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Iraq gives in, while Greenspan is cautious

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Its been a news driven session as stocks dipped to their lows of the session during Fed Chairman Alan Greenspan's testimony before the Joint Economic Committee that the recent geopolitical risks had taken their toll on economic activity in recent months, causing the economy to hit a "soft spot" that threatens a recovery.

Not long after those remarks of "geopolitical risks," news out of Iraq had its President Saddam Hussein agreeing to the U.N. resolution for weapons inspections, which had stocks reversing their losses and turning into gains.

While stocks have been whipsawed from down to up, the response from the bond market has been much more muted with the 10-year Treasury futures (ty02z) 115'025 trading unchanged as the benchmark bond's YIELD ($TNX.X) edged marginally higher to yield 3.861%. The longer-date 30-year YIELD ($TYX.X) ticked marginally higher at 4.809%, as December futures contract (us02z) 112'220 -0.13% edged lower. The shorter-dated 2 and 5-year notes see price relatively unchanged.

The "lack of response" from the bond market has seen stocks pull back from their best levels of the session after the Iraq response to weapons inspections.

The Dow Industrials (INDU), lead by gains in Hewlett-Packard (NYSE:HPQ) $16.37 +5.6%, Coca Cola (NSYE:KO) $45.42 +2.5% and JP Morgan (NYSE:JPM) $21.04 +2.43%, traded just shy of the 8,500 mark at 8,493 but have lost some steam as the market digests recent news events.

The S&P 500 (SPX.X) 887 +0.48% surged from the 872 level to challenge yesterday's high of 894, but found intra-day resistance at the starting to round out shorter-term 21-day SMA of 892.

The narrower and tech-heavy NASDAQ-100 Index (NDX.X) 1,017 +1.55% found morning support at its still rising 21-day SMA of 991 with strength in the Fiber Optic Index (FOP.X) 41.09 +3.5% and Disk Drives (DDX.X) 67.69 +2.77% leading tech sector gains.

Commercial airlines as depicted by the Airline Index (XAL.X) 42.05 +3.08% are this morning's leading sector winner. This may be partially explained by a Wall Street Journal article that the Bush administration is expected to propose changes that would give airlines more flexibility in choosing how they distribute tickets. Under the administration's approach, the airlines can continue to give Orbitz, which is owned by AMR, UAL, DAL, NWAC and CAL, exclusive access to special Web-only bargain airfares.

The article speculates that move would deal a major blow to Orbitz rivals such as Expedia (NASDAQ:EXPE) $68.90 -4.76% and computer-reservation system owner Sabre Holdings (NYSE:TSG) $19.35 -7.28%.

On November 4th, the LA Times reported that 5 travel agencies were suing major U.S. airlines and online travel site Orbitz for anti-competitive practices and have asked a federal judge to certify their lawsuit as a class action. The lawsuit seeks to dissolve Orbitz. Investors have speculated that a positive outcome could be potentially positive for EXPE, TSG, ROOM, PEGS and USAI.

However, those that followed Microsoft (NASDAQ:MSFT) anti- competitive lawsuits in recent weeks and years will understand that the Bush administration has not necessarily been overly sympathetic to anti-competitive types of lawsuits here at home.

Jeff Bailey

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