in descent.

One thing about earnings reports is the stripping away of losses to find some silver lining in core numbers as if the losses and write-downs don’t exist. From that view we have earnings news from Marriott that are being spun positively HERE. It’s a thing of wonder that any business can just pretend losses don’t exist since most business owners can’t get away doing this.

Volume was average by recent measures while breadth was positive.

It took awhile to post tonight given a visit from the Comcast Gods. They had me shut down for a few hours but all’s well that ends well.

As to the equity markets you’re seeing a liquidity, peer pressure and low interest rate driven buying panic. It’s just that simple. But, somewhere down the road authorities will have to throw some cold water on this. (I see Bernanke is speaking tonight telling all that the Fed will raise interest rates when the economy improves. That may give a chill but he no doubt watched the reaction in Australia where raising interest rates had little effect on bulls.) When, is anyone’s guess since it will have to come from “worse than expected” economic and earnings news.

A most misleading ETF was just launched by Jefferies & Co., CRBQ (Thomson Reuters/Jefferies CRB Global Commodity Equity Index Fund) which, according to its sponsors and promoters, seeks to challenge direct commodity ETF investments. You’ll note in the mouthful description the operative term “Equity” which describes its holdings. It consists of companies whose basic business consists of commodities versus direct investments as currently done by DBC (PowerShares/DB Commodity Tracking Fund) among others. The spin is that you’ll do better with these than with complex commodity holdings and so-called confusing issues such as contango and contract rollover. While not saying so, the sponsor indirectly seizes on recent negative publicity surrounding the CFTC’s actions regarding commodity contract limits for ETFs like DBC.

Certainly, when stock markets and commodity prices are rising the beta from stocks will provide a better return unless using leveraged issues. It’s also true that you could accomplish the same thing by just buying a handful of current ETFs like MOO, XLE, XME, XLB and GLD to name a few.

Let me remind investors that in 1987 when markets dropped, gold prices soared but gold stocks dropped like a rock with everything else. Why? Because they’re just stocks. Remember that when dealing with CRBQ. If both equity markets commodity prices are rising, CRBQ will do quite well (as will the other ETFs cited). However, if the overall equity market enters a corrective or bear phase even as commodity prices rise, CRBQ may do poorly because, again, the constituents are just stocks.

I found associated interviews and news articles heralding the release as highly misleading and misinformed. Frankly, those pissed me off!

Okay, enough of that rant.

The movers, already a week late, come tomorrow. This will put us in a sea of boxes and the associated mess.

Let’s see what happens and in the meantime you can follow our comments on twitter.

Disclaimer: Among other issues the ETF Digest maintains positions in: VTI, XLF, IEF, TLT, UDN, GLD, DGP, EFA, EEM, EDC, EWC and XPP.

The charts and comments are only the author’s view of market activity and aren’t recommendations to buy or sell any security. Market sectors and related ETFs are selected based on his opinion as to their importance in providing the viewer a comprehensive summary of market conditions for the featured period. Chart annotations aren’t predictive of any future market action rather they only demonstrate the author’s opinion as to a range of possibilities going forward. More detailed information, including actionable alerts, are available to subscribers at www.etfdigest.com.

Last 5 posts by David Fry

• MARKET COMMENT October 22, 2009 DRIVE-THRU SOUP KITCHEN 2009 So, what the hell was yesterday about anyway? - October 22nd, 2009
• MARKET COMMENT October 20, 2009 TAKING A BREAK It was a pretty strange day. - October 20th, 2009
• MARKET COMMENT October 13, 2009 EARNINGS WORRY WARTS I just have a spooky feeling but then I always do. - October 13th, 2009
• MARKET COMMENT October 2, 2009 REALITY BITES BULLS Economic reality is meeting bullish enthusiasm and the results are disappointing and upsetting. - October 2nd, 2009
• MARKET COMMENT October 1, 2009 NOT A PROMISING START When did everything get so predictable? - October 1st, 2009